An Assessment of Maritime Trade and

Technology

October 1983

NTIS order #PB85-239887
Recommended Citation:

An Assessment of Maritime Technology and Trade (Washington, D.C.: U.S. Congress, Office

of Technology Assessment, OTA-O-220, October 1983).

Library of Congress Catalog Card Number 83-600606

For sale by the Superintendent of Documents,

U.S. Government Printing Off Ice, Washington, D.C. 20402
Foreword

World trade now totaling nearly $2 trillion—a fourfold increase in the past two

decades—has become a dominant factor in the economic performance of both industrialized

and developing countries. The international shipping industry exists to serve that trade.

In the past two decades its capacity has grown almost 250 percent, as well as changed

in character in response to new trading conditions and cargo demand. However, both trade

and shipping volume reached a plateau in recent years, and the industry’s concerns about

meeting demands for growth have been replaced by concerns about managing overcapacity

and improving efficiency. Prospects for merchant shipping and shipbuilding therefore must

be evaluated in terms of these changing trade patterns.

Because of their concerns about the viability and productivity of U.S. maritime industries as well as the future U.S. position in world trade, the House Committees on Merchant Marine and Fisheries and on Ways and Means jointly requested OTA to prepare

this assessment. The committees asked OTA to undertake an analysis and forecast of longterm trends in global seaborne trade and maritime technology in relation to the U.S. maritime industry.

This assessment of Maritime Trade and Technology traces prevailing conditions and

dominant trends that are important to the way the Federal Government assumes its responsibility for developing and implementing policy. The report contains analyses of the world

outlook for trade, shipping, and shipbuilding. It identifies the extent of U. S. participation

in these enterprises. It analyses the U.S. shipping and shipbuilding industries and identifies certain weak and strong attributes. It discusses trends in technology as well as in the

policies of the United States and of our major trading partners.

OTA received valuable assistance in the preparation of this assessment from its advisory panel, which represented a cross section of U, S. maritime industry, labor, and user

interests. The panel provided critiques and advice throughout the assessment and particularly during a detailed review of this final report. Other contributors to the assessment

were contractors and individual consultants who provided valuable analyses of specific

topics that were integrated into the overall report. OTA sincerely appreciates the quality

of work and dedication of all contributors.

OTA has found that, although there are both healthy and troubled segments of the

U.S. maritime industries, all sectors are becoming increasingly dependent on Federal policy

decisions. And, with increasing competition in world trade as well as shipping services

to carry that trade, intervention by all governments is more and more prevalent.

.,.

Ill
Advisory Panel Members

Leslie Kanuk, Chairman

Professor of Marketing, Baruch College

Vera Alexander R. J. Lowen

Director, Division of Marine Science President

University of Alaska Masters, Mates and Pilots of America

Richard F. Brunner C. M. Lynch

Senior Operating Officer President

Avondale Shipyards, Inc. ARGO Marine, Inc.

PaulJ. Burnsky David L. Pearson

President Chief of Engineering

Metal Trades Department, AFL/CIO General Dynamics Corp.

H. Clayton Cook, Jr. Eugene K. Pentimonti

Partner Vice President

Cadwalader, Wickersham, & Taft American President Lines

J. P. Elverdin Paul F. Richardson

President Paul F. Richardson Associates, Inc.

Navies Corp. John P. Scally

Peter J. Finnerty Manager of Export Transportation

Vice President General Electric Co.

Sea-Land Industries Lawrence A. Smith

Jack Goldstein President

Vice President and Economist Lockheed Shipbuilding Co.

Overseas Shipholding Group, Inc.

Contributors to This Report

A & P Appledore, Ltd.

Newcastle-upon-Tyne

United Kingdom

Gary Baham

The Baham Corp.

Columbia, Md.

Deborah Cichon

Arlington, Va.

E. G. Frankel, Inc.

Boston, Mass.

John Leeper

Simat International, Ltd.

Washington, D.C.

Manalytics, Inc.

San Francisco, Calif.

Robert Taggart

Fairfax, Va.

Wharton Econometrics, Inc.

Philadelphia, Pa.

Jacques Gorlin

Rashish Associates, Inc.

Washington, D.C.

iv
OTA Maritime Trade and Technology Assessment Staff

John Andelin, Assistant Director, OTA

Science, Information, and Natural Resources Division

Robert W. Niblock, Oceans and Environment Program Manager

Project Staff

Peter A. Johnson, Project Director

Dale T. Brown, * Policy Analyst

Patricia A. Catherwood, ” Policy Analyst

Nan Harllee, ” Policy Analyst

Administrative Staff

Kathleen A. Beil Kay Senn Jacquelynne R. Mulder

Contributing Staff

John Burns

OTA Publishing Staff

John C. Holmes, Publishing Officer

John Bergling Kathie S. Boss Debra M. Datcher Joe Henson

Glenda Lawing Linda A. Leahy Cheryl M. Manning

“0-1’~ consultant/contractor
Contents

Chapter

1.

2.

3.

4.

5.

6.

7.

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . .

World Trade and Shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Shipping Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The U.S. Shipbuilding Industry: Status and Trends in Technology

and Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Status and Trends in Ship Design and Operating Technology . . . . . . . . . . . . . . . . . . . . .

U.S. Maritime Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

International Trade and Cargo Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appendix

A. Administration Announcements on Maritime Policy, 1982-83 . . . . . . . . . . . . . . . . . . . .

B. Maritime Cargo Policies of 64 Foreign Countries 1982-83 . . . . . . . . . . . . . . . . . . . . . . . .

C. Federal Departments With Maritime Responsibilities Related to

Commercial Shipping and Shipbuilding Industries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

D. Glossary of Terms and Acronyms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

3

19

57

85

117

141

173

203

206

219

221

227
Chapter 1

Summary
Contents

 Page’

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Policy Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Federal Role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The U.S. Shipping Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The U.S. Shipbuilding Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Cargo Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Incentives for U.S. Ship-Operating and Shipbuilding Industries . . . . . . . . . . . . . . . 12

Regulatory Systems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Taxation Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Federal Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Policy Coordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

FIGURES

Page

World Seaborne Trade-1960-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Grain: Seaborne Trade-1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Fleets of the Leading Maritime Nations, 1960-81 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

U.S. SeaborneTrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Chapter 1

Summary

INTRODUCTION

Almost all international trade in goods is

transported by sea. Thus, ocean shipping plays

a central and essential role in the world economy

and in world trade. The United States is the

world’s largest trading nation, and international

markets are increasingly important to U.S. industries. The United States annually engages in trade

of $1 billion or more with each of 58 other countries worldwide.

The importance of world trade for the U.S.

economy has increased dramatically in the past

two decades. During the 1970’s, the value of U.S.

international trade more than doubled. Although

the U.S. ratio of exports to gross national product

is still below that of most other industrial countries,

it stood in 1980 at 8.5 percent, nearly double the

4.4 percent of 1970. Some projections of that percentage reach 15 percent by 1990.

In 1982, world maritime trade in goods totaled

3.21 billion metric tons (tonnes), down from an alltime high of 3.77 billion tonnes in 1979. Maritime

trade generally is divided into three broad categories: liquid-bulk, dry-bulk, and general cargo. Petroleum alone accounts for nearly all of the liquidbulk trade and for almost half of the total world

tonnage shipped. About one-fourth of world tonnage consists of dry-bulk commodities—principally

mineral ores, coal, and grain. The remaining onefourth consists of the variety of manufactured goods

and consumer products called general cargo.

The two principal modes of ship operation are

the liner mode, which serves the general cargo

trade, and the bulk mode, which serves both the

dry- and the liquid-bulk trades. The liner industry

carries general cargo from port to port at fixed rates

and on regular schedules. Modern container ships

are typical of the vessels used in liner trade. The

industry commonly operates within conferences—

international groups of private liner companies that

collectively agree on routes, schedules, rates, and

other aspects of liner service. The bulk industry normally does not form conferences. It employs a variety of ships, usually on a time- or voyage-charter

(rental) basis, to carry single, large-volume commodities (e. g., iron ore, grain, coal, crude oil) over

fixed and sometimes long periods of time. The liner

industry thus tends to manage competition among

major companies while the bulk industry operates

under much more open competition. The liner

trades involve by far the largest portion of world

trade when measured by dollar value, while the

bulk trades account for the largest portion of volume

or tonnage.

The world shipbuilding and operating industries,

generally referred to as ‘ ‘maritime industries, ”

recently have been through a major boom followed

by a drastic downturn. Prospects for early recovery

are uncertain. Not only has the recent world recession reduced total trade, but overbuilding of ships—

particularly oil tankers—in the 1970’s has added

substantially to a huge surplus of shipping capacity in the 1980’s. Scrapping supertankers has become more profitable than building them, and 25

to 50 percent of the world bulk fleet is laid-up or

underemployed. The world’s major shipbuilders in

Europe and Japan are facing serious declines in demand and turning to their governments for support. The U.S. maritime industry has been affected

by this slump in world trade but not to the same

extent as many other major maritime nations—primarily because the U.S. maritime industry had

already declined to a minor role among the larger

nations.

A variety of rapid changes over the past few decades have transformed the maritime industries of

the world and of the United States in particular.

In just 25 years, the U.S.-flag merchant fleet has

changed from the largest and most diverse in the

world to a specialized fleet of modest size, aggressively engaged in the foreign liner trades and serving a variety of domestic bulk and liner trades.

Many of the U.S. maritime business interests that

3
4 ● An Assessment of Maritime Trade and Technology
Ch. l—Summary ● 5

were dominant in U.S.-flag merchant shipping in

1950 are now owners of huge bulk fleets registered

in Liberia and Panama. These fleets (known as

“U.S.-controlled, foreign-flag’ fleets) now carry

practically all of U.S. petroleum imports and sizable

proportions of our exports of coal, grain, and other

key commodities. U.S. shipyards, which built virtually the entire world’s merchant fleet in existence

following World War II, now rarely build merchant

ships but are world leaders in complex warship and

offshore oil-vessel construction. Japan and Korea,

presently the largest commercial shipbuilding nations, have taken shipbuilding production systems

that were introduced in U.S. yards during World

War II, and by combining these with modern assembly and manufacturing technologies and lower

wages, have gained a sizable productivity and competitive advantage in merchant ship construction.

Changes in the maritime industries have been

accompanied by international political changes that

seem to be having a significant impact on the management and economics of international shipping

and shipbuilding. In recent years, there has been

significantly more governmental control of trade

and access to cargo than at any time in the past

several decades. Of major importance is the implementation of a multinational regime to allocate

liner cargoes among the fleets of importing and exporting nations, passed under the aegis of the

United Nations Conference on Trade and Development (UNCTAD).

The nature of international marine transportation itself also is changing, as evidenced by the concentration of businesses in fewer, larger firms; by

rapid worldwide transfer of technologies; and by

more and more ship-operating firms offering intermodal rates and services, thus supporting the notion that ocean shipping is just one link in a larger

integrated transportation system that includes terminals, trucking and rail.

——— —

POLICY STATUS

U.S. maritime policies have not kept pace with

changes in world trade or the maritime industry.

They remain aimed at conditions that prevailed in

decades past. The U.S. maritime policy framework that exists today is outdated and appears

inadequate to address critical maritime problems

of national concern.

Based on this OTA assessment of maritime

trade and technology, it is clear that major new

or revised Federal policies are needed if the U.S.

maritime industries are to remain healthy in the

decades to come. If there are no policy changes,

most U.S. maritime industry segments probably

will continue to decline in size and influence.

Trade- and cargo-allocation policies related to

international shipping often are considered separately, both within U.S. Federal agencies and

among international organizations. However, adequate consideration of cargo allocation would in

turn make trade more efficient and effective. For

the most part, U.S. shipping policies reflect historical patterns and do not cope effectively with major shifts in trading patterns and increasing governmental intervention worldwide.

The Federal Government has a wide range of

policies and programs with the goal of aiding or

promoting the U.S. maritime industry. However,

analysis indicates that the United States has no

overall, coordinated and effective maritime policy that responds to the major trends and realities confronting the U.S. maritime industry in

the increasingly competitive and complex arena

of world seaborne trade. Existing maritime policies are a patchwork of measures adopted at various times to address specific needs. They do not

add up to a comprehensive and coherent policy with

clearly defined purposes and elements specifically

designed to achieve those purposes. In particular,

there is no sharp definition of what the Federal role

should be in maintaining a maritime industrial

base, in assuring competition, and in coordinating

national and international initiatives.

Whatever maritime policies are developed for the

future, if they are to be broadly supported and ef-
6 ● An Assessment of Maritime Trade and Technology

4,000

3,500

3,000

1,500

1,000

500

World Seaborne Trade–1960-82

1960 1965 1970

SOURCE: OECD & Fearnleys, 19S2.

fective, they will require balancing a variety of national interests. There is a vital link between the

U.S. economy and U.S. participation in international commerce of which ocean transportation is an integral component. However, it is not

clear what level of Government assistance or involvement in maritime affairs is in both the national

interest and in the interest of a healthy, competitive

enterprise. Therefore, an overriding objective of

any future maritime policy is to clarify national benefits as well as benefits to any one industrial sector. Such national benefits could include:

● maximizing U.S. participation in world trade

and its overall economic benefits;

1975 1980 1985

promoting international stability through trade

and economic interdependence;

maintaining technological preeminence in

U.S. industries;

providing for national defense needs;

ensuring independence from foreign control

of vital trade or shipping services;

assuring the viability of the essential and productive sectors of the maritime industry;

promoting fair trading practices for U.S. business interests; and

providing an adequate level of employment,

skills, and training in a vital transportation industry that is important to the national economy.

THE FEDERAL ROLE

The Nation clearly depends on international vious interest in those areas where the public as a

trade and shipping services to maintain a healthy whole would accrue benefits. Policies to promote

economy. The Federal Government thus has an ob- U.S. participation in world trade, to assure fair ac-
Ch. l—Summary ● 7

Grain: Seaborne Trade–1981

Main inter-area movements in million tonnes. (million ton-miles in brackets.) Only main routes are shown. Area figures are totals including smaller

routes not shown separately.

cess to cargoes, to assure adequate and efficient

shipping services, or to provide for just consideration of U.S. interests in international bodies—all

fit into such a Federal role. Policy options for these

purposes thus can be judged on the basis of how

effectively the Federal role is carried out and how

efficiently the national goals are pursued.

The Federal Government also may have a role

related to support or promotion of the maritime industries. The extent of this role is more difficult

to measure, but it is based on two possible national

benefits. One is that the maritime industry provides

for national security and must be measured by

needs for and costs of national defense options. The

second is the overall economic benefit that shipping

and shipbuilding may provide the Nation as a major industrial sector in promoting or maintaining

U.S. participation in world trade.

Naturally, there are a range of plausible levels

of Federal promotion or support to any U.S. industry. If the support requires merely “fair” taxation or regulatory treatment, then it may be justified based on inherent benefits to an important

industry and labor force. If the support requires

major Federal subsidies or other outlays that the

public must provide, then national benefits need

to be quantified and demonstrated.

If a stronger merchant marine encourages greater

opportunities for export of U.S.-produced goods,

specific Federal support of the industry might be

justified but must be compared to other effective

ways to utilize finite Government resources. Only

if the net economic gain from Government subsidy

of the maritime industry were greater than the gain

to the economy from equal Government support

of another industry, could maritime subsidies be

justified on purely economic grounds.

The rationale used by most maritime-subsidy

proponents is that U.S. shipyards and the U. S.-

flag merchant fleet are vital components of our national defense. The U.S. Navy historically has supported this contention. The so-called shipyard mobilization base consists of those yards that would

be essential to a war effort, either in building or

repairing vessels. Virtually all major merchant shipbuilding facilities are considered to be part of this

base. Likewise, it is contended that during a conflict the U.S. merchant marine would have vital

responsibility in logistic support for the military and

carriage of goods essential to support the civilian
8 ● An Assessment of Maritime Trade and Technology

economy at home. There is little question that these

roles would have to be filled. However, a number

of questions remain unresolved. The required size

of the mobilization base never has been defined adequately, although a number of studies have addressed the issue. Another question is the adequacy

of the fleet of U.S.-owned, foreign-flag ships or the

national flag ships of friendly nations to fulfill some

or all of the duties of merchant-ship support during a national emergency.

An in-depth analysis of national defense requirements is outside the scope of this assessment. However, it is important that such questions be resolved

before any cohesive policy about the role of the U.S.

Government in support of the maritime industry

can be developed, and if it is determined that national defense is a legitimate reason for Government aid to the industry, logically such aid should

be directed toward those types of yards and vessels

that are most useful to the military.

THE U.S. SHIPPING INDUSTRY

Many define the present condition of the U.S.

shipping industry as one of universal nonprofitability. Even with substantial subsidies, the U. S.-

flag liner operators as a group showed a loss for

the first quarter of 1983. Large portions of the U. S.-

flag tanker and bulk fleet are in layup. Some of the

most productive sectors, such as the offshore oil,

tug, and barge businesses, also are now in a serious

slump.

In the U.S. shipping industry, the two major distinct business sectors (liner and bulk) have very different problems and outlooks. Policies directed toward each sector need to reflect those differences. During 1982 and 1983, the U.S. liner industry suffered substantially from the worldwide

recession, and the overall cargo volume in the key

trades shrank markedly. Some companies now are

left in a difficult financial position—especially

the smaller operators who are not well capitalized. On the other hand, a few of the larger companies are aggressively expanding their service

and building new, large container ships to modernize their fleets. The most prominent liner companies increasingly are engaged in the transportation of cargo to and from inland locations in which

ocean-going ships serve as only one link in an overall transport system. The liner fleet has growth potential but is very dependent upon new Federal policy initiatives.

Bulk companies include the shipping departments of major petroleum corporations who operate

tanker fleets, as well as independent bulk-ship

operators, who may operate tankers, dry-bulk carriers (ore, coal, grain), and combination ships. The

U.S.-flag dry-bulk and tanker fleets face a very uncertain economic picture. Very few U.S.-flag bulk

carriers are engaged in international trade because

they have not been able to compete with foreignflag operators, even with substantial subsidies. The

domestic trade U.S. bulk fleet also is small and only

serves what may be considered captive markets.

Pressures to shift subsidized U.S.-flag tankers from

the international to the domestic trades and to reduce both subsidies and preference cargoes could

affect the remaining U.S. bulk-carrier and tanker

fleets dramatically.

A long-term world trade outlook developed for

this assessment indicates that U.S. trade volume

probably will grow throughout the rest of the centur y

, but at slower rates than in the last 10 to 15

years. Trade with developing countries, particularly

in the Far East, could grow at a faster rate than

total trade. However, such trade growth could be

affected adversely by aggressive protectionism in

the United States and abroad, particularly in the

short term, as a response to the worldwide economic

problems of many countries.

If the trade growth rate is slow in comparison

to the previous decade, U.S. carriers will be

forced to compete with rapidly growin g foreignflag fleets for the limited cargo available—and

will need continually to increase service efficiency and capability. It also is likely that intermodal

services will continue to expand and increase the

efficiency of international transport. This trend may

offer opportunities for those U.S. liner operators
Ch. l—Summary ● 9

— — —

that are in the forefront of intermodal technology

and management systems.

The future of the U.S.-flag fleet is uncertain.

Some experts believe that without policy

changes, the size and capabilities of the U. S.-

flag fleet will decline markedly over the next 10

years, Policies to promote growth in U.S. trade

and assure fair access to all international trade for

U.S. carriers naturally would benefit all sectors of

the shipping industry. However, such policies

would be most useful for continued success of those

businesses that already have attained high productivity and now are reasonably competitive in world

shipping. Such characteristics apply to certain U. S.-

flag liner companies and to the U.S.-controlled,

foreign-flag bulk fleet.

Several other Federal policy initiatives are also

of major importance to the U.S.-flag liner operators. These include: maintenance of existing Government impelled cargo preference; modification

to the Shipping Act of 1916 granting wider antitrust

immunity, which would promote higher utility of

capital assets through service rationalization; and

modifications to taxation policies or other financial incentives, which would allow future capitalization on a cost competitive basis with other shipping

nations. Policies to promote more competitive industry capitalization are also critical to the U. S.-

controlled fleet. For the already small U.S.-flag bulk

fleet (tankers and dry bulk) in foreign trades, future

viability appears bleak unless support is applied,

either in the form of direct Federal subsidies or of

cargo preference.

THE U.S. SHIPBUILDING INDUSTRY

Over the past two decades, the United States has

built major merchant ships only when Federal subsidies were used to pay a large portion of the cost

or when laws, such as the Merchant Marine Act

of 1920, required that the ship be built in a U.S.

yard. U.S. shipyards have been isolated from international competition for these types of vessels

by virtue of having a protected domestic market.

The U.S. shipbuilding industry today therefore is

basically quite different from that of Europe, Japan,

and Korea, where most of today’s modern merchant fleets are built and where companies compete for orders in a world market.

However, the United States does have a large

and diversified shipbuilding industry and is

foremost in construction of large and complex

naval warships. Its total employment ( 175,000 in

1982) is even larger than Japan ’s. The U.S. industry also has some very productive and technologically innovative segments, including those who

build barges, tugs, supply boats, and offshore oil

rigs.

The U.S. shipbuilding industr y has faced a

severe decline in new buildings of major merchant ships. The elimination of Federal funds

for construction subsidy programs has made future prospects for commercial shipyards bleak.

While the U.S. Navy has embarked on an expanded building program, it will not require much

additional shipyard capacity until 1985-86, and only

the yards that specialize in major warships will benefit substantially. The trends in the industry thus

are toward more U.S. Navy work, more concentration in fewer large firms and hard times for those

firms that, in the past, have depended on commercial shipbuilding subsidies. Although U.S. yards

have made recent strides in improving productivity in the construction of merchant vessels, the

primary focus of the industry remains on building

U.S. Navy ships, which require high-technology

and custom work and where productivity is not of

paramount concern.

One approach to improving U.S. shipbuilding

productivity would focus on developing other

emerging markets for U.S. shipyards, assuming

that there is little chance that the U.S. industry can

reduce costs of conventional merchant ships below

the level of the low-wage countries. The U.S. shipbuilding industry is geared to custom work and the

integration of highly technical with conventional

systems. Markets for such skills may develop in the

future in fields like Arctic or deepwater resource
10 ● An Assessment of Maritime Trade and Technology

extraction. A challenge for industry and Government would be to cooperate to identify and develop

the most promising markets.

OTA analysis suggests that U.S. shipyards can

improve their competitive position in the world,

but only with a major concerted effort on the

part of both industry and the Federal Government. However, productivity improvements alone

probably will never close the very large foreign-merchant-ship price differentials of today, which are

partly the result of lower wages and partly the result

of direct and indirect subsidies of other governments. Federal policy therefore must assume that

the future viability of U.S. commercial shipbuilding will depend on some form of Federal

support.

At present the large U.S. Navy building program

is supporting the U.S. shipbuilding industry. It

would be useful for policy makers now to look beyond the current U.S. Navy building program and

devise a plan for U.S. shipyards at least 5 years

hence. While the existing U.S. Navy program can

be helpful for encouraging productivity improvements in the near term, new markets must

be developed or Federal support must be increased

when U.S. Navy work slackens, or U.S. shipyards

will probably contract to a much smaller base.

POLICY OPTIONS

OTA analysis suggests that whatever new maritime policies are developed, a comprehensive and

coordinated approach is necessary to clarify the national interest, bring effectiveness to Federal programs, and ensure consistency in any industry promotion offered. The following policies are subject

to current debate and are important elements of

such a comprehensive approach. Each will be discussed here and some options presented. Further

analyses are contained in the policy chapters of the

complete report.

Cargo Policies

All trading nations have a self-interest in expanding their exports and controlling their imports. As

trading complexities increase, governments have

attempted to manage their flow of imports and exports. As nations try to manage trade policy to their

best economic advantage, they tend to increase governmental involvement in shipping. Most countries

have policies which unilaterally reserve some portion of their import/export cargoes for their own
Ch. 1—Summary ● 11

national fleets. In addition, many nations, particularly developing countries that are attempting both

to capture more export trade and to bolster their

national-flag fleets, are pushing for the establishment of bilateral and multilateral cargo-sharing

agreements. The latter objectives have been

achieved recently in the form of the UNCTAD

Code of Conduct for Liner Operations. The requisite number of countries has ratified this code to

enable it to go into effect in October 1983. It calls

for an even division of liner conference cargoes between trading partners, with a small percentage

possibly reserved for vessels of other nations, if

agreed by the national-flag lines engaged in the

trade. The United States is not a signatory to the

code and has opposed it since it was first proposed

several years ago. As a result, there are concerns

that U.S. carriers may be prohibited from some

40

30

20

10

0

Fleets of the Leading

90

80

70

a

cargoes and that the United States may be forced

out of certain trades when it is implemented.

U.S. ship operators face a significant disadvantage in dealing with countries where industry and

government have established close ties and where

national and corporate goals are better meshed than

in the United States, which tends to disavow governmental interference in international trade and

cargo allocation. U.S. shipping companies find it

increasingly difficult to compete in markets that are

protectionist. Many foreign governments also tend

to intervene specifically on behalf of their national

interests and their own carriers while the U.S. Government has usually not intervened.

There have been attempts by the United States

and some of its industrialized trading partners to

counter protectionist trends by working within inMaritime Nations, 1960”81

● ● ● b ● ● ● *

●

● ●

● ●

● 9

9

●

●

●

●

●

●

●

●

●

●

✏

Japan *

●

● United Kingdom ● 1

1-

s -

*“-/.-’--/- *, .

\

‘ United

?->-- - -“_.--~”l”I panam a

-

-–- -

i

-- I

U.S.S.R.

I I

States

1960 1965 1970 1975 1980 1985

Year

SOURCE: Lloyd’s Register of Shipping Statistical Tables 1981.
12 ● An Assessment of Maritime Trade and Technology

ternational organizations for tariff-barrier reduction and freer trade. However, the reality is that

trade is becoming more, not less, managed. Thus

far, the United States has not developed a national

response that would be effective in protecting our

economic position and at the same time remain consistent with our national philosophy of free trade.

Federal policies and practices could have a

profound influence on whether U.S.-flag ship

operators are treated fairly by other countries

and given equal and competitive rights to carry

cargo. There is at present no generally accepted

U.S. cargo policy because national interests are

not defined and no strategies for international

negotiation have been developed. Lacking such

strategies, the United States has remained on the

sidelines while the rest of the world defines the rules

of cargo access.

To assure more equitable access to cargoes for

U.S. operators in the future, Congress could:

●

●

●

●

authorize and direct appropriate agencies to

devise guidelines for U.S. Government initiatives in negotiated bilateral agreements with

our major trading partners including rules for

maintaining certain competitive practices, for

assuring fair treatment for both U.S. shippers

and carriers, and for promoting future trade;

authorize and direct appropriate agencies to

develop guidelines for similar consideration of

multilateral agreements on cargo access;

define specific and comprehensive unilateral

U.S. cargo reservation practices following

clearly stated national interest guidelines;

develop an overall strategy for both U.S. cargo

reservation and international agreements on

cargo-sharing which could be used in future

negotiation.

Incentives for U.S. Ship-Operating

and Shipbuilding Industries

There is widespread agreement that U.S. maritime subsidy programs of the past have been largely

ineffective and counterproductive to the goal of

stimulating a healthy and productive commercial

maritime industry in the United States. The present administration has eliminated funding for ship

construction subsidies and has sought to phase out

U.S. Seaborne Trade

“

6 m

~

1,40+ I ““ 1

m

g 1,000

: 800

.-

: 600

z

400

200

0 k

1975 1980 1985 1990 1995 2000

Year

SOURCE: Wharton Econometric Forecasting Associate.

ship-operating subsidies. New policies are needed

to substitute for these programs, however, if a

Federal role of promoting U.S. maritime interests is justified by overall national interests. The

level of Federal promotion also needs to be justified by specific national benefits.

Direct subsidy policies of the past have been

aimed at maritime industry promotion in general

and assume that different sectors of the industry

(i.e., shipbuilding, liner operators, bulk operators)

could be cured by the same medicine. These subsidies have not been broadly effective. In fact, the

most productive companies appear to be those who

did not participate in subsidies.

The current administration has proposed several

policies, including allowing foreign construction of

U.S.-flag subsidized ships, that would help the U.S.

liner industry. Promotion of certain U.S. liner interests is possible with indirect incentives, and this

type of approach appears to be consistent with other

administration policies. Also, indirect subsidies such

as loan guarantees to U.S. operators have been encouraged. The shipbuilding industry, however, has

not been encouraged by recent administration maritime policies. Except for the large Navy building

program, no Federal incentives have been proposed. Since the shipbuilding sector was so depend-
Ch. l—Summary ● 1 3

— —

ent on subsidies in the past, it is difficult for these

companies to plan adequately for a future with no

Federal support.

Past incentives in the form of loan guarantees

appear to have been more successful than direct

subsidies in promoting investment in new vessels

and in covering broad sectors of the maritime industry. Both builders and operators claim to have

benefited from such an approach.

Future policies concerning industry support, if

deemed to be in the national interest, could include

consideration of which maritime sectors can benefit

from each type of promotional effort and how Federal support can encourage high productivity and

efficiency. If Federal incentives for the maritime

industry are judged consistent with national goals

and

●

●

benefits, Congress could:

revitalize Federal loan guarantee and financing assistance programs for industry sectors

that could utilize such incentives to improve

productivity, to expand, to increase profitability, or to enter new markets;

devise new Federal subsidy programs directed

toward sectors that must compete directly with

subsidized industries of other nations, including productivity enhancement incentives.

If, however, no justification for Federal assistance

to the maritime industry can be made, Congress

could :

● phase out all subsidy programs and Federal

requirements related to subsidies and allow industry to compete on the open market without

Federal intervention.

In any case, it appears important for Congress to:

 define specific national defense needs in terms

of a shipbuilding base, an operating fleet, and

a reserve fleet, and develop a funding program

to maintain each utilizing either Government

or defense expenditures for that portion of the

base that is commercially uneconomic.

Regulatory Systems

It is difficult for U.S. ship operators to compete

with foreign operators when international rules of

conduct do not match traditional U.S. concepts,

which give the Government the role of protecting

the public against fixed-pricing or business cartels.

In many other major maritime nations, the industry

not only is allowed but also encouraged by the government to collaborate. A bill now in Congress

seeks to amend the 1916 Shipping Act, assure

broader antitrust immunity, and provide other incentives for improving the capability of U. S. operators to compete with foreign carriers. This issue

has been debated in Congress for the past several

years, and some resolution appears near. Whatever

the outcome, it will continue to be important for

U.S. policy makers to evaluate international rules

of conduct for U.S. and foreign operators and to

strive to develop an approach so that U.S. operators

can compete on equal terms with foreign carriers.

Passage of some form of regulatory changes is

clearly in the interest of the major U.S. liner operators. Proper consideration of U. S. shipper interests

and broader goals of enhancing U.S. trade in the

future are equally important. U.S. participation

in world maritime trade and shipping likely will

depend on how well our regulatory policy both

protects the national interests and allows for effective competition internationally. Congressional choices include the following alternatives:

●

●

●

pass the Shipping Act of 1983 and follow with

careful oversight of how well carriers, shippers,

and the general public are served;

develop an approach to international shipping

regulations that could be presented to other

nations for consideration in the future, possibly

including cargo-sharing options as well;

make no changes to the law but monitor mom

carefully Federal regulatory policies.

Taxation Policies

Taxation policies for U.S. shipping interests are

based on sometimes conflicting goals of providing

equivalent advantages to industries that must compete in the international market and of assuring

fairness and equity among U.S. businesses. Past

taxation policies for shipping (e. g., the Capital Construction Fund) have sought to encourage investments in new U.S. built ships through tax deferrals and to strengthen the U.S. merchant marine’s

competitive position. Future taxation policies re-
14 ● An Assessment of Maritime Trade and Technology

quire careful analysis of the many approaches available and in use to ensure that targeted industry sectors receive the intended benefits.

This assessment includes an overview of Federal

taxation policies related to shipping, but further

analysis of alternative tax treatments is necessary.

However, Congress could address taxation policies

for shipping in a comprehensive way, including:

●

●

●

a review of U.S. industry treatment compared

with other competitive maritime nations;

consideration of tax-incentive goals such as investment in new ships and equipment, business for U.S. shipyards, modernization of the

fleet, maintenance of a defense base, or expanding U.S. markets; and

review of tax treatment versus the sectors that

receive principal benefits considering U.S.-flag

fleet, effective U.S.-controlled fleet, U. S.-

domestic fleet, and U.S. shipyards.

Federal Research and Development

OTA analysis suggests that there is a need for

maritime research and development (R&D). An

important part of such research is a continuing

assessment of those areas in which technological innovation can be applied to acquiring a greater share

of the world maritime transportation market and

a greater share of world shipbuilding orders. Additionally, the R&D should include an evaluation

of the work ongoing in marine and other fields (both

U.S. and foreign) that can contribute to commercial marine innovation. It also is important to incorporate these innovations into design, production, and training programs that would lead to

building and manning ships, and selling ships to

other nations to give the United States an improved

posture in world shipbuilding and ship operations.

Both long-term financial support and a research

plan are needed to assure effective utilization of

resources.

There are several basic problems associated with

existing Federal maritime R&D programs. First,

since there is no comprehensive policy defining the

Federal role in maritime affairs in general, there

is also no clear policy regarding the Federal role

in maritime R&D. While the Federal approach

to industry promotion has changed drastically

in recent years, little attention appears to have

been given to the resulting impact on R&D.

Thus, the R&D program now under the authority of the Maritime Administration has no clear

focus or set of long-range goals. This program is

much too small to be expected to address in depth

the broad range of technical opportunities in the

maritime transportation business; furthermore,

there is no rationale for the selection of projects as

worthy of Federal support while others are left for

industry or some other research enterprise.

Congress could define a more specific Federal

role in maritime research before additional funds

are allocated and a new program is designed. As

discussed in this assessment, near-term needs for

energy-saving and automation technology are being addressed by numerous industries and private

Photo credit: Maritime lnst/tute of Technology

The Masters, Mates and Pilots Union operates this

technology training facility for its members
Ch. 1—Surnrnary 15

research groups worldwide. New maritime technologies have been developed in a number of other

countries and are readily adaptable. The U.S. Navy

and other Federal agencies spend considerable

funds on basic and applied maritime research problems, and applicable data can be transferred. The

National Shipbuilding Research Program has identified promising areas for improving U.S. shipbuilding productivity. Elements of a congressionally

defined Federal role in future maritime R&D could

include:

●

●

●

●

identifying R&D objectives as a subset of an

overall maritime policy;

determining what U.S. industry can do better itself and formulating indirect incentives

for industry R&D;

stimulating coordination and transfer of technology within the industry and from military,

foreign, and other sources; and

focusing on high-risk areas and long-range

problems that are not adequately addressed by

industry or elsewhere, the solution of which

could contribute to national goals.

In addition to the definition of proper Federal

support for maritime R&D, Congress may also

wish to consider new or modified institutional arrangements to encourage, coordinate, and foster

R&D with either or both private and Government

support.

Policy Coordination

It has been difficult in the past to develop a

comprehensive policy that integrates the important aspects of trade promotion, cargo access,

maritime regulation, industry incentives, and

maritime research. Federal agencies, lacking a

coordinated approach, often have sought conflicting goals. While one agency seeks to prosecute

alleged antitrust activities, another seeks to allow

more industry cooperation. While one agency seeks

to broaden cargo preference policies, another seeks

to eliminate preference for U.S.-flags. While the

U.S. Navy claims the need for an extensive commercial shipbuilding industrial base, it shifts the

execution of such a policy to the Maritime Administration which has been able neither to devise a

strategy nor provide the resources to maintain such

a base,

Congress could seek to resolve some of the major conflicts through comprehensive legislation or

through a joint consideration of a range of legislative proposals. While this approach could consume

a great deal of time, it may offer compensating longrange benefits.

Even without comprehensive policy coordination, it appears important as a minimum to ensure

the coordination of trade and shipping policies at

the Federal agency level. Trade policies and cargo

policies related to international shipping are often

considered separately, both within the U.S. Federal

agencies and among international organizations.

Those policies can have a direct impact on future

international trade and the participation of the

United States and its shipping industry in that

trade.

The current debate between those advocating

completely free trade or free access to cargoes and

those advocating degrees of government intervention to protect domestic industries will undoubtedly

continue. For example, the national value of a

domestic industry can sometimes convince governments to provide certain levels of protection. Even

though industries and governments publicly state

their opposition to protectionism, they often do not

apply those principles to themselves. In addition,

reaction to other governments’ policies will often

also bring restrictions on trade.

The growing involvement of governments and

international organizations in trade and shipping

policies and growing protectionism worldwide requires the United States to develop and coordinate

those trade and shipping policies which serve the

national interest. It is also vital for the United States

to implement policies which can remain consistent

over the long terms that many international issues

require for resolution.

Contents

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Maritime Trade Patterns . . . . . . . . . . . . . . . 19

Linkage of Economic Activity, Trade,

and Shipping . . . . . . . . . . . . . . . . . . . . . . . . 23

Current Status of and Trends in World

Shipping . . . . . . . . . . . . . . . . . . . . . . . . . 25

Overview of the World Shipping Industry. 25

Liquid Bulk. . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Dry Bulk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

General Cargo . . . . . . . . . . . . . . . . . . . . . . . . 31

Trends in National Fleets . . . . . . . . . . . . . . . 31

Trends in Ship Types and Features . . . . . . 32

Trends in Shipping Economics . . . . . . . . . . 32

Current Status of and Trends in World

Shipbuilding . . . . . . . . . . . . . . . . . . . . . 34

Shipbuilding Industry Today . . . . . . . . . . . . 34

Shipyard Capabilities and Capacities . . . . . 34

Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Outlook for Commercial Merchant

Shipbuilding . . . . . . . . . . . . . . . . . . . . . . . . 40

World Economic and Trade Outlook

1982-2000. . . . . . . . . . . . . . . . . . . . . . . . 42

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Economic Forecast . . . . . . . . . . . . . . . . . . . . . 42

Outlook for Trade Flows, 1982-2000 . . . . . 43

Outlook for Seaborne Trade . . . . . . . . . . . . . 44

Implications of the Trade Outlook

forU.S. Shipping . . . . . . .

TABLES

7“able No.

1.

2.

3.

4.

5.

6.

7.

8.

Beneficial Ownership of the

Registry Fleets . . . . . . . . . . .

● O.**.. . . . 52

Page

Open-

. . . . . . . . . . . 28

Comparison of Changes in the Dry-Bulk

Fleet and Dry-Bulk Seaborne Trade. . . . 30

Ships Currently on Order . . . . . . . . . . . . 37

Approximate Percentages of the World

Orderbook . . . . . . . . . . . . . . . . . . . . . . . . . 41

Comparison of Shipbuilding Forecast

Tonnages and 1975 Production for

Selected Countries . . . . . . . . . . . . . . . . . . . 41

World Economic Outlook, 1982-87. . . . . 42

World Economic Outlook, 1987-2000. . . 43

Growth of Real GDP . . . . . . . . . . . . . . . . 43

Table No. Page

9. Average Compound Growth Rates for

World Trade Exports and GDP . . . . . . . 44

FIGURES

Figure No. Page

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

120

13.

14.

15.

16.

17.

18.

19.

20.

21.

22.

23.

24.

25.

World Seaborne Trade—1960-82 . . . . .

Principal Commodities in World

Seaborne Trade . . . . . . . . . . . . . . . . . . . .

Iron Ore: Seaborne Trade—1981 . . . . .

Coal: Seaborne Trade—1981 . . . . . . . . .

Grain: Seaborne Trade—1981 . . . . . . . .

Crude Oil: Seaborne Trade—1981 . . . .

Total OECD Industrial Output in

Percentage Quarterly Change Related to

Percentage Yearly Change of World

Seaborne Trade in Dry Cargo . . . . . . . .

Composition of the World Fleet—

Jan. 1, 1982 . . . . . . . . . . . . . . . . . . . . . . .

Composition of World Fleet by

Tonnage July 1, 1981 Total:

421 Million GRT . . . . . . . . . . . . . . . . . .

Fleets of the Leading Maritime Nations,

1960-81 . . . . . . . . . . . . . . . . . . . . . . . . . . .

World Bulk Fleet . . . . . . . . . . . . . . . . . . .

World Merchant Shipbuilding

Production, 1976-81, by Country ...,.

Merchant Ships on Order Worldwide .

New Building Demand Forecasts, 1982

World Seaborne Trade . . . . . . . . . . . . . .

World Seaborne Dry-Bulk Exports,

Regional Distribution . . . . . . . . . . . . . . .

World Seaborne Dry-Bulk Imports,

Regional Distribution . . . . . . . . . . . . . . .

World Seaborne Liquid-Bulk Exports,

Regional Distribution . . . . . . . . . . . . . . .

World Seaborne Liquid-Bulk Imports,

Regional Distribution . . . . . . . . . . . . . . .

World Seaborne General Cargo

Exports, Regional Distribution . . . . . . .

World Seaborne General-Cargo

Imports, Regional Distribution . . . . . . .

U.S. Seaborne Trade . . . . . . . . . . . . . . .

U.S. Seaborne Dry-Bulk Trade,

Regional Distribution . . . . . . . . . . . . . . .

Seaborne Liquid-Bulk Trade, Regional

Distribution . . . . . . . . . . . . . . . . . . . . . . .

U.S. Seaborne General Cargo Trade,

Regional Distribution . . . . . . . . . . . . . . .

20

20

21

21

22

22

24

26

27

28

30

35

36

40

45

45

46

47

48

49

50

50

51

51

52
Chapter 2

World Trade and Shipping

OVERVIEW

Almost all international trade in goods is transported by sea. Ocean shipping plays a central and

essential role in the world economy and in world

trade. Therefore, it is vital to understand the factors affecting trade and shipping growth or decline

in order to develop effective policies influencing

U.S. participation in world trade or in the transportation industry that serves the trade. This chapter

describes the status and trends in world seaborne

trade and the international shipping and shipbuilding industries. It will present an outlook for the

future for each and note problems and uncertainties.

In recent years, international trade has become

a dominant factor in economic growth for most industrialized countries. Many newly industrialized

countries have become so through major trade

growth. For this reason, OTA commissioned

Wharton Econometrics, Inc., to prepare a world

trade outlook to the year 2000, utilizing a world

economic model to make projections of future maritime trading patterns. The results and implications

of that trade outlook are presented in this chapter.

While that outlook is based on a series of economic assumptions with ‘ ‘no major surprises, it

is clear that the most radical changes in the past

have occurred because of unpredicted events such

as wars, oil price ‘‘shocks, the Suez Canal closing in 1967, and numerous politically motivated

actions. Less radical, but important, changes likewise have been caused by unpredicted technological

innovations, economic pressures, and more gradual

political forces. This chapter, therefore, will present an overview of which important forces are acting today to influence maritime trade and shipping,

how the world maritime community is reacting to

these influences, and what future trends now appear to be most significant.

Maritime Trade Patterns

Maritime trade in goods worldwide totaled 3.21

billion metric tons (tonnes) in 1982. This is down

from the high of 3.77 billion tonnes in 1979 (fig.

1). As shown in figure 2 (for 1980), petroleum is

the dominant single commodity and accounts for

almost one-half of the total world tonnage transported. The dry-bulk commodities traded likewise

are dominated by a few major groups: iron ore,

coal, and grain. These and other bulk goods traded

total another one-fourth of world tonnage. The remaining quarter, referred to as general cargo, includes a great diversity of manufactured goods and

consumer products.

The differences in requirements of the trades

have led to establishing two principal modes of

world shipping—the liner mode, which provides the

general cargo trade with regular, scheduled service

including container carrying ships; and the bulk

mode, which employs a variety of ships on a timeor voyage-charter (rental) basis serving both the liquid- and dry-bulk trades. The liner trades involve

by far the largest portion of world trade when measured by dollar value, while the bulk trades account

for the largest portion of volume or tonnage.

Figures 3, 4, 5, and 6 provide examples of trading networks that have developed for petroleum and

dry-bulk commodities. They illustrate both the major trade routes and the relative tonnages carried

on each. If one were to expand these pictures to

cover the huge variety of other products and goods

transported worldwide, the lines would fill the map

solidly. The United States is involved in almost

every aspect of this trading network.

The United States is a major trading nation, with

international markets increasingly important to

U.S. industry. During the 1970’s the value of U.S.

19
20 An Assessment of Maritime Trade and Technology

Figure I.–World Seaborne Trade–1960=82

4,000

3,500

3,000

1 ,50C

1,000

500

.

1960 1965 1970 1975 1980

Year

SOURCE: OECD & Fearnleys, 1982.

Figure 2.—Principai Commodities in Worid Seaborne Trade—1980

3,800

3,600

3,400

3,200

3,000

2,800

2,600

g 1,600 .-

= 1,600

z 1,400

1,200

1,000

800

600

400

200

0

oil

cargoes

Crude

oil

Oil products I

1985

SOURCE: Fearnleys Review, 1982.
Ch. 2—World Trade and Shipping ● 2 1

Figure 3.— Iron Ore: Seaborne Trade-1981

Main inter-area movements in million tonnes. (MMM ton-miles in brackets.) Only main routes are shown. Area figures are totals including smaller

routes not shown separately.

3=- ●

$)

+’”

X 7

.

-%

Total trade 303 million tonnes,

v

3)

1,508 MMM (000 million) ton-miles.

SOURCE: World Bu/k Trades 1981, Fearnleys, Oslo, Norway, 1

Figure 4.— Coal: Seaborne Trade–1981

Main inter-area movements in million tonnes. (MMM ton-miles in brackets.) Only main routes are shown. Area figures are totals including smaller

routes not shown separately.

East Europe

13(56) n17\ Japan 79(476)

Total

1,120

, &

\ b

South F

i2 Africa .

k,. 29(201) &.&

v

trade 210 million tonnes,

MMM (000 million) ton-miles.

SOURCE: Worid Bulk Trades 19S1, Fearnleys, Oslo, Norway, 1982.
22 ● An Assessment of Matitime Trade and Technology

Figure 5.- Grain: Seaborne Trade—1981

Main inter-area movements in million tonnes. (MMM ton-miles in brackets.) Only main routes are shown. Area figures are totals including smaller

routes not shown separately.

Total

1,131

USA Canada

SOURCE: Wortd Bulk Trades KXN, Feamleys, Oslo, Norway, 1982.

Figure 6.— Crude Oii: Seaborne Trade–1981

Main inter-area movements in million tonnes. (MMM ton-miies in brackets.) Oniy main routes are shown. Area figures are totals including smaller

routes not shown separately.

Total

7,371
Ch. 2–World Trade and Shipping 23

international trade rose by a factor of 2.5. The

United States engages in trade of $1 billion or more

each year with each of 58 other countries in North

and South America, Europe, the Near East, Southern and Eastern Asia, Oceania and Africa. The following illustrates some of the major commodities

that are imported to and exported from the United

States. 1

In 1982, U.S. exports totaled $212.2 billion, with

less developed countries (LDCS) receiving $82.6 billion, Western Europe $60.0 billion, and Canada

$33.7 billion. U.S. imports reached $244.0 billion,

with the greatest share from the LDCS ($99.0 billion), followed by Western Europe ($52.3 billion),

Canada ($46.5 billion), and Japan ($37.7 billion).

In terms of volumes of trade, the United States

is a major exporter of dry-bulk commodities. In

1980 the United States exported 97.2 million tonnes

of grain, 72.8 million tonnes of coal, 28.8 million

tonnes of soybeans/meal, and 27.6 million tonnes

of forest products. On the import side, the biggest

U.S. import was petroleum, 318 million tonnes in

1980.

The single most important export sector was capital goods. Out of total exports of $212.2 billion in

1982, capital goods accounted for $75.2 billion.

Nonelectrical machinery and parts made up $47.8

billion of this. Industrial supplies accounted for

$61.7 billion, food and beverage for $31.3 billion,

and consumer goods for $27.5 billion.

U.S. imports in 1982 were valued at $244 billion,

with fuels ($66. 4 billion) and consumer goods

($67.7 billion) virtually equal as the leading commodities. Of the fuels, petroleum accounted for almost all of the total, at $60.8 billion. Passenger

cars—$20.2 billion—were the most important

single consumer good. “Other” industrial supplies

amounted to $45.7 billion, and capital goods were

valued at $40.6 billion (of which about half was

nonelectrical machinery and parts). Food and beverages totaled $17.1 billion.

1 Data compiled from the Draft Analytical and Statistical Supplement to the $tatcment of Lionel H. OImer before the Joint Economic

Committee, prepared by the International Trade Administration, U.S.

Department of Commerce, Feb. 3, 1983.

Linkage of Economic Activity,

Trade, and Shipping

Many comparisons have been made of trade and

economic activity. The linkages are important if

not always clear and consistent. Figure 7 traces the

growth rates since 1970 of both world seaborne

trade in dry cargo and total industrial output of the

countries belonging to the Organisation for Economic Cooperation and Development (OECD).

This indicates that if one leaves out petroleum, shipping closely follows economic activity in industrialized countries. For total trade including petroleum, however, the picture is more complex. Between

1965 and 1973, when the gross national product

(GNP) of OECD countries rose by 4.6 percent annually, and that of the world rose by 5 percent, total

demand for shipping grew more rapidly at 8.4 percent per year. On the other hand, when between

1973 and 1980 OECD GNP rose annually only by

2.3 percent and that of the world by only 2.6 percent, demand for shipping only increased by 2.2

percent. 2 Trends in the global economy and international trade are clearly related to and can promote or inhibit international shipping activity.

The importance of international trade for the

U.S. economy has grown progressively since World

War II. Although the U.S. ratio of exports to GNP

still is below that of other industrial countries,3 it

stood in 1980 at 8.5 percent, up from 4.4 percent

in 1970. Imports also doubled between 1970 and

1980, going from 4.1 percent to 9.5 percent of

GNP.

The increased interdependence of the U.S. economy with the international economy is reflected

graphically in some of the data contained in the

latest Annual Report of the President on the Trade

Agreements Program. 4 For example, the United

States Trade Representative (USTR), which authored the report, estimates that over 5 million

workers are dependent on foreign trade for their

livelihood, and that 80 percent of all new manufac-

——

‘Maritime Transport, 1981: A Study by the Maritime Transport

Committee (Paris: Organisation for Economic Cooperation and Development, 1981).

3Twcnt}’-Sixth Annual Report ofthr President of (he United States

on the Trade ,4 Agreements Program, 1981-82 (Washington, D. C,:

United States Trade Representative (USTR), 1983).

‘Ibid.
24 ● An Assessment of Maritime Trade and Technology

Figure 7.-Total OECD Industrial Output in Percentage Quarterly Change Related to Percentage Yearly Change

UI Tw Ur Iu QUu””, . ,Tz , , ~“!

14 [ \

SOURCE: OECD, Fearnleys.

turing jobs created in the late 1970’s were linked

to exports. In addition, 1 out of every 3 acres

planted by American farmers produces crops for

exports. This interdependence is expected to continue to grow, with some estimates putting U.S.

exports as a percentage of GNP in 1990 at 15 percent.

For the industrialized countries of OECD as a

whole, exports accounted for 16 percent of GNP

in 1980, up from 9 percent in 1962, The developing countries, especially the newly industrializing

countries,5 also increased their participation in international trade in the last 10 years, with their

share of the value of free world exports increasing

from 20 to 30 percent between 1970 and 1980.

South Korea, for example, increased its exports of

goods and services from 3 percent of GNP in 1960

to 34 percent of GNP in 1977, while Taiwan went

from 11 to 59 percent in the same period, G

 of the Newly Industn’alizing Countries on Production

and trade in Manufactures: Report by the Secretary General (Paris:

Organisation for Economic Cooperation and Development, 1979).

 op. cit., 1983.

Much of the economic growth in the postwar period has been the result of international trade. Recent studies have demonstrated that when the economies of OECD countries grow by more than 1.5

to 2 percent per year—the situation during the postwar period until recently —nonoil imports tended

to grow three times as fast. The same studies show

a similar negative relationship, with zero growth

in OECD economic activity, resulting in a 5-percent drop in nonoil imports. 7

The foregoing implies that economic prosperity

over the long term can result from and lead to

growth in world trade, and that a healthy future

for world trade both depends on and contributes

to the health of maritime transport. There also are

negative aspects of trade growth such as the need

to promote conservation of world resources, including ener~, over the next several decades—particularly into the next century. This study has not considered such problems except when they obvious-

 Bergsten and William R. Trade Policy in the 1980’s

(Washington, D. C.: Institute for International Economics, 1983),
Ch. 2—World Trade and Shipping 25 — . ————— —

ly have affected economics (e. g., with fuel prices).

However, it should be recognized that uncontrolled

use of vital resources on a large scale will have practical or needed limits. World trade may reach some

CURRENT STATUS

IN WORLD

Overview of the World

Shipping Industry

World shipping follows the trade it serves, but

because of its international and entrepreneurial

nature, the industry tends to be even more volatile

than trading patterns. The industry presently is experiencing a major excess of tonnage, but large fluctuations in supply and demand in shipping have

been quite common for a long time.

The shipping industry consists of several diverse

businesses and sectors. In total, it includes those

companies that operate the world fleet of over

35,000 major, cargo-carrying ships—tankers,

chemical and liquefied gas carriers, combination

bulk and oil carriers, ore and dry-bulk ships, general cargo ships, container ships, and many even

more specialized types such as automobile carriers

and roll-on, roll-off (RO/RO) ships.

The principal sectors today are the tanker operators, the dry-bulk operators, and the liner operators. The tanker and dry-bulk-carrier operators are

similar in that fleets of ships usually are owned

and/or chartered to carry single, large-volume commodities (i. e., iron ore, grain, coal, crude oil, and

petroleum products) over fixed, and sometimes,

long periods of time. Shipping thus is closely related

to a larger enterprise. Many independent operators

participate under ‘ ‘time-charter’ or voyage-charter

contracts; in other cases, major petroleum or other

resource companies own and operate their own

fleets.

The liner industry, or general cargo business,

on the other hand, operates more like a railroad—

carrying freight from port to port at fixed rates and

on a regular schedule. The modern containerships

of these limits and adjustments may be neccessary,

especially if economics does not bring about natural

adjustments.

OF AND TRENDS

SHIPPING

and RO/RO ships are typical of the ships used in

this trade within the industrialized world. The liner

industry is characterized further by the predominance of conferences, international groups of carrier lines that collectively agree on routes, schedules,

rates, and other aspects of liner services.

The composition of the world merchant fleet, as

of January 1, 1982, is shown in figure 8. Viewed

in the conventional shipping categories, there are

roughly twice as many general cargo ships as bulk

ships. Within the bulk fleet, nearly two-thirds of

the ships arc devoted to carrying liquid (mostly petroleum) cargoes. However, the numbers of ships

do not accurately reflect the magnitude of the various shipping sectors. As shown in figure 9, the

general cargo ships represent a much smaller portion of the fleet when measured in gross tonnage.

The general cargo tonnage is less than one-third

of that in the combined bulk fleets. Tankers dominate the bulk fleet in gross tonnage as well as numbers.

While shipping always has been an international

business, reflecting the nature of foreign trade, the

international complexity of world shipping is increasing. Prior to the 1960’s, the relative magnitude

of the shipping industries owned in various nations

corresponded to the size of the fleets registered in

each country. The significant fleets were found almost exclusively in the industrialized nations with

the largest trading volumes.

In the 1960’s, some countries (Cyprus, Lebanon,

Liberia, Panama, Singapore [to 1980], Oman, Bahamas [since 1976], and Honduras) developed fleets

of ‘open registries’ or ‘ ‘flags of convenience’ that

do not require owner citizenship. Tax advantages

and, often, less strict vessel and crewing standards

25-417 0 - 83 - 3 QL 3
26 An Assessment of Maritime Trade and Technology

Figure 8.–Composition of the World

World Fleet

(75,720)

Fleet (by number) -Jan. 1, 1982

Fishing Cargo-carrying Offshore vessels

vessels fleet ferries & harbor craft

(21 ,000) (40,061) (14,700)

Liquid Dry

cargo cargo

(8,529) (31 ,532)

Gas Special Oil Dry-bulk General

carrier tanker tanker cargo cargo

(686) (1 ,490) (6,353) (4,867) (26,665)

OBO Ore Special Bulk

carrier bulk carrier carrier

(451) (310) (538) (3,568)

Singledeck Multideck Refrigerated Special Semi- Container ROIRO

general cargo general cargo cargo cargo container

(1 1,332) (9,550) (826) (2,161) (183) (685) (1,928)

SOURCE: A & P Appledore, 1982.
Ch. 2–World Trade and Shipping 27

Figure 9.–Composition of Worid Fieet by Tonnage Juiy 1, 1981

— 180

160

120

80

.“‘.

40 ~

20

0 t

Oil

Totai: 421 Miiiion GRT

Dry- General OBO

bulk cargo

SOURCE: Lloyd’s Register of Shipping Statistical Tables 1981.

attracted ship registrations to these countries. Thus,

while the United States had the largest registered

fleet by tonnage 20 years ago, Liberia now has the

largest fleet in the world (fig. 10),

The spectacular growth in the Liberian fleet (800

percent in 20 years) and other open registries is attributable primarily to business practices of U.S.

and other companies of the industrialized world.

Two-thirds of the world fleet is registered in eight

countries, which are (in order of fleet size): Liberia,

Japan, Greece, the United Kingdom, Panama, the

U. S. S. R., Norway, and the United States. Fleetsof-open-registry countries accounted for 25 percent

of the world fleet in mid-1981.

When the tonnage registered under flags of convenience is distributed among the countries of

beneficial ownership* (see table 1), the United

States, Hong Kong, Greece, and Japan total 75

percent—clear leaders in ownership of world shipping. Flags of convenience are far more widely used

● ’ ‘Beneficially owned ‘‘ is defined as designating the owner who receives the benefits or profits from the operation.

Container Liquid Passenger Chemical Other

gas

Ship type

in bulk trades than in the general cargo industry.

The Liberian fleet is the predominant world tanker

fleet (now over one-half of all ship tonnage) that

is, for the most part, owned by or chartered by the

multinational petroleum companies.

Liner ships have a greater diversity of trade

route, flag, ownership, and design than the other

segments of the industry. For example, containerships make up 3 percent of the world fleet by tonnage and the largest portion of this fleet is U. S.-

flag, followed by the United Kingdom, Japan, and

West Germany. Since these countries are also the

predominant nations trading in manufactured

goods, this fleet tends to match the trade in nationality.

Today, world shipping is in a major slump.

Much of the tanker fleet (about one-third in 1982)

is surplus to the need for transporting petroleum.8

A substantial portion of the dry-bulk fleet also is

surplus to demand, and the liner trades have not

expanded at all in recent years. The oversupply of

 1982, 
28 ● An Assessment of Maritime Trade and Technology

Figure 10.-Fleet5 of the Leading Maritime Nations, 1960-81

u~ I 1

1960 1

1965 I

1970 . -—— J 1975

Year

1980 1985

SOURCE: Lloyd’s Register of Shipping Statistical Tables 19S1.

Tabie 1 .–Beneficiai Ownership of the Open. Registry

Fieets (reglstered Llbaria, Panama,

Cyprus, Bermuda, and Bahamas)

Percent of total

open-registfy fleet, Country of beneficial owners by deadweight tonnage

United States . . . . . . . . . . . . . . . . . 31 Hong Kong . . . . . . . . . . . . . . . . . . . 22 Greece . . . . . . . . . . . . . . . . . . . . . . . 12 Japan . . . . . . . . . . . . . . . . . . . . . . . . 10 West Germany . . . . . . . . . . . . . . . . 3 Norway. . . . . . . . . . . . . . . . . . . . . . . 3 10 other European Countries

plus Korea and Indonesia. . . . . 1-2Y0 each ~othercountries ... ... .m. ..o. less than o.5%each

SOURCE: UNCTAD, 1961 Rev/ew of A@Wme Transpon, data supplied by

A & P Appledore Ltd.

ships has caused substanti~ adjustments in the

world fleet, with ship scrapping (especially of large

tankers) at an all-time high.

The diversity in maritime transportation makes

it difficult to characterize the shipping industry in

other than very general terms and adds to the difficulty in developing effective policies on which national governments can agree. In the following sections, trends in three major sectors of world shipping (liquid-bulk, dry-bulk, and general cargo) will

be discussed separately.

‘Statistics on the three shipping sectors were taken primarily from

 Transport 1981 (Paris: Organisation for Economic Cooperation and Development, 1982).
Ch. 2—World Trade and Shipping ● 2 9

Liquid Bulk

Today, 94 percent of the gross registered tonnage (grt) in the liquid-bulk fleet is in oil tankers,

Demand for transportation of oil peaked in 1977

at 10.5 trillion ton-miles. The current slump in this

freight market has brought it to pre-1973 levels

(under 8 trillion ton-miles) with the recent rate of

decrease in ton-miles at 13 percent for 1980 and

12 percent for 1981. This rate of decline in the demand for oil tanker tonnage far exceeds the shrinkage in the oil tanker fleet.

In tonnage, tankers remain the single largest

shipping sector, comprising 41 percent of the world

merchant fleet. Fifty-four percent of the 172 million

grt in oil tankers is registered in OECD countries,

with another 31 percent registered in open-registry

countries.

I

After annual growth rates of 12 to 16 percent in

the mid-1970’s, the tonnage in the oil tanker fleet

has been stable or declining since 1977. From

mid-1980 to mid-1981, it declined 1.9 percent (grt)

(1.4 percent in deadweight tons (dwt)). The net decline in the tanker fleet in 1981 is comprised of an

addition of 7.7 million dwt delivered and a reduction of 12.5 million dwt lost or scrapped. Most of

the decline is accounted for in the larger tanker

categories. Since 1980, the tonnage in ships under

150,000 dwt has been increasing, while that in ships

over 150,000 dwt has been declining. Similarly, 10

million dwt were on order as of January 1, 1982

in the smaller category, with only 2 million dwt in

the larger tankers. The largest amount of scrapping was in very large crude carriers (VLCCS), totaling 41 ships of 8.9 million dwt in 1981.

Photo credit: Atlantic Richfield

A supertanker transferring its cargo of crude oil to a

smaller tanker in the Gulf of Mexico

The surplus of tonnage resulting from the relatively slow shrinkage of the available fleet is expected to prevail throughout 1983 with no apparent

reason for improvement before 1985. The excess

tonnage results from ships being used for storage,

ships in layup (laid-up tonnage increased 11 million

dwt to 17.3 million dwt at the end of 1981), and

in less efilcient use of available tonnage, e.g., slower

steaming.

Fearnley’s estimates that the world tanker fleet

will continue to decline at a rate of about 5 to 6

percent per year from 1983 through 1986 (see fig.

11). While crude-oil tankers (particularly the very

large ones over 100,000 dwt) are being scrapped

at a very fast rate, certain specialized liquid-bulk

carriers are showing some growth. Liquefied gas,

chemical, and special-product carriers are viewed

by some as an area of future shipping growth. Such

vessels will never reach the huge tonnage of oil carriers but could serve a variety of changing world

economic and trading needs, such as a switch in

refining and chemical manufacturing closer to production fields and the need to produce petroleum

from smaller and more remote oil and gas finds.

Dry Bulk

While total trade in crude oil was at a level of

about 1.2 billion tonnes in 1981, the three major

dry-bulk trades (coal, grain, and iron ore) totaled

700 million tonnes.

The dry-bulk fleet is the single major category

of ships that was increasing in tonnage in 1982.

While the number of tankers in the world fleet today is the same as 15 years ago, the number of drybulk carriers is three times the level of 15 years ago.

Ore and dry-bulk carriers included 87.24 million

grt in mid-1981, showing a 4. 7-percent annual increase. When grouped with the combination-carrier

fleet (73 percent of which, on average, were in the

dry-bulk trades in 1981), at 25.84 million grt, these

ships comprise 27 percent of the world fleet. The

rate of expansion of the dry-bulk fleet is increasing, owing to the delivery of ships ordered during

good freight years in 1979 and 1980. Fearnley’s

data shows annual increases for the dry-bulk fleet

of 8.9 percent and 9.4 percent for 1982 and 1983

respectively. Cargoes, however, are expanding less

rapidly, only 2.5 percent in 1981, resulting in sur-
30 ● An Assessment of Maritime Trade and Technology

Figure 11.–World Bulk Fleet

1/1 1973 -74 -75 -76 -77 -78 -79 -80 -81 -82 -83 -84 -85

SOURCE: Fearnleys, World Bulk fled, January 19S3.

plus tonnage in the fleet, Relatively little scrapping

has occurred in the dry-bulk fleet in recent years.

The major commodities in the dry-bulk trades

are grains, iron ore, and coal. Table 2 presents data

on recent growth or decline in the volume of these

commodities, as well as changes in the tonnage in

the various ship-size categories. Most of the growth

in the fleet is occurring in the larger size categories,

while the iron ore trade, which uses the largest

ships, is declining as steel production shrinks in the

world recession.

Predictions of growth in the major dry-bulk

trades include wide variations. Forecasts of growth

in the 1980’s of the iron ore trade, which is very

sensitive to changes in economic growth, vary from

1.4- to 7.3-percent annual increase. For the coal

trade, estimates of the tonnage to be shipped by

the year 2000 range from 3.5 to 6 times the 1979

levels. Grain tonnages are closely linked to climatic

events and are even more difficult to predict. Even

though trade may grow, Fearnley projects that the

size of the dry-bulk fleet will level off by 1985

because of the large present oversupply of tonnage.

Table 2.—Comparison of Changes in the Dry-Bulk

Fleet and Dry-Bulk Seabome Trade

End 1980 End 1981

DWT category 1,000 dwt 1,000 dwt 0

/0 growth

Drybulk fleat

10,000-17,999 . . . . . . . . . . . 11,624 11,643 0.2

18,000-24,999 . . . . . . . . . . . 18,522 19,110 3.2

25,000-39,999 . . . . . . . . . . . 47,312 49,126 3.8

40,00049,999 . . . . . . . . . . . 11,379 11,739 3.2

50,000-79,999 . . . . . . . . . . . 38,917 42,663 9.6

Over 80. . . . . . . . . . . . . . . . 61,570 65,682 6,7

Total . . . . . . . . . . . . . . . . 189.324 199.963 5.6

Commodity 1960 1981 (est.) O/O growth

Major bulk seabome trade

Grain:

Miiiion tonnes . . . . . . . . 198 204 3.0

Miiiion tonne-miies . . . 1,087 1,120 3.0

Average cargo size 27,000 dwt

Coai:

Miiiion tonnes. . . . . . . . 188 1% 4.3

Miiiion tonne-miies . . . 952 1,030 8.2

Average cargo size 51,400 dwt

iron ore:

Miiiion tonnes . . . . . . . . 314 303 -3.5

Miiiion tonne-miies . . . 1,613 1,580 -2.0

Average carao size 88,500 dwt

SOURCES: Fearnley8, World Bulk Fleet, January 19S1 end January 19S2, including combination carrtere.

Fearnleys, “Review 19S1.” Compiled in Maritime Transport, 19S1

OECD.
Ch. 2—World Trade and Shipping ● 3 1 —

Future developments in the world dry-bulk fleet

could have a significant impact on the United States

as a major bulk exporter and significant importer,

with the possibility of substantial future growth in

selected commodities later this century. The fleet

and the trades need to be monitored carefully by

the Federal Government if policies are to reflect accurately changing world needs.

General Cargo

The world general-cargo fleet encompasses a variety of ship types, including breakbulk, partially

or fully containerized, vehicle carriers, lighter ships,

and RO/RO ships. Due to the greater diversity of

this fleet, there are fewer general statistics describing its status and trends. The amount of tonnage

in all types of general cargo ships either was declining or was growing at a slower rate in 1980 and

1981 than in previous years, The general-purpose

cargo fleet included 81 million grt in mid-1981 for

an annual decline of 2.2 percent, the first absolute

reduction in the fleet since 1974. In part, this reduction is due to the shift to containerization, as ships

without container-handling capabilities are excluded from some trades. The tonnage in unit-load

ships (including fully container, vehicle, and lighter

carriers) grew at a reduced annual increase of 10.5

percent to a level of 15 million grt. The slowing

of the expansion of the unit-load carriers reflects

overcapacity in this sector. However, growth in the

container fleet is expected to surge again over the

next few years due to orders for new ships placed

in 1981. At the end of 1981, the additional capacity on order was 23 percent of the existing fleet. Interestingly, however, most of the ordering in 1981

was for ships capable of handling both containers

and breakbulk cargoes.

In 1981, growth of the containerized fleet (estimated at 15 percent in twenty-foot-equivalent units

(teu)), far exceeded the 8-percent growth in containerized cargo. For the liner trades in general, the

amount of cargo available has been level. Thus,

the rate of increase in supply of shipping is exceeding the increase in demand. Part of this may be

explained by a switch to slower speeds to save fuel

costs, which in turn requires more ship capacity

to move cargo at the same rate. An additional pressure on the historically dominant fleets is increasPhoto credit: Maryland Depadment of Transportation

A heavy-lift crane loading general cargo (a large

machinery part) for export

ing competition from noncommercial nationalized

shipping lines, notably from the U.S.S.R. and newly industrialized East Asian countries.

Trends in National Fleets

Comparing the distribution of ship tonnage today with that in 1970, the developing countries and

the open-registry countries significantly have expanded their share of the world fleet, at the expense

of OECD countries. The most recent data (mid1980 to mid-1981) indicate that the developing

countries are continuing to make gains in absolute

and relative terms. Several of them, notably in

Southeast Asia, are pursuing explicit policies to ex-
32 ● An Assessment of Maritime Trade and Technology

—.— .———.———.— . ——————. —

pand their fleets and to carry a substantial portion pulsion systems and ship design to promote energy

of their foreign trade in their own ships. efficiency, also discussed in ch. 5.)

The composition and age of the fleets vary. In

the OECD and open-registry flag fleets, nearly onehalf of the tonnage is in oil tankers, with almost

another one-quarter in ore and dry-bulk carriers.

In contrast, nearly one-half of the fleets of the

U.S.S.R. and Eastern Europe are general cargo

ships, with oil tankers comprising another onequarter. The developing countries have more diverse fleets, consisting of about 30 percent of the

tonnage in each of the oil tanker and general cargo

categories. In comparing the age of the major fleets,

the United States has by far the greatest percentage, 21 percent, of its fleet by tonnage, in the oldest

category, greater than 30 years, with 45 percent

less than 10 years old. About 73 percent of the Japanese fleet is less than 10 years old. In general, the

OECD fleet tends to be younger than the rest of

the world, which often receives OECD ships secondhand. 1°

It is important to note that major U.S. maritime

business interests participate in the ownership,

management, and decisionmaking for very large

shipping enterprises that use the so-called flags of

convenience, This fleet typically operates outside

direct U.S. Government control or influence but

within a variety of internationally agreed standards

and accepted practices. This ‘‘United States effective control’ fleet, however, does ci.rry almost all

of our petroleum imports, a large portion of our

coal and grain exports, and many other commodities significant to our international trade. U.S.

maritime policies, therefore, must recognize the importance of this fleet both to U.S. business interests

and as a factor in our ability to promote trade in

the future.

Trends in Ship Types and Features

Two major changes influencing shipping in recent decades, and likely to continue to do so in the

future, are automation of ship systems and specialization of ship types. Developments in both of these

areas are discussed in greater detail in chapter 5.

(A third important trend is in changes in both pro-

— .. — IOD~ta on the composition and age of the fleets is from Maritime

Transport 198J (Paris: Organisation for Economic Cooperation and

Development, 1982).

The past decade has seen a proliferation of specialized ship types, causing a number of changes

in the world shipping industry. One result is that

there is now less flexibility to shift ship tonnage from

one trade to another as markets change. As an example, ships designed for specific trades, such as

VLCCS for the Arabian crude oil trade, cannot be

used economically in other oil transport routes,

Consequently, the economic risks when a tonnage

surplus exists are magnified.

A second major impact from specialization is the

trend toward unitization of cargo. Many ships are

designed now to carry a specific type of cargo, such

as vehicles, or cargo that is transported in uniform

units, such as containers. Containerization has

transformed the general cargo business. Not only

has the type of ship changed dramatically, but trade

routes are shifting depending on the availability of

container-handling facilities at the various ports.

The compatibility of containerized cargo with both

land and water transportation systems has led to

the streamlining of intermodal transportation services with the introduction of single through rates

and through bills of lading. Ocean carriers have

expanded their activities from providing strictly

port-to-port service to offering consolidated intermodal transport in which the seaborne leg is just

one part of point-to-point service. As a result, the

availability and interface with rail service is also

altering traditional trade routes.

The rate of technological change in general is increasing and maritime policies must be able both

to foster and to accommodate that change if the

United States is to participate in future shipping

innovations.

Trends in Shipping Economics

The economic status of any shipping operation

will be determined by the relative levels of costs

(capital and operating) and revenues. As discussed

previously, demand and freight rates, which determine revenues, are presently at severely depressed

levels in all shipping sectors. Given the global

nature of the shipping business, the slump in the

market tends to affect all operators. Competition
Ch. 2—World Trade and Shipping ● 3 3

among commercial fleets for the available revenues

is intensified by political factors. More and more

countries have instituted cargo preference policies

reserving some or all cargoes for their own fleets.

In addition, some countries have nationalized, noncommercial fleets that are insensitive to nonprofitable freight rates. These political trends are discussed more fully in chapter 7.

Traditionally, operators in the liner trades have

formed cartels or adopted cooperative business

practices within conferences that are intended to

restrict competition and allocate the available

market. Such practices are common worldwide and

competition is even more restricted in non-U. S.

trades. Bulk operators, on the other hand, traditionally have favored and followed practices of open

competition. Bulk shipping also has been populated

by many individual entrepreneurs who take extreme risks for high returns. Present economic conditions and the massive oversupply of bulk-ship tonnage, placing some large banks at risk, have led

some to reconsider bulk-shipping practices. The

larger economic risks of future shipping ventures

probably will foster industry restructuring toward

managing competition.

There are wide variations in both the capital and

operating costs among various countries. National

policies to protect and promote national fleets and

industries (see ch. 7) complicate this side of the

economic equation as well. Capital costs are a major

concern to shipping interests. New investment

packages are becoming larger and more difficult

to finance. Joint ventures and cooperative arrangements are growing. And there is a trend toward

reducing high-risk investments caused by speculative building in the past.

Increasing fuel costs are felt by all fleets. For

U.S.-flag vessels, they currently represent nearly

50 percent of operating costs, as compared to 10

to 15 percent in the early 1970’s. Responses include

both changes in ship design and propulsion systems,

notably shifting from steam to diesel ships, and

changes in operating procedures, such as slower

steaming speeds to increase fuel efficiency. While

fuel prices currently are lower than in the recent

Photo credit: Sea-Land Industries

Economics have forced a shift to slower speed, fuel-efficient containerships—the Sea-Land Patriot, first of 12 dieselpowered ships built in Japan and Korea in 1980 for Sea-Land Service
34 ● An Assessment of Maritime Trade and Technology

past, they can be expected to resume their increases

later in the decade, and fuel conservation will continue to be an important influence on shipping. Advances in fuel efficiency are discussed further in

chapter 5.

Crew costs represent one of the larger variables

among maritime nations. One estimate places U.S.

wage costs at six times that of a Chinese crew and

twice that of a Japanese crew. 11 With wages on

U.S.-flag vessels accounting for 20 to 50 percent

of operating costs, 12 13 depending on vessel type)

there are increasing pressures for greater automation of ship systems. It is particularly important for

maritime policy makers to monitor trends in crew

requirements and costs as key factors in the competitiveness of shipping operations.

—

1 I Paul Ackerman, ‘ ‘Comparative Operating Costs for U. S.- and

Foreign-Flag Ships, ” SNAME, A Combined Symposium on Ship

Cos(s and Energy, New York, Sept. 30-Oct. 1, 1982.

‘

z

Ibid.

13Gary J. Baham, “Final Report, Trends in Vessel Technology for

Maritime Trade and Shipping, ” for the Office of Technology Assessment, December 1982.

CURRENT STATUS OF AND TRENDS

IN WORLD SHIPBUILDING

Shipbuilding Industry Today

Merchant shipbuilding serves the demand for

world shipping discussed above. The output of merchant shipbuilding over the recent past is summarized in figure 12. Output is expressed as grt, which

is a measure of total ship volumetric capacity, and

thus provides a better guide to shipbuilding output than the number of ships.

The dominance of Japan is readily seen in figure

12, followed by the Association of West European

Shipbuilders (AWES), which was responsible for

one-third of world merchant shipbuilding output

in the period. AWES is strictly a voluntary association with the main purpose of lobbying the European Economic Community (EEC) and in no sense

represents a unified commercial force. The relative

significance of the nations participating in world

shipbuilding today is seen best in the orderbook

shown in figure 13 and table 3. The most striking

feature is the rise of South Korea to second place,

principally at the expense of AWES.

The majority of the shipyards of the developed

world are suffering from the lack of orders and cutthroat competition brought about by the world

recession and the heavy overtonnaging in the major ship types. The yards that survive the crisis

either will be those with government support or

those that so improve productivity that they can

compete without actually losing money until a

recovery comes.

Government aid has been available in one form

or another to almost all the shipyards of the world

over the past few years. Now, however, many governments either are cutting aid altogether or tying

its provision to massive yard improvements in an

attempt to drive the yards to greater productivity

so that the aid is not wasted.

Thus, either as a result of the removal of government aid, the terms of its provision, or the orders

crisis previously mentioned, most of the shipyards

of the developed world are aiming for vast improvements in productivity. These will be gained

by a mixture of improved efficiency of operations

and the applications of new technology in shipbuilding.

Meanwhile, technological advances are occurring

in shipping operations, advances with which shipyards must keep pace if they are to produce marketable ships and remain competitive.

Shipyard Capabilities and Capacities

The period from 1970 to 1975 saw a general upsurge of expenditures on facilities development in
Ch. Z–World Trade and Shipping ● 3 5

Figure 12.—World Merchant Shipbuilding Production, 1976-81, by Country

Production in other major countries

measured in gross registered tons (grt)

Singapore ~

Production 26 million grt

European (AWES) production measured

in gross registered tons (grt)

Portugal

Production 40 miiiion grt

SOURCE: Fairplay, Aprii 19S3.

most of the world ~hipbuilding nations. To some

extent this resulted in improvement of existing

facilities, although many new yards also were built.

The culmination of this investment period around

1973 to 1975 saw the peak of world shipbuilding

demand. Since that time, demand (and therefore

output) has declined worldwide and only in certain

developing countries (notably South Korea) has investment in new facilities continued. In the majority

of established shipbuilding countries the very sharp

decline in output since 1975 has led to:

● large reductions in labor force numbers;

● closure of many facilities;

World production measured in gross

registered tons (grt)

Totai production 120 miiiion grt

diversification into other activities (notably offshore and land-based industrial fabrication);

and

a virtual “credit war’ and, in many countries,

a degree of overt or covert protectionism.

The last 2 to 3 years have seen the development

of a second phase in most countries’ reactions to

the continuing surplus of shipbuilding capacity:

● those countries that had undertaken major cutbacks in capacity in the period 1975-81

(including Japan and most AWES countries)

have generally decided that “enough is
36 ● An Assessment of Maritime Trade and Technology

Figure 13.—Merchant Ships on Order Worldwide

SOURCE: Fairplay, April 1983.

●

●

●

enough’ and, for both sociopolitical and strategic reasons, further cutbacks are being resisted increasingly;

those countries that had resisted cutbacks during the late 1970’s—including some AWES

countries— are now facing up to the necessity

of making cutbacks;

in the majority of countries, increasing emphasis has been placed on improving productivity (i. e., making better use of existing facilities) as a means of cutting losses; and

with the notable exception of South Korea,

those advanced developing countries that in

the 1960’s and early 1970’s had seen shipbuilding as a priority area for development (e. g.,

Brazil, Taiwan) have lost much of their original enthusiasm.

Throughout this period, several developing countries (e. g., India, Indonesia) have expanded their

shipbuilding industries in line with their general

policies of increasing industrial independence.

South Korea is the prime example of a country

that intends to consolidate its past expansion,

regardless of the lack of orders worldwide. The

country claims a total building capacity of 4.1

million grt in 1981 and the aim is for 6 million grt

per year by 1986. The South Koreans are aiming
Ch. 2–World Trade and Shipping ● 3 7

Table 3.—Ships Currently on Order (countries with 1 million dwt or more, with the United States added for compadson)

Dry cargo Tankers Bulkers Total

Millions Millions Millions Millions

Country of build Number of dwt Number of dwt Number of dwt Number of dwt

Total (April 1983) . . . . . . . . .

Total (September 1982) . . . .

I 

60

46

20

61

23

30

40

13

46

24

7

76

3

49

8

232

Japan . . . . . . . . . . . . . . . . . . . 4 c.

Republic of Korea . . . . . . . .

Spain . . . . . . . . . . . . . . . . . . .

Brazil . . . . . . . . . . . . . . . . . . .

Poland ., . . . . . . . . . . . . . . . .

Taiwan . . . . . . . . . . . . . . . . . .

U.S.S.R. . . . . . . . . . . . . . . . . .

China . . . . . . . . . . . . . . . . . . .

Yugoslavia, . . . . . . . . . . . . . .

Romania . . . . . . . . . . . . . . . .

United Kingdom ....,.. . . .

Portugal . . . . . . . . . . . . . . . . .

Germany . . . . . . . . . . . . . . . .

India . . . . . . . . . . . . . . . . . . . .

Denmark . . . . . . . . . . . . . . . .

United Statesa 

. . . . . . . . . . .

All others. ...,..... . . . . . .

924

929

0.8

0,3

0.2

0.8

0.4

0.3

0.4

0.1

0.2

0.1

0.1

0.7

0.1

0.3

0.2

1.8

9.0

9.3

; :

16

11

14

3

19

5

34

4

3

7

5

—

6

13

81

318

393

1.0

0.4

0.5

0.9

0.2

1.0

0.1

1.0

0.2

0.2

0,8

0.1

—

0.2

0.5

2.0

11.9

14.9

44

37

41

20

15

14

31

6

17

21

6

9

24

7

1

49

613

650

3.2

2.5

2.1

0.9

1.3

0.5

0.8

0.3

1.0

0,9

0.3

0.4

1.0

0.4

0.1

2.1

30.3

33.4

128

99

72

95

41

63

76

53

67

48

20

90

27

62

22

362

1,835

1,972

5.0

3.2

2.7

2.5

1.8

1.7

1,4

1.4

1.4

1.2

1.2

1.1

1.1

1.0

0.8

6.2

51.2

57.6
38 . An Assessment of Maritime Trade and Technology

for 10 percent of world orders by 1986; they now

have 8.5 percent.

The productivity of South Korea’s shipbuilding

workers is only about half that of the Japanese—

about 15 tonnes/man-year. (The South Korean

Government aims to double this to 30 tonnes/manyear by 1986,)14 The reasons for South Korea’s success are several, but the most important is undoubtedly the low cost of labor.

If Korean yards succeed in doubling their productivity, coupled with their very large capacity,

they will be a force with which to be reckoned.

Their prices are already very low (average 15 percent below typical AWES prices), although it has

been suggested that they have been making little

or no profit at these levels. 15 They have in the past

attempted to gain a key position by massive undercutting, and initially succeeded, but future petiormance may be different. South Korea’s situation is

important to the United States not only because

they are a major ally and trading partner, but also

because U.S. ship operators recently have contracted for major new buildings in Korean yards,

Since the massive slump in orders in 1975, the

majority of the world’s shipbuilders have agreed

to reductions in capacity. Japan, by far the largest

shipbuilding nation in the world, has reduced its

capacity by 35 percent, according to the Shipbuilders Association of Japan (SAJ). The 23 major companies represented by SAJ employed 112,000 people in April 1974. By mid-1979 this was reduced

to about 72,000 and remained at about that level

through 1982. Unlike the Western European nations, whose capacity reductions took place in a

piecemeal fashion, the Japanese industry cutbacks

took place under what appears to have been fairly

strict government control.

Despite the reduction, total Japanese shipbuilding capacity still is massive, and the yards are aware

of the need to contract further if they are to remain

competitive under the dearth of orders expected

over the next 3 or 4 years. However, they do not

intend to reduce their manpower further, except

by the process of natural wastage,

~~A & P Appledore Ltd., Technical and Capability Developments

in Shipbuilding, prepared for the OffIce of Technology Assessment,

November 1982.

“Ibid.

The Japanese philosophy, which is aided by the

makeup of their conglomerate firms, is to restructure, shifting the emphasis away from direct marine

involvement. The nonmarine activities consist primarily of shore-based machinery manufacture. In

this way, they do not lose potential capability, but

are not desperate for orders to maintain their present situation. They also are preparing to weather

the orders slump by:

● concentrating on high-technoloy vessels; and

. carrying out concerted market research and

a forceful marketing drive.

AWES is not a governing body, but acts as a consultative and monitoring organization. Thus, the

actions taken by different yards and different countries within AWES do not all correspond to the

stated aims of that body. For instance, in Belgium,

Cockerills Yard (one of only two major yards)

closed in 1982, but the government has stimulated

naval building and construction for the inland waterways to help the industry. Building for their

inland waterway industry serves a useful purpose

in itself. In addition, the shipbuilding industry is

a major consumer of steel, and the Belgian steel

industry also is suffering greatly from the recession.

Also, in the Netherlands, the government turned

down a request for shipbuilding subsidies in early

1983, a situation that has led to the closing of the

Verolme yard and the loss of 6,000 jobs.

The reductions in numbers employed in merchant shipbuilding by the member countries of

AWES (except Portugal and Finland) are shown

below:

Reduction in employment

Employees (December 1975-

Country (end 1975) December 1981)

Netherlands . . . . . 22,700 56%

Sweden . . . . . . . . . 14,000 48%

United Kingdom. 54,600 47%

West Germany . . 46,800* 46%

Italy . . . . . . . . . . . 25,000 36%

Denmark . . . . . . . 16,600 30%

France . . . . . . . . . 27,600 29%

Norway. . . . . . . . . 18,600 29%

Spain . . . . . . . . . . 43,000 24%

Belgium . . . . . . . . 6,100 11%

AWES (overall) . . 275,000 about 3370

“Excludes military sh]pbuildmg,

SOURCE AWES/EEC/A & P Appledore
Ch. 2–World Trade and Shipping ● 3 9

Only Finland has a modest but very healthy shipbuilding industry by any standard. They have concentrated on passenger cruise ships and ships that

navigate in the polar regions and are recognized

world leaders in these markets.

Other Nations

Not all LDCS have succeeded as South Korea

has. Taiwan is producing work for its only major

yard (China Shipbuilding Corp. ) by building up

the national fleet. This buildup follows in the spirit

of multilateral cargo-sharing, although they are

mainly building bulk carriers.

Brazil expects to lay off from 21 to 42 percent

of its 178,000 shipbuilding work force in the near

future. In the latter 1970’s, Brazil was able to build

a healthy shipbuilding industry by attracting foreign

shipbuilders to open yards there to build their rapidly growing national fleet and to build ships for foreign buyers, backed by healthy credit facilities.

Now, faced with a crippling national debt, they are

unable to finance foreign buildings, and have to

seek foreign finance packages and aid to build ships

at all.

In the People’s Republic of China the shipbuilding industry neither is expanding nor contracting to any marked degree. The work force remains

fairly steady. However, they are making great

strides to improve their productivity, which,

coupled with low costs (labor and materials), will

enable them to become very competitive. At the

same time they are building up their national fleet,

and the work so generated is keeping their yards

busy. In addition, they are now marketing outside

the People’s Republic of China. They are in the

fortunate position of taking orders for foreign new

buildings without being driven to it from lack of

work. Thus they are only taking work they want—

work that brings learning, or that opens trade with

a new country. They are building a modern, competitive industry within the existing framework.

Should they choose to enter the international shipbuilding market in a major way, they would undoubtedly be a force to reckon with. There is, however, some doubt whether this will happen, given

the depressed state of the industry worldwide and

the large number of other industrial sectors competing for finance within the People’s Republic of

China.

The United States has a very large shipbuilding

industry (described in ch. 4) compared with other

maritime nations, with over 175,000 total employees in 1980 (compared with 160,000 in Japan).

However, the United States has not competed in

the world market for construction of merchant ships

in the past 20 years. Merchant ship construction

in the United States during the 1960’s and 1970’s

has been almost entirely under Federal Government

subsidy or for the domestic market where construction must take place in the United States by law.

During these years the U.S. shipyards have been

dominated by U.S. Navy construction, and today

naval warship or auxiliary ship construction makes

up over 90 percent of the major U.S. shipyards’

business.

Finance

The whole subject of finance of shipbuilding is

a thorny one but it is certainly true that few, if any,

ships are built at present without credit (except

behind the Iron Curtain). The battle to attract

orders was waged largely with bigger and better

credits until OECD laid down guidelines, known

as the ‘‘OECD Understanding’ on credit terms.

These have been modified, and the limit is now a

maximum of 80 percent credit over a maximum

of 8.5 years at a minimum rate of 7.5 percent per

annum.

Not all shipbuilding nations are in OECD, and

not all OECD members always abide strictly by the

understanding. Thus, the understanding becomes

a broad guideline. Meanwhile, merchant bankers

feel that the period should be extended more in line

with the life of a ship, while many governments,

seeing large amounts of credit extended to developing nations that are struggling to service their loans,

would like to reduce the credit limit.

It would appear unlikely, with a lack of new

building orders and a massive shipbuilding overcapacity, that building credits will be terminated.

On the other hand, it would appear very likely that

direct yard subsidies will be reduced, if not removed, in many countries, as a means to force a

reduction in capacity. Financial assistance is available in some countries for investment in new technology, provided it is linked to reduction of capacity.
40 ● An Assessment of Maritime Trade and Technology

Thus, in the near future, shipbuilding subsidies

in the form of credit are likely to remain as a means

of attracting orders, but direct financing available

to the majority of shipyards is likely to be seriously curtailed.

Outlook for Commercial

Merchant Shipbuilding

It is the volume and pattern of seaborne trade

that generate the demand for cargo-carrying ships.

However, the long leadtime in building ships and

the uncertainty in predicting future trading markets

contribute to an imbalance between supply and demand and to boom and bust cycles in shipbuilding,

In addition, there is some purely speculative ordering of ships for the purpose of selling them later

at a profit.

The present gross surplus of tonnage is due to

ordering of tankers in the 1970’s and the more recent ordering of bulk carriers. Petroleum and bulkcargo markets were expected to expand rapidly, and

ship operators and speculative buyers alike anticipated growing demand for new ships. Largely due

to the severity of the world recession, the growth

in the freight markets did not materialize.

The presence of a tonnage surplus, which is almost always present although fluctuating in size,

tends to act as a check, dissuading operators from

the more extravagant ordering. For this reason, no

sharp increases in new tonnage delivered can be

expected for a number of years. The latest forecasts

from AWES and SAJ (fig. 14) both show that the

level of future ordering is likely to be suppressed

for the next 3 to 4 years.

The major shipbuilding industries in Japan,

South Korea, Europe, and elsewhere, compete for

each order in a worldwide market. The U.S. industry not only is insulated from that world market,

producing only a few percent of the world output

Figure 14.—New Building Demand Forecasm, 1982

---0 A~~ I OW M a

(SAJ foreoast wxwerted from gms rsgiotered tonnage)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

Year

SOURCE: A & P Appledore, 19S2.
Ch. 2—Wor}d Trade and Shipping 41

— —

of commercial vessels, but does not meet its own

domestic demand for merchant ships.

Table 4 shows an approximate breakdown of the

1982 world orders in terms of the percentages built

by each country or group of countries, the percentage expected to be delivered that might go to owners

domiciled in the various countries, and the resulting

percentage surplus or deficit. While these figures

are only projections, they are approximately of the

right magnitude. Overall, West European builders

will satisfy their own demand, although certain

countries such as Denmark, France, and Spain

might get more than their share of ships built. Eastern European builders also will build predominantly

for their own demand, although yards in Poland

and Romania can be expected to take a percentage

of external orders. Japan and South Korea have

captured the remaining market for foreign construction.

These percentages may well change by the end

of the century. But it is of interest to take the tonnages from the SAJ forecast (fig. 14) and to distribute them according to the market shares shown

in table 4. This is depicted in table 5. Tonnages

produced in 1975, the peak year, are shown for

comparison. The forecast tonnages for Japan and

Western Europe are considerably less than the shipbuilding capacity remaining in those areas after

their reductions in capacity of approximately 35

percent since 1975.

The picture that emerges, therefore, is one of:

. increased de facto dependence on nat ion a]

fleets (including vessels owned by nationals but

sailing under another flag) as the basis of future new building orders;

Table 4.—Approximate Percentages of

the World Orderbook

Percentage Percentage

Percentage for national building

Country of total dwt fleets a

surplus

Japan . . . . . . . . . . . . 40 ”/0 320/o 80/0 -

South Korea. . . . . . . 9 3 6

China. . . . . . . . . . . . . 3 3 —

Taiwan . . . . . . . . . . . 2 2 —

AWES members . . . 23 23 —

United States. . . . . . 1 2 - 1

Eastern Bloc . . . . . . 20 18 2

Other. . . . . . . . . . . . . 2 17 -15

Total . . . . . . . . . . . 100 100 0

aAS per Count~ of domlcjle of owner (I e, not by registered f~a9)

SOURCE “Fairplay” World Ships on Order, October 1982

Table 5.—Comparison of Shipbuilding Forecast

Tonnages a and 1975 Production

for Selected Countries

1975b 1985C 1990’

Country product ion forecast forecast

Japan . . . . . . . . . . . . . . . . . 17.0 5.6 9.9

South Korea. . . . . . . . . . . . 0,4 1.3 2.2

Taiwan . . . . . . . . . . . . . . . . Negligible 0. 3 0.5

AWES members . . . . . . . . 12.9 3.2 5.7

United States. . . . . . . . . . . 0.5 0.1 0.2

China . . . . . . . . . . . . . . . . . (d) 0.4 0.7

Eastern Bloc . . . . . . . . . . . (d) 2.8 4.9

aTonnages expressed In milllons of 9fl

b

Lloyds Register

CSAJ Forecast

‘Figures not available individually

. a much smaller international ‘ ‘open market

for new buildings, in which the principal protagonists are Japan and South Korea;

. many developing countries building up or

maintaining existing shipbuilding industries

specifically to cater to local demand;

. continuing emphasis among the AWES nations, Japan and also Korea on:

— diversification into allied sectors as a means

of creating work,

— technological development, both of the \’essels themselves and in the way they are

built, as a means of improving competitiveness; and

. some further reductions in capacity (particu -

larly among AWES countries) but much less

on average than has been seen over the 1975-

82 period.

Most of the established shipbuilding nations of

the world accept the need for the industry to contract further, but do not want to contract further

themselves. The Japanese need to maintain some

40 percent of the world new building market in the

future if they are to maintain reasonable employment in their yards. South Korea is expanding and

will need to attain 10 percent of world output. This

they will probably succeed in doing since their productivity is rising faster than their costs.

China and Taiwan are unlikely to be in the market for foreign orders in any major way, but by

keeping their yards occupied with domestic orders,

they will still have the capacity and capability to

take foreign orders whenever the upturn in orders

should occur. Improving productivity and low costs

will make them competitive.

23-417 0 - 83 - 4 QL 3
42 ● An Assessment of Maritime Trade and Technology

———

WORLD ECONOMIC AND TRADE

OUTLOOK 1982-2000

Introduction

In order to assess the “long-run” outlook for

shipping, OTA asked Wharton Econometrics, Inc.,

to prepare an outlook for world trade through the

year 2000. It is presented because any analysis of

the future of shipping or shipbuilding must consider the directions world trade will take. Trade is

dependent on economic growth, and the demand

for ships is derived from trade. It is important to

note that any forecast that attempts to predict events

many or even several years ahead is subject to error. This forecast assumes no major surprises.

Based largely on their world econometric model,

Wharton prepares 10-year world economic outlooks

covering some 27 countries and regions, forecasting

parameters such as gross domestic product (GDP),

inflation, and unemployment. For purposes of this

study, Wharton’s 1982-92 outlook was extrapolated

to the year 2000. Using this baseline outlook, dynamic trade-flow matrices, which ensure global

consistency, were used to generate annual bilateral

trade flows in value terms for all countries and regions in the system, for all years of the forecast for

three merchandise groups: bulk commodities, fuels,

and manufactured goods. The units of measure are

based on value converted to dollars for all countries. These, in turn, are adjusted in order to

generate constant-dollar measures (in 1975 dollars)

of the volume of exports and imports. At this point,

the bilateral trade flows in constant-dollar volume

terms are converted to bilateral maritime trade tonnages by application of conversion equations developed econometrically on the basis of U.S. Bureau of Census, OECD, and U. N. trade data on

total maritime trade tonnages by category. In addition, corrections were made to eliminate nonmaritime trade flows and to shift coal tonnage from

fuels to bulk commodities. Thus, the final product

is an overall projection to 2000 of world waterborne

trade flows broken into dry-bulk, liquid-bulk, and

general cargo sectors.

Economic Forecast

The economic outlook developed by Wharton is

presented in two parts: the near-term outlook, 1982

to 1987, derived from Wharton’s December 1982

World Economic Outlook, and the long-term outlook, derived from Wharton’ January Long-Term

Wor/d Economic Outlook 1987-92, with extrapolation of key indicators to 2000. Tables 6 and 7 summarize the assumptions and major trends predicted

for parameters relevant to this study.

Near- and long-term projections of growth of

GDP for selected countries and regions are shown

in table 8. The basic economic outlook based on

this projection for the 5 years, 1982-87, is for conTable 6.—World Economic Outlook, 1982-87

Forecast:

World economic growth will average 3.2 percent from 1983

to 1987. U.S. economic growth will average 3.4 percent after

-1.6 percent in 1982.

Unemployment rates will fall slowly from their postwar

historical highs.

Inflation will moderate worldwide.

Balance-af-payments problems of developing countries will

persist because of high real interests costs on their accumulated debts and sluggish growth in the developed

countries.

Economic growth in the oil- and nonoil-exporting LDCS will

be constrained by balance-of-payments problems and

retarded demand for their exports. The major bright spot

in the developing world will be the newly industrializing

countries of the Pacific Basin.a

Assumptions:

●

●

●

●

Real “fuel- and nonfuel-commodity prices will decline in

1982 through 1985 or 1986, respectively, reflecting slow

world growth.

Monetary policies will be moderately restrictive, resulting

in high real interest rates that will retard investment as well

as inflation.

Fiscal policies will not be stimulative as governments attempt to bring large fiscal deficits under control.

High unemployment and lack of flexibility to use monetary

and fiscal policies will encourage more protectionism in

the developed countries, slowing world trade growth, especially manufactured goods.

what Is, the Phillipines, Taiwan, Singapore.

SOURCE: Office of Technology Assessment.
Ch. 2—World Trade and Shipping 4 3

—

Table 7.—World Economic Outlook, 1987”2000

Forecast:

World economic growth will average 3.0 percent with U.S.

growth averaging 2.8 percent.

Unemployment rates will decline slowly but will remain discouragingly high, encouraging protectionism. Mismatches

of jobs available in growth industries and skills of unemployed will persist, encouraging more artificial employment-creating techniques.

Lower growth of real and nominal wages will lower inflation.

Labor force growth will moderate due to lower participation rates (discouraged workers) and demographic factors.

Regeneration of depleted capital stocks will promote rel.

atively faster growth in Japan, but in Europe the existing

capital stock will not be quickly regenerated because of

low rates of return and low competitiveness with newly industrializing countries.

Real interest rates will tend to decline to historical averages

of 2 to 3 percent.

Pacific Basin developing countries will continue their relative rapid growth. Latin American countries will show

much slower growth compared with the 1970’s.

Assumptions:

. Real fuel- and nonfuel-commodity prices will rise relative

to manufactured goods prices.

● Monetary policies will be moderate, permitting money

stocks to grow in line with nominal GDP growth.

● Fiscal policies will continue to be nonstimulative as the

importance of Government spending declines because of

demographics and public policy.

SOURCE: Office of Technology Assessment.

tinuing setbacks to sustained recovery in the United

States, Europe, Japan, and Canada. The most significant feature is the projected weakness of growth

in Europe and Japan compared with the 1960’s and

early 1970s. The delays in Japan and, particularly, Canada are related to the sluggish U.S. performance, but more general causes are the effects of persistently high real interest rates, especially in Europe

and Canada, and the continued pessimism among

investors and consumers, reinforced by higher unTable 8.–Growth of Real GDP

employment rates. Also, a significant part of the

growth of the developed countries in the 1970’s was

due to exports to the developing countries and to

the centrally planned economies (CPES). Import

retardation or restriction by the LDCS and selected

CPES, as they seek to correct their external accounts, will diminish this impetus from abroad.

Forecast economic growth beyond 1987 actually is slower overall than predicted for the previous

4 years. In part, this is because the 1983-87 growth

rates appear higher due to the trough-to-peak problem of using 1983 as the initial year, when most

countries are at a lower-than-trend rate of growth.

However, the more fundamental causes include the

relative changes in capital formation, labor force

dynamics, and labor productivity.

This extrapolation may be pessimistic given the

long period of sluggish growth in the 1980’s. By

1992, a buildup of corrective forces could be

generated by a general recognition that inflation

was under control and structural adjustments in old

industries generally were completed. Capital stocks

would have to be replenished, and new industries

would be burgeoning. However, for some purposes,

a conservative outlook may be the most prudent,

given the tendencies of the maritime industry to

overanticipate periods of recovery,

Outlook for Trade Flows, 1982-2000

Using the model, Wharton has forecast total

trade flows (including nonmaritime trade) in three

major commodity groups: fuels (including coal),

nonfuel commodities, and manufactured goods.

(annual average compound growth rate)

Recovery Moderate growth

1960-73 1973-83 1983-87 1987-2000

World. ... , . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5 2.6 3.3 3.1

Developed countries. . . . . . . . . . . . . . . . . . . . 5.0 2.1 3.1 2.7

United States . . . . . . . . . . . . . . . . . . . . . . . . 4.1 1.9 3.5 2.8

Japan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 3.4 3.3 2.7

Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 1.8 2.6 2.4

West Germany . . . . . . . . , . . . . . . , ... , . . . 4.5 1.5 1,9 2.0

Developing countries . . . . . . . . . . . . . . . . . . . 6.3 3.6 4.6 4.6

Oil-exporting . . . . . . . . . . . . . . . . . . . . . . . . 8.2 1.6 4.9 4.3

Oil-importing . . . . . . . . . . . . . . . . . . . . . . . . 5.5 4.3 4.6 4.8

Centrally planned economies . . . . . . . . . . . . 7,2 4.0 2.9 3.0

SOURCE: Off Ice of Technology Assessment.
44 . An Assessment of Maritime Trade and Technology

Past and predicted average compound-growth

rates for world exports are shown in table 9. For

comparison, GDP growth rates for comparable periods have been included. Following the trend in

growth of world GDP, world trade is predicted to

expand faster after 1985 than during the current

period. For the world as a whole, trade in manufactured goods is expected to regain its traditional position as the fastest growing sector. Growth in trade

in nonfuel commodities remains level. We should

note especially that growth in trade in fuels picks

up after a ‘‘reconstruction’ period, when the movement to conserve fuel relative to GDP growth, due

to the dramatic upward shifts of energy prices in

the 1970’s, has run its course.

The trends and predictions for bilateral trade

flows include several shifts with ramifications for

the shipping industry. The changing pattern of fuels

trade among countries and regions has already

caused major dislocations in the bulk-shipping sectors. The first and second oil shocks, emanating

initially from the Organization of Petroleum Exporting Countries (OPEC) members among the developing countries, led to efforts by the developed

countries to reduce fuel imports and to increase

their own exports of fuels. This was manifested in

the shipping industry by the well-known glut of oil

tankers and the strenuous efforts to move coal by

dry-bulk carriers across the oceans—the latter trade

had been declining steadily. The share of volume

of trade in fuels shifted dramatically from the developing to the developed countries as relative prices

shifted.

The other major shift of note in the trade outlook

is the change in the status ofJapan. Wharton’s projection shows only average growth for Japan as her

period of rapid industrialization fades and a

high-technology, more consumer-oriented society

Table 9.—Average Compound Growth Rates for World

Trade Exports and GDP

1975-80 1980-85 1985-90 1990-2000

World trade (exports):

Total . . . . . . . . . . . . . 5.7 3.1 4.7 5.0

Nonfuel , , . . . . . . . . 5.7 4.0 3.9 3.9

Fuel . . . . . . . . . . . . . 1.6 -0.2 3.4 4.0

Manufactured

goods . . . . . . . . . . 6.8 3.6 5.2 5.5

World GDP. . . . . . . . . . 3.8 2.2 3.0 3.1

SOURCE: Office of Technology Assessment.

emerges. Accordingly, after the export drives that

were evident until 1981, import growth is expected

to overtake export growth in the 1985-90 period.

Market forces and the threat of protectionism will

open Japan’s manufactured-goods marketplace to

new competition, especially from the newly industrializing nations of the Pacific Basin. Indeed, Japan

could be an engine of growth for all southeast Asia

analogous to the role played by the United States

vis-a-vis all developing nations. The developing

countries of the Pacific Basin region thereby could

have two sources of export growth—the United

States and Japan—and thus grow faster than other

developing areas.

A shift toward the Orient could mean a decline

in the relative importance of trade with Europe—

and what trade would remain could become regional rather than intercontinental. European-based

sources of energy, including the U.S.S.R. also

could lower the importance of oil shipping. Nonfuel-commodities growth would not take up the

slack. This, coupled with the relative slowdown of

U.S. nonfuel-cornmodities-imports growth, would

lower the relative importance of the dry- and liquidbulk Atlantic trades between 1987 and 1992, compared with the fairly vigorous growth during the

1973-79 period. The glut of shipping in Atlantic

bulk trades today is a harbinger of these trends.

Outlook for Seaborne Trade

World Trade Patterns

This section summarizes Wharton’s projections

of bilateral maritime trade flows between countries

or regions to 2000. The total tonnages shipped or

projected to be shipped from 1975 to 2000 in the

liquid-bulk, dry-bulk, and general cargo categories

are shown in figure 15. * Between 1985 and 2000,

the fastest growth is projected to be in general cargo

trade with the slowest growth in liquid-bulk shipments. As a result of these differing rates, liquidbulk, which represented the largest share of total

trade in 1975 and 1980 (45 and 40 percent, respectively), in this forecast would account for only 28

percent in 2000. The volume of trade in both dry-

*In this section, data for liquid-bulk include only petroleum and

petroleum products. However, other liquid-bulk cargoes, such as chemicals and liquefied natural gas, account for such a small fraction of

the total that this approximation is appropriate for forecasting purposes.
Ch. 2—World Trade and Shipping ● 4 5

Figure 15.—World Seaborne Trade

Liquid-bulk Dry-bulk General cargo

n = -

8.000 ~

7,000

6,000

5,000, ‘ 1

4,000

3,000

2,000

1 ,(XM

M

,?

o

1975 1980

Year

900

800

700

600

30C

20(

10(

bulk and general cargo is projected to exceed that

in liquid-bulk by 1990.

In the dry-bulk sector (fig. 16)* expanding exports of coal from the United States, and of subsidized agricultural products from Europe, are expected to increase the shares of export trade from

these regions. The shares of the traditional commodity suppliers in the developing world, (i. e.,

Africa and Latin America) correspondingly decline.

● For figs. 16 through 21, showing regional distribution of world

seaborne trade, Oceania and Asia includes Australia, New Zealand,

Afghanistan, and Pakistan to Thailand and south, plus South Korea,

Taiwan, and Hong Kong and the Asian CPES. Europe includes the

British Is]es, Mediterranean, and Northern Europe, and the European CPES.

Figure 16.—World Seaborne Dry-Bulk Exports, Regional Distribution

(

1975 1980 1985 IYY U 1 *ad

Year

SOURCE: Wharton Econometrics, Inc
46 ● An Assessment of Maritime Trade and Technology

These trends for the developing world are to be expected as market forces, as well as public policy,

shift these economies away from being traditional

agricultural- and mineral-commodities suppliers

and toward industrialization with growing exports

of manufactured goods. This generalization is true

especially of South Asia, whose share of general

cargo will be seen to grow even faster than its bulkcommodity share.

For shipborne imports of dry-bulk goods (fig.

17), there are few surprises given the economic outlook for rapid growth in South Asia and the industrialization pace of developing countries in general.

Thus, their own production of dry-bulk commodities is projected to become either less important

or more devoted to serving their own internal development. Hence, they will tend to import more

and export relatively less of this cargo. Shares of

dry-bulk imports in Europe and the United States

are expected to decline.

In liquid-bulk exports (fig. 18), this outlook suggests that the Middle East share will decline to 1985

due to generalized world recession, the oil glut’s

effects on Persian Gulf suppliers’ shares, and the

culmination of major non-OPEC oil and gas substitution efforts involving Mexico, the U. S. S. R.,

the United Kingdom, and the Alaskan slope. In

spite of this decline, however, the Middle East will

continue to dominate world petroleum exports with

over 50 percent of the trade. After 1985, the Middle East share is expected to stabilize, as world

energy conservation slows and Middle East petroleum product shares grow based on the industry

developments in the early 1980’s. Latin America

and Africa appear to remain the major secondary

petroleum exporting regions, with Latin America

Figure 17.-Worid Seaborne Dry-Bulk Imports, Regional Distribution

1975 1980 1985 1990 1995 2000

Year

SOURCE: Wharton Econometrics, Inc.
Ch. 2—World Trade and Shipping ● 4 7

Figure 18.—World Seaborne Liquid-Bulk Exports, Regional Distribution

1,400

1,200

1,oo0

400

200

n

“ 1975 1980 1985 1990 1995 2000

Year

SOURCE: Wharton Econometrics, inc.

overtaking Africa after 1985. This forecast assumes,

of course, that the real price of energy falls until

1985 and rises modestly thereafter. It also implicitly

assumes no significant Middle-East supply interruptions and steady use of new supplies from the

non-OPEC world.

Imports of liquid-bulk (primarily petroleum) cargoes are more evenly distributed than exports, and

some shifts are expected over the next two decades,

as seen in figure 19. South Asia’s share is likely to

grow very rapidly, shown here as doubling between

1980 and 2000. U.S. and, particularly, European

shares decline. Japan, due to its large dependency

on oil with few alternatives that could be landborne,

as is the case for the United States (coal, gas

pipelines) and Europe (gas pipelines from the

U.S.S.R.), is expected to have an increasing share

of petroleum imports.

The pattern of relatively high growth of South

Asian trade is repeated for exports of general cargo,

as seen in figure 20. The newly industrializing

countries of South Asia are joined in growth by the

industrializing countries of Mediterranean Europe.

The U.S. share declines. In this outlook, Northern

Europe’s share is level to 1990, and thereafter falls

swiftly. Such a projection is based on combined

assumptions of a more realistically valued U.S.

dollar, tired European industries, growing intraEurope trade with the Mediterranean and CPE

countries, and structural shifts toward service industries that make Northern European countries

the leading examples of postindustrial societies.
48 ● An Assessment of Maritime Trade and Technology

Figure 19.—Worid Seaborne Liquid-Buik imports, Regionai Distribution

1

1

1

c

. -o

=. -

Z

“ 1975 1980 1985 1990 1995 2000

Year

SOURCE: Wharton Econometrics, Inc.

Imports of general cargo are more evenly distributed than the other commodities (fig. 21). While

no dramatic shifts are predicted in this growing

trade, the largest increases by 2000 are anticipated

in the shares going to Japan and South Asia.

In summary, for the particular Wharton basecase-economic outlook discussed at the beginning

of this section, world seaborne-trade tonnages are

predicted to grow by compound rates of 3.9, 1.6,

and 5.4 percent for dry-bulk, liquid-bulk, and

general cargo, respectively, from 1980 to 2000.

Economic growth and industrialization in South

Asia is reflected in rapidly growing shares of imports, especially in exports of general cargo, and

in expansion of liquid-bulk imports. In the dry-bulk

trades, U.S. and European shares of exports are

expected to increase while shares of imports decline.

U.S. Trade Patterns and Networks

The total tonnages of U.S. seaborne trade in the

three commodity sectors from 1975 projected to

2000 are shown in figure 22, including both imports and exports. In 1980 the greatest tonnages

were in imports of petroleum and dry-bulk exports.

Due to current and projected low growth rates for

the oil trade, it is far outstripped by exports of drybulk cargoes as the largest sector in this forecast.

The trends in dry-bulk imports contrast with the

other trades. Between 1975 and 1980 dry-bulk imports declined while the other sectors were expanding. While the outlook indicates that growth in all

other trades is lower currently (1980-85) than during the previous 5 years or projected to 2000, drybulk imports are shown to have their best growth

during the current interval. The dry-bulk sector as
Ch. 2—World Trade and Shipping ● 4 9

Figure 20.—World Seaborne Generai Cargo Exports, Regionai Distribution

1,600

1,400

1,200

1,000

ma)

c

~

~ 800

.-0

=.-

2

600

400

200

0

4

09” /“” 0“”

0“” /“”

-“’ #

Europe 0“”

L

0“’

/ “

A“”

● ./’”

e

1975 1980 1985

SOURCE: Wharton Econometrics, Inc.

a whole would grow from 49 to 59 percent of the

total U.S. maritime trade between 1980 and 2000,

while liquid-bulk would decline from 40 to 28 percent.

Overall, the forecast predicts that from 1980 to

2000 U.S. shipborne exports of dry-bulk, liquidbulk, and general cargo will grow 4.4,6.4, and 3.9

percent per annum, respectively. U.S. imports of

the same cargo types are projected to grow at 2.4,

0.9, and 3.7 percent, respectively.

Figures 23 through 25* show the current and

forecast geographical distribution of seaborne trade

of the United States derived from the data created

by Wharton.

1990 1995 2000

Year

In the dry-bulk category, exports to LDCS grow

steadily as a share. Among the developing areas,

South Asia’s share expands most rapidly. The coal

trade with Europe grows, but the grain trade appears to decline, lowering the share of dry-bulk

trade to that region overall. Almost no growth occurs in the volume of dry-bulk exports to Europe

until after 1985.

For U.S. imports, this outlook shows Africa’s

and Latin America’s dry-bulk shares progressively declining as industrialization catches up with

their interest in commodity exports. Europe’s share

of our dry-bulk imports appears to increase between

1980 and 1985 due to the strong dollar problem as

well as their new strength in agricultural goods.

● For 23 through 25, showing the regional distribution of U.S.

seabome trade, the regions are the same as for the world figures,

except that Japan has been included in the Asian region.

In the small U.S. liquid-bulk (petroleum) export

trade, the major projection is for a jump in the
50 ● An Assessment of Marjtjme Trade and Technology

Figure 21.— World Seaborne General-Cargo Imports, Regionai Distribution

1

1

1

1

.— - ---- --- 1975 IYWJ 1985

SOURCE: Wharton Econometrics, Inc.

Figure 22.— U.S. Seaborne Trade

,—— -

1,400 1- m

1 al

:1

0

c

.-0

=

s

,Ooo

t

800

t

600

400

200

0u1975 1980 1985 1990 1995 2000

Year

mGeneral cargo

Liquid-bulk

Dry-bulk

SOURCE: Wharton Econometric Forecaatlng Associates.

1990 1995 2000

Year

shares going to Japan and South Asia showing up

in 1985, associated with petroleum developments

in Alaska.

In the fuels-import trade, it is anticipated that

Latin American, African, and Middle Eastern

sources decline significantly while imports from

Europe increase between 1980 and 1985. Beyond

1985, growth is likely in imports from each of those

regions. The rate of growth in European imports

is projected to slow.

In the general cargo trade, exports in the current period remain level or decline slightly. Thereafter, there are significant projected increases in volume to Europe, Asia, and Japan.

U.S. general cargo imports tend to follow world

export share developments. The South Asia region

is expected to displace all others after 1990 to

emerge by 2000 as the most important supplier,

supplanting Japan and Europe.
Ch. 2—World Trade and Shipping ● 5 1

Figure 23.—U.S. Seaborne Dry-Buik Trade, Regionai Distribution

400

350

300

250

u)

:

c

: 200

.-0

=.-

x

150

100

50

0

-- ./ .

IAMl

1975 1980 1985 1990 1995 2000

Year

SOURCE: Wharton Econometrics, Inc.

--- Figure 24.—Seaborne Liquid-.Buik Trade, Regionai Distribution

1975 1980 1985 1990 1995 2000

Year SOURCE: Wharton Econometrics, Inc.
52 . An Assessment Of 

-— Maritime Trade and Technology

Figure 25.—U.S. Seaborne General Cargo Trade, Regional Distribution

i975 1980 1985 1990 1995 2(

Year

SOURCE: Wharton Econometrics, Inc.

)00

IMPLICATIONS OF THE TRADE OUTLOOK

FOR U.S. SHIPPING

There are several risks inherent in attempting

to project from an economic forecast potential opportunities for U.S.-flag shipping. First, the forecast

itself may not have anticipated certain major events.

Second, if it is accurate, while a demand for ships

will be created by an increase in trade, that does

not necessarily mean an increase in U.S.-flag shipping. U.S. carriers must be competitive if they are

to capture a meaningful share of U.S trade. Currently they maintain such a share only in liner

trades; the U.S.-flag liquid- and dry-bulk fleets

almost are nonexistent in foreign trade.

Assuming that U.S.-flag ships will carry a substantial share of the projected trade, opportunities

should exist both in the general cargo and dry-bulk

sectors. U.S. dry-bulk trade will rise from 49 to 59

percent of all U.S. seaborne trade. The current glut

of tonnage on the world market should disappear

within several years. U.S. trade with developing
Ch. 2—World Trade and Shipping . 53 —

countries will rise, particularly in the South Asia

region. Ships clearly will be required. However,

the real question is whether U.S.-flag carriers will

begin to share in the carriage of our dry-bulk trade.

It is unlikely that this will occur without major competitive or policy changes.

In the liquid-bulk sector, few opportunities will

exist. Trade will rise only moderately through 2000,

and the already overtonnaged market is expected

to continue for the foreseeable future. Here, as in

the dry-bulk markets, the U.S.-flag fleet has been

unsuccessful in capturing more than a tiny fraction

of U.S. trade in the past.

Future trade growth in the general cargo area

could be significant. U.S. exports over the long

term are expected to increase to Europe, Asia, and

Japan, while South Asia will predominate in the

U.S. import trade. Replacements will be needed

for older, inefficient U.S.-flag liner vessels, and new

capacity will be needed. However, this may not

translate into substantial additional numbers of new

ships because the newer generation of container

ships are massive, suited for high-capacity service.

Liner operators will need to restructure their fleets

to accommodate the shifting trading patterns.

Finally, long-term trade projections only are useful in a policy sense if they are used as one of the

tools in anticipating future needs and opportunities.

When major policy changes are proposed, as they

have been recently, it is important to determine if

the policies are addressing future situations clearly. Forecasting is very difficult, but it is also very

necessary for informed action. The development

of maritime policy would be enhanced by access

to current trade forecasts that take into account a

coherent global view of trading relationships and

that are simple and flexible enough to be continually

matched to changing conditions in the world and

in the United States. At present, the Federal Government does not maintain accurate and current

maritime trade data and forecasts. The U.S. Government collects and stores monumental quantities

of commodity import and export data, but to obtain information relevant to world trade and shipping, we must rely on such countries as Norway

and the United Kingdom for timely, quality statistics and analyses.
. .- ’.%

 ..’
Contents

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 57

The U.S. Liner Industry

(in International Trade) . . . . . . . . . . . . 59

Liner Trades . . . . . . . . . . . . . . . . . . . . . . . . . . 59

The Liner Fleet . . . . . . . . . . . . . . . . . . . . . . . 61

U.S. Liner Shares . . . . . . . . . . . . . . . . . . . . . 61

Technological Developments . . . . . . . . . . . . . 61

Cost, Productivity, and Competitiveness . . 65

Influence of Cargo Preference . . . . . . . . . . . 67

Conferences, Pooling, and Cooperatives. . . 68

Pricing, Rates, and Shippers’ Councils . . . 71

Future Competitiveness of U.S.

Liner Fleet . . . . . . . . . . . . . . . . . . . . . . . . . 72

TheU.S. Bulk Fleet in Foreign Trades . 73

The U.S. Domestic Fleet . . . . . . . . . . . . . 76

The Domestic Tanker Trades . . . . . . . . . . . 77

Regulation of Domestic Liner Trades . . . . . 79

Use of Foreign-Built Ships in Domestic

Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Technological Developments . . . . . . . . . . . . . 80

The Future U.S.-Flag Fleet . . . . . . . . . . . 81

TABLES

Table No. Page

lo.

11.

12.

13.

14.

15.

U.S. -Flag Privately Owned Merchant

Fleet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

.Age Distribution U.S.-Flag

Privately Owned Fleet . . . . . . . . . . . . . . 58

The U.S. Effective-Control Fleet

as of December 1982 . . . . . . . . . . . . . . . . 58

U. S.-Flag Liner Fleet, July 1983 . . . . . 59

U.S.-Flag Liner Shares, Total U.S.

Trade Volumes, and LT. S.-Flag

Ton-Miles Carried . . . . . . . . . . . . . . . . . 60

Major U.S.-Foreign Trade Routes

for Containerized Cargo, 1980 . . . . . . . 60

16.

17.

18

19.

20.

21.

22.

23.

24.

25,

26.

Financial Data for U.S.-Flag

Liner Companies Engaged in

Foreign Trade . . . . . . . . . . . . . . . . . . . . . 65

U.S.-Flag Liner Companies in

Foreign Trades: Summary of

Financial Results, 1980 -83 . . . . . . . . . . . 65

Productivity Comparison of U.S.

Privately Owned General Cargo Fleet,

Annual Maximum Deadweight TonMile Capacity per Year . . . . . . . . . . . . . 67

Importance to Liner Vessels of

Carriage of Government

Preference Cargoes . . . . . . . . . . . . . . . . . 68

Hypothetical Profit Impact of

U.S.-Flag Preference Cargo on

Containership Operations . . . . . . . . . . . . 68

Cooperation Forms Practiced by

Liner Operators . . . . . . . . . . . . . . . . . . . . 70

Typical U. S.- and Foreign-ship

Construction Costs-1982 . . . . . . . . . . . 74

CDS-Built Tanker Fleet . . . . . . . . . . . . . 74

U.S. Dry-Bulk Carriers in

International Trade . . . . . . . . . . . . . . . . . 75

U.S. Dry-Bulk Export and

Import Trades . . . . . . . . . . . . . . . . . . . . . 76

Active U.S. Flag Domestic Fleet

as of May 1, 1983 . . . . . . . . . . . . . . . . . . 77

FIGURES

F’igure No. Page

26.

27.

28.

Relative Costs for Crew for a

Typical Containership Operating

Under Various Flags . . . . . . . . . . . . . . . . 66

Gulf.-East Coast Tanker

Movements . . . . . . . . . . , . . . . . . . . . . . . . 77

Industry Outlook for the

Alaskan Tanker Trade . . . . . . . . . . . . . . 79
Chapter 3

The U.S. Shipping Industry

OVERVIEW

The U.S. shipping industry consists of at least

two clearly separate business sectors: liner and bulk.

Liner companies operate containerships, roll-on

roll-off (RO/RO) ships and other general cargo

ships in a regular scheduled service carrying diverse

cargoes from port to port at set rates, much like

a railroad or trucking operation. The largest and

most prominent liner companies are engaged increasingly in cargo transportation between inland

locations in which ships serve only as links in an

overall transport system. The bulk-shipping business usually handles large tonnages of single commodities by operating one or a fleet of ships espec i all y designed for one cargo. Bulk companies

include shipping departments of major petroleum

corporations who operate tanker fleets, as well as

independent bulk ship operators, who may operate

tankers, dry-bulk carriers (ore, coal, grain), and

combination ships (under various long- and shortterm leases or charters) in the bulk and ‘‘neobulk’

trades. (Neobulk is a term that describes movements of various cargoes in shipload lots—e. g.,

lumber, cars, or steel). Bulk and liner businesses

often have very different problems and business

outlooks, and the effectiveness of Government policies may depend on how well they reflect those

differences. * This chapter is therefore divided into

separate discussions of these two business sectors.

The U.S. shipping industry is also divided by

flag of operation, as well as into international and

domestic trades. The U.S. merchant fleet is usually

considered to consist of U. S. -flag privately owned,

self-propelled vessels of over 1,000 gross tons. This

definition excludes inland waterway barge systems,

small ships, and most service craft such as fishing

boats, pleasure boats, or crew boats. It includes

practically all U.S. -flag ships engaged in interna-

● %mc anal)sts hay(’ d<s( ribrd these two business xc t{)r~ as ‘‘comm(:n carriers and ‘‘c ont rac I c arrim’ rathrr than 1 incr and bulk.

Such terms ma) more ( learly clcnotc the dlffcrcnces in (hc businesses

rather than the kind of ( ar~() ( arried. It is also of interest to note rhe

diffcrcn( e in growth ratc~ of thcs[ two husincss sectors and [h< (llffcrencc I n effect i~cncss of Federal pol ir ies on t hcm.

tional trade and the major ships in the domestic

coastal and offshore (i. e., Hawaii, Alaska, Puerto

Rico) trades.

One could extend a definition of the U.S. shipping industry to include the fleets owned by U.S.

corporations but registered in other countries. That

fleet-consisting principally of’ tankers and dry-bulk

carriers—is significant by any standards. About 36

percent of the Liberian-flag fleet and 17 percent of

the Panamanian-flag fleet is ‘ ‘beneficially owned’

by U.S. companies. *

The term used to describe the merchant ships

registered in Liberia and similar countries is ‘‘flagof-convenience fleet. The term reflects the ease

of registration and minimum taxes and regulations

prevalent in those countries. The shipowners have

the flexibility to use crews of any nationality, to construct the ships in any country, and to operate outside the framework of their own national laws and

regulations. The shipowners themselves, prefer to

use the term ‘ ‘flags of necessity’ for these fleets,

reflecting the view that economics dictates the use

of such flags where businesses can operate at competitive costs.

The term often given the U.S. flag-of-convenience fleet is the ‘‘U.S. effective-control’ fleet. The

major petroleum and other U.S. corporations that

own this fleet contend that because it is U. S.-

owned, it is effectively under U.S. control and can

be considered as part of the U.S. fleet, especially

in times of national emergency. Although provisions to make this fleet available under emergencies are in effect through agreements between industry and Government and between U.S. and foreign governments, we will not in this report define

the U.S. merchant marine to include this fleet. We

——— —. ———

“Based on data compiled by A & P Appledore, Inc. for the Unit(’d

Nations Conference on Trade and De\clopment (UNCTAD)

!Nx-retariat in 1981. ‘‘Benefrciall) owned’ is defined as designating

the owner who recei~’es the benefits or profits from the operation.

57

25-417 0 - 83 - 5 QL 3
58 ● An Assessment of Maritime Trade and Technology ———— —-— —.—. —

will, however, in this chapter present some data on

this fleet.

Table 10 lists vessels in the U.S.-flag merchant

fleet by type of ships. Table 11 shows the age distribution of these vessels. Of this total fleet, the U.S.

liner fleet is the predominant sector in international

trade. Certain ships in international trade are eligible for a variety of Government subsidies (discussed

in ch. 6) intended to allow them to compete with

lower cost foreign-flag ships. Most liner companies

belong to steamship conferences (discussed later in

this chapter), which set rates and generally establish

rules or cooperative operating agreements for their

members. The U.S.-flag tanker and dry-bulk fleets

dominate the domestic trades. Table 12 lists the

ships which are owned by U.S. companies and registered under foreign flags (the U.S. effectivecontrol fleet). The total tonnage is about twice the

U.S.-flag fleet; 85 percent of the tonnage is in

tankers and most of the remainder is in dry-bulk

and combination-bulk carriers.

The domestic trade U.S.-flag fleet operates under

entirely different circumstances than the foreigntrade fleet. By law, all domestic waterborne trade

must be carried by U.S.-built, U.S.-flag ships.

Table 10.—U.S.-Flag Privately Owned Merchant Fleet

(oceangoing ships 1,000 gross tons and over

as of Jan. 1, 1983)

Number of Deadweight

ships tons

General cargo . . . . . . . . . . . . . . . . . 240 4,312,153

Breakbulk/partial container. . . . 104 1,404,688

Containership . . . . . . . . . . . . . . . 97 1,868,274

RO/RO—vehicle carriers . . . . . . 18 274,043

Barge carriers . . . . . . . . . . . . . . . 21 765,148

Bulk cargo . . . . . . . . . . . . . . . . . . . . 18 618,018

Tankers . . . . . . . . . . . . . . . . . . . . . . 233 14,220,469

Special products/liquefied

natural gas (LNG) . . . . . . . . . . . . 33 1,601,551

Other (coastal, passenger) . . . . . . 17 110,396

Total . . . . . . . . . . . . . . . . . . . . . . . 541 20,862,587

SOURCE: “Ship Register,” Military Sealift Command, Department of the Navy,

Washington, D. C., January 1983.

There is no foreign competition and no direct government subsidy. However, the ships and barges

must compete with other modes of transportation

(unless they engage in offshore trades, i.e., Hawaii,

Puerto Rico) —pipelines, truck, and rail predominantly, and the domestic markets are open to potential new competitors. The following discussions of

the foreign and domestic U.S. -flag fleet will examine the important aspects of each and note the dominant trends for both liner and bulk operations.

Table il.—Age Distribution U. S..Flag Privately Owned Fleet (Jan. 1, 1983)

Total Under 5 5-9 10-14 15-19 20-24 25 years

ships years “ years years years years and over

Total all ships . . . . . . . . . . . . . . . . . . . . . . . . . . 541 59 72 81 70 93 161

General cargo . . . . . . . . . . . . . . . . . . . . . . . . . . 240 24 18 48 56 54 40

Breakbulk/partial container . . . . . . . . . . . . . 104 1 7 45 47 3

Containership . . . . . . . . . . . . . . . . . . . . . . . . 97 19 ; 22 9 7 37

RO/RO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2 8 6 2 0 0

Barge carriers . . . . . . . . . . . . . . . . . . . . . . . . 21 2 6 13 0 0 0

Buik cargo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4 3 2 0 1 8

Tankers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233 17 44 28 11 37 96

Special products/LNG . . . . . . . . . . . . . . . . . . . 33 11 7 3 1 2 9

Other (coastai, passenger) . . . . . . . . . . . . . . . 17 3 0 0 2 4 8

sOuRCE: ‘Ship Register,” Military Sealift Command, Department of the Navyj Washington, D. C., January 19S3.

Table 12.—The U.S. Effective=ControI Fleet as of December 1982

Number 000 dwt Average 000 dwt

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General cargo . . . . . . . . . . . . . . . . . . . . . . . . . .

Breakbulidreefer. . . . . . . . . . . . . . . . . . . . . .

Containership . . . . . . . . . . . . . . . . . . . . . . . .

RO/RO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Barge carriers . . . . . . . . . . . . . . . . . . . . . . . .

Bulk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

General bulk . . . . . . . . . . . . . . . . . . . . . . . . .

Combination, ore/bulk/oil . . . . . . . . . . . . . .

Tanker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Special product/LNG . . . . . . . . . . . . . . . . . . . .

Passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

466

73

52

10

6

5

106

76

30

259

27

1

47,221.8

525.7

334.4

25.5

35

130.8

6,466,6

3,537.9

2,928.7

39,426.7

793.3

9.9

101.33

7.20

6.43

2.55

5.83

26.16

61.01

46.55

97.62

152.23

29.38

9.90

SOURCE: Federation of American Controlled Shipping, March 1983.
Ch. 3–The U.S. Shipping industry . 59

—

THE U.S. LINER INDUSTRY

(IN INTERNATIONAL TRADE)

The U.S.-flag liner industry engaged in international trade consists of 8 major ship-operating

firms with fleets ranging from 3 to 46 vessels (see

table 13). The three largest firms own and operate

over half of the total tonnage. Seven of the major

firms operate their foreign trade ships under the

U.S. Maritime Administration’s (MarAd) Operating Differential Subsidy (ODS) program whereby

a portion (up to 20 percent) of each operator’s cost

differential with foreign-flag ships operating on the

same trade route is covered by direct subsidies (see

ch. 6). One of the largest firms, Sea-Land, does

not receive direct subsidies. U.S. liner trades have

increased about 30 percent in tonnage over the past

decade, while the U.S.-flag industry has remained

rather constant in tonnage capacity. However, the

fleet has changed in character, improved its productivity, and moved toward offering intermodal

services.

During 1982 and continuing into 1983, the U.S.

liner industry suffered substantially from the worldTable 13.—U.S.-Flag

wide recession, and the overall cargo volume in key

trades shrank markedly. Industrywide losses were

posted for the first quarter of 1983 even with subsidies. This has left some companies in a difficult

financial position—especially the smaller operators,

who are not well capitalized. On the other hand,

a few of the larger companies are aggressively expanding their services and building new, large containerships to modernize their fleets.

Liner Trades

In the past two decades, U.S. liner cargo growth

rates have averaged 2 to 3 percent per year. U.S.

trade growth with Southeast Asia, at over 5 percent per year, has been particularly dramatic. At

the same time, the mix of commodities has changed

to much lower density cargo and thus, demand for

shipping space has grown at a faster rate than cargo

tonnage.

Liner Fleet, July 1983

Number Gross

of tonnage Percent share

Company ships (000) tonnage

Engaged In International trades:

● U.S. Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sea-Land Service, Inc.b

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

● Lykes Brothers Steamship Co.. . . . . . . . . . . . . . . . . . . .

● American President Lines. . . . . . . . . . . . . . . . . . . . . . . .

● Delta Steamship Lines . . . . . . . . . . . . . . . . . . . . . . . . . .

● Waterman Steamship Corp. . . . . . . . . . . . . . . . . . . . . . .

● Farrell Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

● Prudential Lines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Engaged in domestic (offshore) trades:

Matson Navigation Co. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Navieras de Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . .

37a

36

46C

Z l d

z 4 e

l o f

89

3

6

h

8’

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 217

708a

672

558 C

472~

319e

256f

1409

79

135fl

131’

221

3,691

19

18

15

13

9

7

4

2

4

4

“These companies operate with Federal operating differantlal subeidles, which totaled over S350 million in fiscal year 1982.

alncludes seven breakbulk ships on time charter to the Military Sealift Command (MSC) and six Partial containerships, totaling 70,000 gross registered tons (grt), operated by Moore McCormack Lines.

bSea.Land participates In the domestic trades as Well as the International tr~es.

clncludes nine vessels, totaling 99,700 gd, chartered to MSC.

djncludes one vessel, of 15,949 grt, chartered to MSC.

elncludes S~X ships on charter from Prudential Lines.

flncludeS one ~sl+ vessel, of 28,487 ~~, chartered to MSC. _fhree LASH vessels in the Waterman fleet are on long-term charter

from Central Gulf Lines.

glncludes two vessels, totaling FJ2,W() grt, chartered to MSC.

hMatson haS two additional vessels, presently in indefinite laWP, tOtalin9 3%311 gn

iNavieraS owns three of the ships in their fleet and Charters the remaining five.

SOURCE: Telephone conversations with liner companies; Seatrade, U.S. Yearbook 19S2; US. Maritime Administration.
60 ● An Assessment of Maritime Trade and Technology

As can be seen in table 14, more than half of the

trade by volume is with Europe (including the Mediterranean region), Japan, and South Korea. There

is also significant trade with Central and South

America, Southeast Asia, the Middle East, and

Africa. In 1981, 84 billion ton-miles of liner carriage was provided to and from these regions. Table

15 illustrates the containerized cargo-shipping

routes by percentage of volume transported. More

than one-third of the total in 1980 went from the

United States west coast to Japan and one-fourth

from the United States east coast to Europe.

The world trade outlook in chapter 2 indicates

that U.S. trade volume probably will continue to

grow throughout the rest of the century, albeit at

slower rates than for the last 10 to 15 years. Trade

with developing countries, particularly in the Far

East, could grow at a higher rate than total trade.

One major possible negative development would

be aggressive protectionism in the United States

and abroad, particularly in the short run, as a response to the worldwide recession and to the serious

balance-of-payments problems of many countries,

especially oil-importing less developed countries

(LDCS).

If a more moderate trade-growth rate does occur, U, S. carriers will be forced to compete with

rapidly growing foreign-flag fleets for the limited

cargo available and will need to continually increase

service efficiency and capability. For example, the

LDCS are now developing the infrastructure required for containerization, and may also improve

the capabilities and efficiency of their fleets. It is

likely that intermodal services will continue to exTable 15.—Major U. S. ”Foreign Trade Routes

for Containerized Cargo, 1980

Percent of total

containers

carried in

Trade route and out

U.S. Pacific coast to Far East and Australia 38

U.S. Atlantic coast to Europe

including Mediterranean) . . . . . . . . . . . . 29

U.S. Atlantic coast to Far East and Australia 11

U.S. gulf coast to Europe . . . . . . . . . . . . . . 5

U.S. Atlantic coast to Caribbean

and South America . . . . . . . . . . . . . . . . . 5

U.S. Pacific coast to Europe . . . . . . . . . . . 4

U.S. gulf coast to Far East . . . . . . . . . . . . . 2

U.S. gulf coast to Caribbean . . . . . . . . . . . 1

All others. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

SOURCE: US. Maritime Administration, Containerized Cargo Statistics— 1980.

pand in all trades. This could lead to increased competition among those liner conferences that serve

the same trades; e.g., the U.S. Pacific coast-toEurope trade is served by both direct all-water carriers and by using a combination of truck or rail

to cross the United States and ships to and from

U.S. Atlantic coast ports. But it may also offer opportunities for those U.S. operators that are in the

forefront of intermodal technology and management systems.

U.S.-flag operators can also benefit from the increased trade volumes, particularly in the Far East

trade. Operators in the less developed trades—particularly South America and Africa—may face declining trade volumes outbound from the United

States in the near future, since the LDCS are likely to restrict imports to protect their balance-ofpayments positions.

Table 14.—U.S.-Flag Liner Shares, Total U.S. Trade Volumes, and U. S. ”Flag Ton-Miles Carried

Total U.S. trade volumes

U.S.-flag shares (roil LT) 1981

U.S.-flag carriage

1967 (“/0) 1981 (“lo) 1981/1967 1967 1981 1981/1967 (billions of ton-miles)

Japan and South Korea . . . . . . 11.8 21.9 1.86 10.22 11.03 1,08 14.3

North Europe . . . . . . . . . . . . . . . 13.7 27.9 2.04 13.97 13.44 0.96 15.4

Australia. . . . . . . . . . . . . . . . . . . 19.4 24.5 1.26 1.38 2.37 1.71 4.7

Mediterranean . . . . . . . . . . . . . . 25.3 30.2 1,19 3.71 5.18 1.40 7.5

Southeast Asia . . . . . . . . . . . . . 30.4 28.0 0.92 4.11 8.93 2.17 19.2

Mideast/South Asia . . . . . . . . . 30.7 29.3 0.95 3.35 3.66 1.09 7.9

Americas . . . . . . . . . . . . . . . . . . 32.6 30.9 0.95 7.68 9.24 1.20 9.9

Africa . . . . . . . . . . . . . . . . . . . . . 51.0 26.8 0.53 2.28 3.66 1.61 5.1

Total . . . . . . . . . . . . . . . . . . . . 22.1 27.2 1.23 46.79 57.54 1.23 84.0

SOURCE: Manalytics, Inc., “Assessment of Maritime Trade and Technology—Task on U.S. Shippingl” prepared for the Office of Technology Assessment, U.S. Congress, December 1982.
Ch. 3—The U.S. Shipping Industry ● 6 1

The Liner Fleet

During the last decade, there has been a substantial transformation of the U.S.-flag general cargo

fleet, of which the foreign trade liner segment now

accounts for approximately 75 percent. The fleet

has changed from mostly small multipurpose general cargo carriers to mostly large special-purpose

containerships. Between 1971 and 1981, the total

U.S.-flag general cargo fleet tonnage actually declined, largely as the result of scrapping old

multipurpose ships. For the remaining component—the liner fleet of full containerships, partial

containerships, and RO/ROs—the growth has been

dramatic—from 1.5 million to 3.9 million deadweight tons (dwt), or almost 10 percent per year.

The growth rate in the U.S.-flag liner fleet in terms

of capacity, from 1971 to 1981, was almost 5 percent per year.

Unlike the world fleet as a whole, the U.S.-flag

fleet’s most important ship type is the containership. The average size of containerships in the U.S.

fleet is about 19,000 dwt. U.S. companies have,

however, operated some of the largest containerships and at present have on order a group of super

containerships. While some other major maritime

nations operate fleets of large containerships, they

generally are not in service in the U.S. trades.

These containerships are in service in the EuropeFar East and other long route trades, usually as part

of multiflag consortia.

Most of the U.S.-flag liner fleet is dedicated to

U.S.-foreign trades. This is a result of a number

of laws, as well as the economics of this trade. For

example, a large portion of the liner fleet operates

under Federal operating differential subsidies

(ODS) which, among other constraints, requires

operators to serve specific assigned (i. e., essential)

foreign trade routes. Those operators who receive

ODS are prohibited from carrying cargo between

domestic points except when authorized by MarAd

under Section 506 of the 1936 Merchant Marine

Act. One unsubsidized liner operator carries some

domestic trade cargo when it fits their overall trade

route schedule. Others may also carry some foreignto-foreign (cross trade) cargo along a specific route,

but most of this cross trade is not dominated by

U.S.-flag operators.

U.S. Liner Shares

Because of successful productivity improvements

by some major operators, the U.S.-flag liner fleet

has maintained a healthy share of U.S. foreign

trade despite effective foreign-flag competition. The

U.S.-flag share was 27 percent in 1981, up from

22 percent in 1967. It peaked in 1974-75 at approximately 30 percent. Some claim that Federal subsidies helped to maintain the U.S. liner fleet’s cargo

share position, while others claim that subsidies

have constrained growth because of inflexible requirements (see ch. 6).

There is a variation in U.S.-flag share and level

of ship sophistication by foreign area of service. Fifteen years ago, U.S.-flag shares were much higher

in LDC trades, where both the economies and shipping technology and infrastructure were less developed than in developed countries’ trades. Recently, however, U.S.-flag shares have declined in the

LDC trades, as national-flag competitors have entered those trades and expanded rapidly from a very

small base, often with substantial government support. U.S.-flag shares have increased significantly

in the developed countries’ trades, mainly in the

period 1972-74, due largely to conversion (by now

essentially complete) to containerization. Now, as

seen in table 14, U.S.-flag liner shares only vary

by 10 to 20 percent, from region to region. Furthermore, large segments of the developed countries trades formerly served by liner operators have

switched to neobulk/contract/proprietary service

(autos, iron and steel products, scrap, and forest

products), which tend to move almost entirely in

foreign-flag ships, leaving behind the common carriage, high-service segment of the developed countries’ trade for U.S. -flag carriers.

Technological Developments

As discussed in chapter 5, most recent technological innovations in liner shipping have been

spurred by a need to reduce costs. The United

States has been among the world’s leaders in the

introduction of major new technologies in the

1960’s and 1970’s, such as containerships and other

intermodal concepts like lighter aboard ship

(LASH) and integrated tug barges (ITBs). Coun-
62 An Assessment of Maritime Trade and Technology

tries other than the United States quickly adopted

the most successful of these technologies into their

fleets, however, and have been much more active

in the introduction of certain fuel- and cost-saving

features and automation to reduce crew size. In

these respects, the United States has been constrained by certain union agreements regarding

crew reduction and by some Government policies

which, until waivers were granted very recently,

prohibited the use of foreign-built main machinery

in ships constructed with either title XI loan guarantees (see ch. 6) or construction subsidies. Since

there are no U.S. manufacturers of large, slowspeed diesels, this Federal policy, in effect, denied

U.S.-flag operators access to an advanced fuelefficient technology common in other major maritime nations. Because of this, it probably will be

some time before U.S. liner operators catch up to

other countries.

Chapter 5 also describes the recent emphasis on

reducing energy costs. This has manifested itself

in the reduction of operating speeds for liner ships

and the introduction of new technologies and procedures such as more efficient diesel engines, better controls to maximize the efficiency of the powerplant, fuel-treatment systems that allow use of

lower grade fuels, and bottom scrubbing.

In the liner trades, there has also been a trend

toward specialized ships (particularly container, but

also LASH and RO/RO) over the past two decades.

This trend is expected to continue but not to the

point where the conventional multipurpose ships

are completely phased out of service. Ships with

flexible capabilities will undoubtedly be necessary

for certain trades where:

●

●

●

●

significant amounts of heavy-lift cargoes are

moved;

a substantial container imbalance exists;

there is a significant amount of cargo in both

directions that is only marginally containerizable; and

national priorities and investment strategies

do not favor the development of the domestic

transportation infrastructure needed to support container service.

New ship types such as auto carriers and wide-hatch

forest products ships have been introduced during

the 1970’s and are referred to as ‘‘neobulk’ ships,

These ships have specialized hulls and cargo-handling systems designed to significantly reduce costs.

U.S.-flag operators have not developed these systems to the same extent as foreign operators. Combination ships such as auto/bulk and container/bulk

ships also have been introduced, often sailing on

triangular voyages with foreign-to-foreign legs incorporated into their itineraries. The development

of these neobulk and combination vessels is expected to continue,

There is also a clear trend toward larger ships

in the liner trades, brought about in large part by

the trend toward specialized ships. However, the

largest such ships currently on order (U.S. Lines’

4,200-teu ships) are approaching the draft, beam,

length, and shoreside crane constraints imposed by

the world’s harbors and channels. *

According to the 1982 yearbook published by

Containerization International, of the approximately 930 containerships over 500 teu, about 5 percent are in the super carrier size range of over 2,000

teu. A sizable number of new buildings, however,

are of these larger ships and in the more distant

future, as intermodal activity concentrates on fewer,

larger volume ports, with great economies of scale,

there will be more incentive to deepen or widen

channels to accommodate even larger, more specialized ships. Thus, liner shipping operations may

become more focused around fewer major port

complexes with feeder services to and from the

“hub” ports.

The average crew size of the U.S.-flag liner ships

has been declining (but very slowly) as automated

engine rooms and other labor-saving devices have

been introduced. The cost savings, however, are

not proportional to the reduction in crew size due

to expenses associated with the automated equipment and increases in shoreside contracts for maintenance and repair formerly performed by shipboard personnel. Discussions with maritime unions

to decrease personnel requirements are likely to

continue since the technology exists for further

reductions in crew size. One possible change is

— —

“Containershlp sizes are commonly stated in terms of teu (the number of twenty-foot-equivalent units, or twenty-foot containers, the ship

could carry). The U.S. Lines’ 4,200-teu ship designs are reported to

be about 58,000 dwt. The recently completed 2,500-tcu containerships

for American President Lines are each 49,000 dwt with a length of

860 ft, a beam of 105 ft, and a draft of 35 ft.
modification in the seamen per billet ratio (the total

number of employees compared to the number required onboard ship at any one time). Typically

in the United States today, that ratio is 2 to 1, with

each crew member on board ship 6 months per

year, as per typical union contracts. Discussion of

a 3 to 2 ratio is taking place. Other possible trends

include multiskilled crew designations and elimination of certain exclusive billets, such as radio operator. These changes, while brought about by technology and automation advances, will require labor

policy changes by the unions and in Federal regulations. The U.S. seafaring unions, to date, have

been reluctant to accept reductions in crew size except for certain new ships.

Terminals, particularly container terminals, have

been increasingly automated to reduce labor costs

and improve service levels. Automated terminals

can stack containers higher than nonautomated terminals, thereby reducing the amount of land required for a given amount of cargo handled. This

trend toward automation is likely to continue. A

development that has not been apparent, at least

in the United States, is the introduction of large,

multiberth, multiuser terminals. These can reduce

land requirements and thus may reduce costs (per

unit of through capacity) significantly. If the apparent cost effectiveness of this type of terminal is

proven, it could be introduced in the United States.

The U.S. maritime industry has developed more

than its share of advanced technology. However,

it has not excelled in the economic use of new technology or the adoption of technology from other

countries and other industries. U. S, -flag carriers

have been slow to introduce shipboard automation

and to convert to diesels. As noted above, foreignbuilt diesel engines were prohibited by law for vessels built with construction differential subsidies

(CDS) until 1977, and U.S. Navy policies promoted the use of steam turbines as acceptable defense features for subsidized merchant ships because

they could be more readily designed with large reserve power. Some U.S.-flag carriers now are buying management services regarding diesel operation from divisions of European companies set up

just to provide these services.

Since the 1977 MarAd waiver which permitted

a new class of American President Lines containerships to be built with foreign-supplied diesel power-
Modern container-handling terminals, such as this

the productivity of

plants, a major shift toward the use of mediumand low-speed diesel engines in the commercial

shipping industry in the United States has been

underway. This shift was also prompted by the oil

embargo of 1973, which resulted in fuel costs becoming the fastest growing operating expense. U.S.

operators are also now constructing a number of

ships in foreign yards and are not constrained by

either CDS ‘‘buy America’ policies or a need to

meet U.S. Navy requirements for generous ‘ ‘reserve power. Recently, there also has been a

change in U.S. naval vessel propulsion designs to

medium-speed diesel and lightweight gas turbine

engines. Thus, the rationale for requiring the use

of steam propulsion as a national defense feature

Photo credit: Matson Lines

one in Los Angeles, have markedly increased

liner shipping

has been eroded. The U.S. Navy and its logistics

support arm, the Military Sealift Command, have

incorporated new technology medium-speed diesel

engines into several new classes of logistic support

and amphibious ships.

Some observers believe that the ODS Program,

with its downside protection and service constraints,

is largely responsible for the rather poor record of

U.S.-flag operators in the adoption of new technologies. Others contend that the high manning levels negotiated between the carriers and the unions

(and paid for in part by the taxpayers through

ODS) are to blame, since investment in innovation requires as a quid pro quo a reduction in labor
Ch. 3—The U.S. Shipping Industry ● 6 5 ———— — — —

costs. Whatever the cause, a valid goal for future

policies should be to eliminate such distortions and

barriers to more productive shipping, whether subsidized or not.

Among the most notable of U.S.-flag management successes has been the extensive implementation of intermodal service, particularly in landbridge* offerings in the U.S./Far East trade and

the U.S./Europe trade. Microbridge ” (point-topoint intermodal service with through ‘rates) is

becoming more important and the volume of these

activities can be expected to grow significantly.

Containerization technology was an American

innovation and has provided opportunities for

U.S..-flag carriers who took advantage of intermodal

—

*‘ I.andbr]dst’ an(l ‘‘ mirrobridgc’ are terms describing a combination of land and scabornc intcrmoda] scmicc, In I.mdbridgc, rates

and [f)[al ser~i{ c at{. offered I]} a c arricr for cargo shipments from

a foreign port to a U.S. port, arross U. S, land to another U, S. port

and finally b}, sea to a fore i~n port cfcst inat ion. Nffcrobr;dq> refers

to total ratm and scni( c offered by a carrier for cargo shipments from

an} inland U S 1o( at ion [o a pol t, by sea to a foreign port and finally o~trl’ind to .tnothcr tn]and destination. It also refers to variations

of SU( h wr~ i( (. from point -tm port and port-to-point.

service opportunities to penetrate trades where their

all-water market shares were small. The ability to

offer intermodal service is considered a prime

reason for the large increase in the U.S.-flag share

between 1967 and 1981 in trade with Japan, South

Korea, and Europe. An important example is the

Far East-U. S. Atlantic and gulf coasts trade, where

the U.S.-flag share in 1967 was approximately 15

percent. Half of that trade has now been diverted

to the Pacific coast, where the U.S.-flag share was

30 percent in 1981, up from 23 percent in 1967.

Cost, Productivity, and

Competitiveness

Compared to other major U.S. industries, the

liner industry as a whole has had a mediocre performance in terms of return on equity. Out of 10

major industry groupings, in 1980 liner shipping

ranked eighth. It is interesting to note, however,

that the 9th and 10th places were held by two other

transportation industries—railroads and air transport. Tables 16 and 17 summarize the financial staTable 16.—Financial Data for U.S.-Flag Liner Companies Engaged in Foreign Trade

Aggregate total 1977 1978 1979 1980 1981

● Net profit (loss) ($000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,865

tReturn on equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.9 ”/0

tReturn on invested capital (total debt Plus equity). . . . . . . . . . . . . . . . . . 6.1°/0

t“current assets to current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3

● Long-term debt to owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.84

t Operating revenue per freight payable ton (subsidized operators). . . . . $81.95

t Subsidy per freight payable ton . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.38

t Operating expense per freight payable ton (subsidized operators) . . . . $76.15

t Nonoperating expense per freight payable ton (subsidized operators)a $17.45

t Operating margin per freight payable ton (subsidized operators)b

. . . . . $1.73

$105,998

10.4 ”/0

6.8”!0

1.1

1.60

$91.15

$14.83

$83.45

$19.01

$3.52

$32,512

3.2°\o

3.90/0

1.0

2.03

$99.13

$14.82

$93.22

$20.31

$0.42

$159,956

10.6°\o

7.5 ”/0

1.3

2.67

$110.03

$14.05

$99.19

$22.59

$2.30

$99,351

6.80/0

6.7°)o

1.1

1.65

$120.43

$15.04

$108.03

$22.55

$2.89

KEY ● = Includes nonsubsidized companies; t . Weighted average,

alnterest, overhead, vessel depreciation, and charter hire.

boperating revenue plus subsidy less operating and n0n0peratin9 exPense

SOURCE: U.S. Maritime Administration, Office of Financial Management.

Table 17.—U.S..Flag Liner Companies in Foreign Trades: Summary of Financial Results, 1980-83 (millions of dollars)

1983

Category (first quarter only) 1982 1981 1980

Gross revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116 4,200 4,671 4,308

Subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 307 312 299

Gross operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,110 4,225 4,765 4,429

Gross profit (water line) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 282 218 178

Interest, taxes, and other expenses less other income , , , , , , ., ., , ., , , 121 95 122 20

Net profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22) 187 96 158

NOTE: The above figures represent aggregate financial data from all subsidized and one unsubsidized liner operator(s) in the foreign trades. For the years 1980 and

1981, some small portion of the data includes the domestic operations of one operator; for the 1982 and 1983, the domestic trade portion has been extracted.

The 1982 net profit total includes over $80 million of extraordinary income items such as the sale of ships.

SOURCE U S Maritime Administration, Office of Financial Management, personal communications, July 1983, with OTA additions from data furnished by Sea-Land

Industries
66 ● An Assessment of Maritime Trade and Technology

tus of U.S. liner companies. (Note that some data

is not available for nonsubsidized operators, who

do not have to report to the Federal Government

the extensive financial data required from the subsidized operators. )

U.S.-flag ship costs are substantially higher than

foreign-flag costs for both ship acquisition and

operation. Data from MarAd for 1982 indicate that

new construction costs for containerships are 2 to

2 times higher in U.S. shipyards than in comparable foreign yards, such as Japan. Even this cost

ratio of U. S.-to-foreign building, however, understates the effective ratio from the buyer’s perspective because the figures given represent shipyard

costs, and market prices now quoted are substantially lower than costs. Furthermore, those price

comparisons refer to Japanese yards; prices at Korean yards, where Sea-Land placed its recent orders

and where U.S. Lines is now planning to build its

new ships, are lower still. *

While all operating expense categories are usually

higher for the U.S. operator than the foreign operator, crew costs are a major item of difference, particularly due to differentials in manning scales

rather than in per-man wages. Foreign crew costs

for containerships range from one-half to one-sixth

of equivalent U.S.-flag crew costs (see fig. 26). In

most cases, U.S. crew size exceeds foreign crew

size, which, for comparison with developed countries, is much more significant than the wage rates.

The U.S. standard of living largely accounts for

much higher wage rates compared with those in

LDCS, However, it should be noted that European

and Japanese seamen wages are no longer

‘‘cheap, and that national crews of these nations

are also facing a competitive disadvantage with

LDC crews. Many European and Japanese ship

operators have countered the wage rate problem

with smaller crews, use of foreign nationals in ship’s

crews, and more automation—an approach only

now beginning to be applied by U.S. operators.

Subsistence, stores, and supplies are usually proportional to crew costs. U.S. maintenance and re-

“In May 1983, U.S. Lines announced signing a contract with Korea’s Dae-Woo Shipbuilding Co. for 12 large (4,200

teu and 58,000 dwt) at a price of $50 million each. Even this price

was 10 percent lower than that announced a year earlier for the same

ships.

Figure 26.—Relative Costs for Crew for a Typicai

Containership Operating Under Various Flags

Flag- Liberia Greece U.K. Norway U.K. Japan U.S.

Crew- Chinese Greek UK/lnd Norw. U.K. Japan U.S.

Number-28 30 51 26 34 25 38

SOURCE: “Comparative Operating Costs for U.S. and Foreign-Flag Ships,” by

Paul Ackerman, presented at SNAME Ship Cost and Energy Symposium, October 1982.

pair costs are also higher than foreign counterparts,

because it costs more to repair a ship in a U.S. yard

and because a U.S. operator who repairs in a foreign yard must now pay a 50-percent ad valorem

tax on the value of the repair. U.S. insurance costs

reflect the higher capital costs of U.S. ships and

the fact that settlements made to injured U.S. seamen are considerably higher on the average than

comparable foreign settlements.

Another significant reason for high U.S. operating costs is fuel. Most of the U.S.-flag liner fleet

is still powered by steam turbine engines which are

much less efficient than modern slow-speed diesel

engines which predominate in foreign-flag ships.

That portion of the differential, however, will disappear as new U.S. ships come into the fleet. In fact,

it is the need to increase energy efficiency and reduce crew size which justifies modernizing the U.S.

fleet, rather than the age of the ships. When these

two goals are achieved, the U.S.-flag liner fleet will

become more competitive with the rest of the world.

For a number of reasons, U.S. liner vessels—

even with their higher capital cost, higher wage cost,

and higher fuel cost—are able to compete in some

trades with their foreign-flag counterparts. In the
Ch. 3—The U.S. Shipping Industry 67

past, U.S. construction subsidies were available to

mitigate higher construction costs. Operating subsidies also helped. In addition, three other major

factors are important in explaining this success—

factors that are not applicable to the same degree

to the bulk trades. They are:

1. U.S. preference cargoes are available to cover

some added costs;

2. some U.S. operators have made substantial

advances in ship and cargo-handling productivity; and

3. some U.S. operators excel in marketing.

Liner operations have a broad scope, covering cargo-handling and often intermodal movement as

well. The annual capital, crew, and fuel costs for

a liner operation are only about one-quarter of the

carrier’s total costs (whereas, these costs can be

more than 75 percent of a bulk ship operator’s

costs). A liner operator incurs higher cargo-handling, sales, documentation, and administrative

costs than does a bulk ship operator. Further, a liner

operator incurs other costs—e. g., such as container

stuffing/stripping, pick up/delivery, inland transportation, and container leasing—which have no

equivalent in bulk operations, U. S, -flag liner

operators have no inherent advantages or disadvantages with respect to their foreign-flag competitors on these nonvessel costs. The advantage could,

however, depend on effective and efficient management and marketing practices.

U.S. liner productivity is, in some cases, comparable with foreign competition, and productivity improvements have helped mitigate significant

U.S. cost disadvantages. During the 1970’s, the

U.S.-flag merchant fleet underwent major productivity improvements. Table 18 shows that in the

liner sector, the fleet went from 403 ships in 1971

to 303 ships in 1976 (a 25-percent reduction), with

an 11 -percent increase in deadweight ton-mile capacity. Modern technology and management innovations are important to maintaining these improvements. However, as discussed in chapter 6,

the availability of regulatory advantages is also a

major consideration in meeting foreign competition.

Influence of Cargo Preference

Many of the major liner trades are heavy inbound—i. e., more loaded containers are imported

than exported. U.S.-flag liner operators have historically reduced the economic impact of this imbalance by carrying Government cargoes outbound. The United States has long had a policy

of granting preference to U.S. carriers on its own

cargoes. (Cargo preference is discussed in ch. 7.)

The primary components are Agency for International Development (AID) and Export-Import

Bank cargoes and military cargoes.

Table 19 gives an indication of the importance

of preference cargoes to U.S.-flag liner operators.

The impact of these cargoes on individual carriers

varies widely. In some cases, up to 30 to 40 percent of total revenue is derived from such carriage.

But it is difficult to determine the fraction of liner

company profits produced from preference cargoes.

In some cases, the addition of preference cargoes

is significant enough to a U.S.-flag operator that

the resulting higher utilization of his ships will bring

down unit costs by a sizable amount.

Table 18.—Productivity Comparison of U.S. Privately Owned General Cargo Fleet, Annual Maximum Deadweight

Ton-Mile Capacity per Year

1971 fleet 1973 fleet 1976 fleet

30 knot intermodal ships. . — 4 ships = 13,304 MTM 8 ships = 26,608 MTM

20 knot intermodal ships. . 35 ships = 73,920 MTM 68 ships = 145,044 MTM 87 ships = 214,542 MTM

20 knot conventional ships 98 ships = 108,682 MTM 86 ships = 95,288 MTM 86 ships = 95,288 MTM

15 knot intermodal ships. . 80 ships = 77,600 MTM 61 ships = 58,743 MTM 49 ships = 48,956 MTM

15 knot conventional ships 190 ships = 138,890 MTM 94 ships = 74,072 MTM 73 ships . 61,574 MTM

Total . . . . . . . . . . . . . . . . . 403 ships = 399,092 MTM 313 ships = 388,451 MTM 303 ships = 446,968 MTM

(5,389,000 dwt) (4,651 ,680 dwt) (5,058,185 dwt)

NOTE: Intermodal catego~ Includes containerships, roll-on/roll-off ships, and barge carriers.

MTM = miliion deadweight ton-nautical-miies.

Deadweight ton-nautical-mile capacity (DTMC) = S x T x K x C

St = Seadays (165 per year per conventional ship); S, = Seadays (220 per year per containership); T = Time, 24 hours; K = Maximum nautical-miles per hour;

C - Capacity, average dwt capacity for ship category.

SOURCE: Maritime Transpotiation Research Board, NAS, Toward An Improved Mercfranf Marine: A Recommended Pro6rrmn of Stud/es, Washington, D. C.: January 1976,

p. 17.
68 ● An Assessment of Maritime Trade and Technology

Table 19.—lmportance to Liner Vessels of Carriage

of Government Preference Cargoes

1978 1979 1980

($ millions) percent ($ millions) Percent ($ millions) Percent

Total U.S. operator revenue. . $3,105 – $3,707 – $4,308 –

Preference revenue—

civilian cargo . . . . . . . . . . . . 283 9 266 7 294 7

Preference revenue—

military cargo. . . . . . . . . . . . 201 7 376 10 401 9

Total preference revenue . . 484 16 642 17 695 16

SOURCE: U.S. Maritime Administration, Office of Policy and Plans, November 1982,

It is interesting to note that during 1982 a new

carrier submitted bids for a Military Sealift Command (MSC) contract to carry military cargoes to

Europe and underbid the other carriers who had

historically won these contracts. When MSC announced the next round of bidding in 1983, two

of the operators which had been underbid on the

previous contract lowered their bids by about onehalf from the earlier round, It therefore appears that

this Government cargo is important to operators

even at very low rates.

To demonstrate the importance of preference

cargo to a U.S.-flag operator, an illustrative example was presented in a recent paper. It showed (see

table 20) that some U.S. operators who take advantage of military or other preference cargoes

which are reserved for U.S. flags, can increase their

profits to exceed foreign-flag competitors. Government policy has probably played a key role in competitiveness in this case without direct or complex

subsidy arrangements.

Most experts agree that U.S.-flag liner operators

can be productive and competitive in the world

market despite some cost disadvantages. Government policy can mitigate important cost disadvantages, in some cases, without direct subsidy. The

record of Sea-Land, the largest U.S.-flag operator

(without direct subsidy), seems to illustrate this contention. On the other hand, a number of subsidized

U.S.-flag operators appear to depend heavily on

direct subsidy payments for their financial survival.

These companies would require major productivity

improvements or substantial future cost reductions

to meet foreign competition. If future subsidies are

eliminated, attention to productivity improvements

for these operators must receive high priority.

Table 20.—Hypothetical Profit Impact of U. S..Flag

Preference Cargo on Containership Operationsa

Given:

● Vessels of 1,200 teu

● Vessel operating cost per voyage of $270,000 excluding

labor

● Foreign crew cost of $30,000 per voyage

● U.S. crew cost of $60,000 per voyage

● Average load is 900 teu @ $725 revenue per teu

● Container and other variable costs are $333 per teu

Financiai resuits based on commercially

competitive cargo oniy:

Foreign flag U.S. flag

Revenue. . . . . . . . . . . . . . . . . . $652,500 $652,000

cost . . . . . . . . . . . . . . . . . . . . . 600,000 630,000

Profit . . . . . . . . . . . . . . . . . . . . $52,000 $ 22,000

Financiai resuits with 15% extra cargo (miiitary

and coastwise-generated) to U.S. carrier

Foreign flag U.S. flag

Revenue. . . . . . . . . . . . . . . . . . $625,500 $749,800

cost . . . . . . . . . . . . . . . . . . . . . 600,000 659,970

Profit . . . . . . . . . . . . . . . . . . . . $ 52.000 $89,830

aAll data for illustrative purposes only.

SOURCE: John Blnkley, “Impacts of the U, S.-Flag on Shipping Cost and Productivity, ” presented at SNAME Symposium on Ship Costs and Energy,

October 1982.

Conferences, Pooling, and

Cooperatives

Liner operators employ a wide variety of commercial agreements in world trade whereby cargo

shares, revenues, prices, and other factors are set

between two or more parties in order to restrict

competition and reduce overcapacity. The degree

of cooperation and kinds of restrictions that are followed range from a simple allocation of sailings between regions to complex agreements allocating

shares of specific commodities among parties.

Shipping is a very old industry, and problems

stemming from aggressive competition and highly
Ch. 3—The U.S. Shipping Industry ● 6 9

variable rates were of even greater concern when

ships were the only feasible means of long-distance

transportation. After the opening of the Suez Canal

in 1869, fierce shipping competition resulted, in

particular on the profitable Indian trade. This led

to the first successful liner conference, the Calcutta Shipping Conference of 1875, in which all lines

in the trade agreed to apply the same rates between

Calcutta and British ports. The conference system

of establishing common rates and agreements to

regularize service quickly became well established

in many trades. It also was partially a response to

excess capacity resulting from a technology change

(larger, more reliable steamships were replacing

smaller, slower sailing ships).

The liner conference is now a very common system employed by operators in most developed

trades. Typically, a conference is an agreement

among a group of shipping companies serving the

same trade route, and includes some form of price

or rate fixing. Thus, members of a conference

would charge the same prices for similar services.

In many trades outside the United States, the conferences are closed (new members are not admitted

without consent of existing members) and the agreements are confidential. In all U.S. trades, the conferences are open to any new member who meets

the terms of the agreement. The agreements must

be approved by the Federal Maritime Commission

(FMC), and the terms are public.

U.S. liner operators are members of several of

the major conferences governing the key trading

routes for U.S. exports and imports. Some operators join and leave conferences frequently when

business opportunities make it worthwhile. In some

trades—particularly with South American countries

where the United States has bilateral agreements—

the U.S. operators have longstanding and static arrangements for cargo-pooling and other practices.

For most of the past two decades, conferences

serving U.S. trades have been relatively weak due

largely to the historical U.S. free-trade philosophy.

U.S. conferences are open, and all agreements between carriers, including cargo and revenue pooling and service rationalization, must be approved

‘See Edgar Gold, Maritime Transport, The Evolution of Interna -

tional Marine Polic)’ and Shipping Law (Toronto: Lexington Books,

1981), pp. 114-118.

by FMC. Rebating is prohibited, independent action by conference members is encouraged and

there are strong limitations on service rationalization. Independent operators have thus been able

to enter U.S. liner trades easily and compete against

the conferences. But many routes suffer from

chronic overcapacity.

Beyond conference agreements, other arrangements seek to further control the market, A common arrangement is pooling, whereby parties to

an agreement fix the shares of specific cargoes each

may carry and thus limit service competition. Pools

are a natural conference adjunct but in U.S. trades

are subject to FMC review and approval and thus

cover only a small fraction of U. S. liner trades. In

general, FMC has approved pools where they have

resulted from foreign government unilateral actions

on cargo reservation. At present, a number of pooling agreements are in effect in U.S. trades with

Brazil, Argentina, and Peru.

A cargo pool usually controls the carriage of a

certain commodity or group of commodities. In a

revenue pool, each member is entitled to receive

a specified percentage of the total freight revenue

earned by all the pool members. The pooling agreements filed with FMC pursuant to Section 15 of

the Shipping Act of 1916 as amended, are all revenue-pooling rather than cargo-pooling agreements.

In return for a share of the revenue pool, each

party must agree to a minimum number of sailings imposed by the agreement. A few of the agreements also require a minimum number of port calls.

Some of the agreements require that the parties provide a certain amount of cargo space per sailing.

If a specific amount is not required, then the parties must agree to provide cargo space sufficient to

carry all the cargo covered by the agreement.

If a party fails to meet a sailing, port call, or cargo

requirement, its share of the pool revenue is reduced. Some agreements provide a formula for calculating the loss. Others simply say that the revenue

share is reduced in proportion to the deficiency in

sailings, port calls, or cargo space.

The U.S./South American pooling agreements

reserve certain cargo exclusively for pool members.

Since pools guarantee each member a share of revenues, there is usually no incentive to increase sail-
70 ● An Assessment of Maritime Trade and Technology

ings above the minimum required by the agreement

or to attract more cargo. Thus, pools appear to improve the carrier’s capacity utilization since pool

members tend to limit their capacity to that required by the terms of the agreement. z Many believe, however, that the final results can be and have

been—particularly in the Brazil and Argentina

trades—very detrimental to competition and good

service.

Pools represent a form of carrier cooperation

short of a joint service, a consortium, or joint venture. Many lines outside of the United States

commonly operate under one of these types of

cooperative arrangements. The following description of such commercial operating agreements is

excerpted from a 1981 Review of Existing Agreements and Potential Cargo Sharing Arrangements:3

Joint Service (Cartel or Syndicate). In this type

of arrangement, some or all of the activities are provided as an integrated operation. Usually vessels

and offices retain the separate identities of the two

lines. A financial agreement between the parties

2See Changes in Federal Maritime Regulation Can Increase Eficiency and Reduce Costs in the Ocean Liner Shipping Industry

(Washington, D. C.: U.S. General Accounting Office, Report No.

(GAO)/PAD-82-l 1, July 1982).

‘See ‘‘Impact of Cargo Sharing on U.S. Liner Trade With Countries in the Far East and South East Asia’ for the Federal Maritime

Commission by E. G. Frankel, Inc., September 1981.

outlines terms for splitting revenues and certain

costs.

Consortium. A form of cooperative intercompany agreement in which most capital assets are

jointly owned (sometimes only the ships remain

under separate ownership) and the operating company is jointly owned. Consortia have been discouraged in U.S. trades for U.S. -flag carriers by

the U.S. Government as allegedly anticompetitive.

Joint Venture. The closest form of cooperation

between independent liner companies in which the

participants jointly own (or lease) vessels, equipment, and terminals, and the venture has its own

management. Tax considerations dictate that most

joint ventures are among companies from a single

country.

Table 21 illustrates typical areas of cooperation

for the above forms and gives some examples of

joint operations.4

Conference agreements and pools, while having

the basic effect of limiting competition among parties to the agreements, also seek to reduce malpractice, stabilize rates, and improve efficiency by so

doing. If competition is also assured among cooperating groups or with nonmembers, then the twin

4For a more detailed discussion of joint operations, see VonSchirachSzmigiel, Liner Shipping and General Cargo Transport (Stockholm:

Stockholm School of Economics, 1979).

Table 21 .—Cooperation Forms Practiced by Liner Operators

Cooperation areas Cartel Syndicate Consortium Joint venture

Service scheduling . . . . . . . . . . . . . . . common

Operation of:

Vessels . . . . . . . . . . . . . . . . . . . . . . . common

Terminals . . . . . . . . . . . . . . . . . . . . . common

Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . common

Revenues . . . . . . . . . . . . . . . . . . . . . . . common

Name . . . . . . . . . . . . . . . . . . . . . . . . . . . common

Marketing . . . . . . . . . . . . . . . . . . . . . . . individual

Inland container operations . . . . . . . . individual

Management. . . . . . . . . . . . . . . . . . . . . individual

Investment plans . . . . . . . . . . . . . . . . . individual

Ownership:

Vessels . . . . . . . . . . . . . . . . . . . . . . . individual

Terminals . . . . . . . . . . . . . . . . . . . . . individual

Examples of joint operations. . . . . . . Trio Group

Asia Container

Europe (ACE)

Scan Australia

Caribbean Overseas

Line (CAROL)

common

common

common

common

common

common

common

common

partly common

partly common

individual

individual

Scan-Dutch

Australia/Europe

Container Service

(AECS)

South Africa Group

common

common

common

common

common

common

common

common

common

common

individual

common

Atlantic Container

Line (ACL)

Associated Container Transportation (ACT)

Dart Container Line

Atlantica SD. A.

common

common

common

common

common

common

common

common

common

common

common

common

Overseas Container

Ltd. (OCL)

SOURCE: C. VonSchirach-Szmigiel, Liner Shlpplng and General Cargo Transporl, Stockholm School of Economics, 1979.
Ch. 3–The U.S. Shipping lndustfy 71

goals of efficiency and best rates could be compatible. However, there continues to be concern over

whether allowing certain restrictions on competition will be beneficial to shippers and the general

public as well as to ship operators. Many believe

that the anticompetitive features of revenue pools

should be of much greater concern than simple conference agreements on rates.

Chapter 6 discusses the U.S. Government’s regulatory policy toward conferences. The U.S. shipping industry is anxiously awaiting congressional

action on the Shipping Act regulatory reform which

would permit liner operators to engage more freely in cooperative business practices and thus increase utilization and lower costs,

Pricing, Rates, and Shippers’

Councils

Those who purchase the transportation services

to move their cargo are called shippers. Those who

operate ships and provide transportation services

are called carriers (though some confuse these

terms). Even though this chapter primarily addresses the industries that operate ships, those industries only exist to serve shippers. In the liner

business it is important to understand how rates

and pricing structures are derived and how shippers are both involved in and affected by the process before policies are developed. Actions which are

detrimental to shippers will quickly influence the

demand for shipping services. One should also understand the benefits that high utilization and carrier cooperation can bring to shippers.

Individual carriers or conferences follow one of

two basic theories of ratemaking: cost-of-service

pricing and value-of-service pricing.

Simply put, in cost-of-service pricing the carrier

computes its total costs for each voyage, adds a

desired rate of return, and divides by the average

number of containers it carries. Thus, it arrives at

a rate which covers the cost of moving the container, regardless of what the container carries.

However, as reasonable as cost-of-service pricing appears, it is not the method generally in use.

The method that is most widely used is value-ofservice pricing, also known euphemistically as

‘ ‘charging what the traffic will bear. The theory

underlying this method is that rates should be set

at a level which makes transportation charges a

minimum percentage of a commodity’s landed cost.

Under this theory, a containerful of electronic

equipment can bear a much higher transportation

charge than a containerful of rags, and still move.

If equal rates covering all costs were charged for

rags and electronics, the price for rags would be

so high that the rags probably would not move. Under value-of-service pricing, both commodities can

move. Underlying this method is a system of crosssubsidization. By charging high-value commodities more than their fair share of costs, and the lower

valued commodities less than their fair share, the

higher valued commodities actually subsidize the

lower valued commodities. However, since lower

valued commodities probably would not move if

charged their fair share for space, the entire cost

of the voyage would otherwise be borne by the highva.lued commodities. Any contribution to overhead

by the low-valued cargo actually brings the cost of

the movement down for the high-rated cargo.

Container shipping is a capital-intensive business, with very high fixed costs. The break-even

point is usually cited at about 85 percent capacity;

i.e. , the carrier has to be 85 percent full to cover

its fixed costs. In an overtonnaged trade, with lots

of unused capacity, carriers may be tempted to carry cargo at anything over their variable costs, so

long as some contribution is made to fixed costs,

Since case law requires that rates be fully compensatory, that temptation is sometimes expressed in

the form of rebates, whereby a carrier returns part

of the tariffed rate (usually secretly) to the shipper

in order to get his cargo. However, rebating and

similar malpractice are strictly illegal under the

Shipping Act, because they result in differential

(i.e., discriminatory) treatment among shippers.

Under the principles of common carriage, all shippers are entitled to the same rate for the same service. To enforce this principle, FMC requires strict

adherence to the tariffed rates by both carrier and

shipper. Any deviation is considered a violation of

the Shipping Act and can result in penalties for both

the carrier and the shipper.

The high break-even costs of liner operations and

the above regulations tend to distort traditional

supply/price relationships. For example, generally the greater the supply of cargo space available,
72 ● An Assessment of Maritime Trade and Technology

—.— — — —

the higher the price, since a great supply of cargo

space (i. e., overtonnaging) results in underutilized

ships, which must spread their high fixed costs over

a fewer number of containers. Thus, the rate generally rises.

The converse of this is that the lower the supply

of cargo space available—i. e., ships running full

to capacity—the lower the price can be, since the

high fixed costs can be spread over a greater number of containers. This relationship of high supply

high price and low supply low price is used as the

best argument for close cooperation among carriers,

for when carriers can limit their supply of cargo

space and rationalize their sailing schedules, they

are in a position to offer lower prices to shippers.

Under present U.S. policy and practices, a shipper has the following recourse if he feels that rates

are too high: first, he can go to the conference and

appeal for a lower commodity rate on the basis that

his landed price is uncompetitive and he may lose

the business. If the conference is not responsive,

he can ship on an independent carrier—usually at

a lower rate. Sometimes, when faced with the loss

of the cargo, carriers may take some rate action to

meet a shipper’s needs. If the shipper suspects that

he may be a victim of discrimination vis-a-vis the

rates charged other domestic shippers or foreign

shippers, he can file a protest with FMC, which

will investigate the claim under section 16 and/or

17 of the Shipping Act.

In practice, however, shippers have not had very

much interaction with FMC. They rarely become

involved and they rarely protest agreements.5

In many trading countries outside the United

States, shippers’ councils are a counterpart to carrier conferences and other cooperative agreements.

These councils are organizations of shippers formed

to collectively negotiate rates and service with the

conferences. In the United States, shippers’ councils have not been granted antitrust immunity and

shippers fear they would be in violation of the antitrust laws.

‘The foregoing discussion was excerpted from a speech by Dr. Leslie

Kanuk, former Chairman of the Federal Maritime Commission, before

the Georgia World Congress Institute and International Trade Association. SeDtember 1980.

Shippers appear to be divided on the question

of whether shippers’ councils should be granted

antitrust immunity. A survey of shippers taken by

the General Accounting Office in 1980-81 indicated

that shippers strongly supported the council concept and believed they would have a beneficial effect on rates and service quality.c However, some

large shippers have recently argued against antitrust

immunity for shippers’ councils as a counterbalance

to carrier antitrust immunity.7 The general belief

is that large shippers have enough economic ‘‘power” to deal effectively with carriers individually,

and do not need councils to protect their interests.

The debate about shippers councils continues

with congressional consideration of the Shipping

Act of 1983; the Senate and House versions of mid1983 have different shippers’ provisions.

The question of industry (shipper and carrier)

support for alternative policies, such as shippers’

councils, is only one consideration. Another is how

to develop a system that will encourage growth in

overall trade through fair and equitable treatment

of shippers combined with competitive rates and

service. For example, U.S. exporters compete with

exporters from other countries in many markets

around the world, and transportation is an integral

part of that competitive equation. In the future,

U.S. shares of that trade may depend on how effective and efficient our ocean carriers can transport

U.S. goods abroad.

Future Competitiveness of

U.S. Liner Fleet

Already the most successful sector of the U.S.

fleet, the U.S.-flag liner fleet operating in foreign

trades, will become even more cost competitive as

it is replaced and upgraded with modern, automated, large, diesel-propelled ships.

However, if the trend toward specialized neobulk

ships for certain trades continues, it may result in

the diversion of cargo from the liner to the nonliner sectors. This may reduce the opportunity for

‘Changes in Federal Maritime Regulation Can Increase Eilicien -

cy and Reduce Costs in the Ocean Liner Shipping Industry, op. cit.

7

,1

See American Shitmer. IUIV 1983. D. 11.

“ ,U . ,.
Ch. 3—The U.S. Shipping Industry 73

U.S.-flag ships since few U.S.-flag ships are being

built for the neobulk trade (carrying contract cargoes). The introduction of combination vessels,

such as container-bulkers can be expected to have

a negative impact on U.S.-flag liner operators in

the same way. These trends are therefore important to monitor and to consider when Federal policies are developed.

There is a trend in the U.S.-flag fleet to significantly increase containership size. American President Lines’ new ships, and U.S. Lines’ planned

ships, point in that direction. Major constraints are

the substantial risk of not being able to fill the ships

and the difficulty of achieving high service frequency. Both these problems have been significantly

reduced in the foreign-to-foreign trades as carriers

have combined into consortia to reduce the risk of

individual carriers. Whether such an avenue will

be available to the U.S.-flag carriers will depend

on U.S. regulatory and antitrust policies.

Labor unions can be expected to resist the reductions in crew size to the 18- to 24-men levels often

employed by foreign competition. If economic pressures force reductions in manning levels, at least

to the high end of that range, the ability of U. S.-

flag liner ships to compete will be enhanced.

Ancillary ship-related, container, and terminal

technologies should not significantly increase or

decrease the ability of U.S.-flag liner ships to compete with foreign-flag ships as these technologies,

once proven, are easily transferred from U.S. -flag

operators to foreign-flag operators and vice versa.

THE U.S. BULK FLEET IN FOREIGN TRADES

As is the case worldwide, the U.S. bulk trades

greatly exceed its liner trades in tonnage. In 1980,

U.S. bulk trade (both liquid and dry) totaled 736

million metric tons (tonnes), while general cargo

trade totaled 78 million tonnes. However, the U. S.-

flag foreign trade dry-bulk and tanker fleets carry

only a small percentage of this trade.

Worldwide, trade in the major dry-bulk commodities (iron ore, coal, and grain) increased by

50 percent between 1972 and 1982. At the same

time, the world fleet of bulk and combined carriers

increased by 119 percent, from 91.5 million dwt

in 1972 to 200 million dwt in 1982. The world drybulk fleet continued to grow between 1982 and 1983

to a current level of 211.3 million dwt.8

An oversupply situation also exists in the world

tanker fleet, although at the present time the size

of the fleet is decreasing, along with demand. World

trade in oil and oil products has dropped sharply,

from 1,748 million tonnes in 1977 to an estimated

1,287 million tonnes in 1982, for a decline of 26

percent. In 1982, the world tanker fleet was essentially the same size as in 1977, 320 million dwt. A

6-percent reduction in the fleet occurred in 1983,

to 301 million dwt. g

8Fearn1eys, Review 1982, Oslo, Norway, 1983.

‘Ibid.

The magnitude of the surplus in the world bulk

fleet is reflected in the market value of the ships.

A number of dry-bulk ships with useful life remaining sold for under $1 million each in the second

half of 1982. Prices for tankers were nearly as low.

In some cases, ships have been abandoned because

the scrap value of the vessel is less than the

of the scrapping process.

In the best of times, U.S. bulk operators

costs

have

had difficulty competing in the world market because U.S. costs far exceed those of foreign competitors. The major difference in operating expenses

between U. S.- and foreign-flag ships lies with crew

costs. U.S. Department of Transportation (DOT)

data show a ratio of U.S. daily costs v. comparable

average costs for Organisation for Economic Cooperation and Development (OECD) countries for a

26-man dry-bulk ship crew of about 3 to 1. Expenses for crew and fuel account for a significantly higher proportion of overall operating costs for

bulk ships than for liners, limiting the opportunities to reduce the cost differential through efficiency improvements in other operating cost components.

Construction costs for tankers and dry-bulk carriers in U.S. yards are two to three times the costs

25-417 0 - 83 - 6 QL 3
74 ● An Assessment of Maritime Trade and Technology

.

in foreign yards (see table 22). The final cost differential to buyers is even greater because:

1.

2.

3.

4.

in recent years, prices at foreign yards have

usually been lower than construction costs, the

amount of difference varying according to the

degree of excess capacity at shipyards;

delivery times at foreign yards are 1 to 2 years

quicker, which reduces net present value costs;

foreign cost schedules often do not include cost

escalation factors during the construction

phase; and

financial terms (downpayment required, progress payments, etc. ) at foreign yards are more

favorable, further reducing the effective price.

The 1970 Merchant Marine Act allowed payment of CDS for bulk ships in hopes of enlarging

the U.S.-flag bulk fleet. Thirty tankers and a few

dry-bulk ships were built under the program, but

no funds have been appropriated since 1980. Even

when CDS was available, it was limited to 50 percent of the U.S. cost. Since foreign prices in 1983

tend to be less than half of U.S. costs, it would still

be cheaper to buy ships abroad than from U.S.

yards even with CDS.

The U.S.-flag foreign trade tanker fleet is small

and is attracting little business in the severely overtonnaged international markets. Since 1976, U. S.-

flag tankers have never carried more than 4.5 percent of the very large U.S. petroleum import trades.

Of the 30 tankers built with CDS since 1970 (see

table 23), only 3 have been delivered since 1977.

Due to the lack of opportunities in the world market, much of the U.S. subsidized fleet took advantage of a provision allowing such vessels to enter

Table 22.–Typicai U.S.- and Foreign-”Ship

Construction Costs-1982 (miiiions of doiiars)

25,000 70,000 120,000 265,000

dwt dwt dwt dwt

Tanker

United States . . . . . . . . 59.0 85.0 109.0 189.0

Foreign . . . . . . . . . . . . . 23.0 35.2 44.3 75.7

25,000 60,000 120,000 150,000

dwt dwt dwt dwt

Dry-bulk

United States . . . . . . . . 52.0 83,0 107.0 119.0

Foreign . . . . . . . . . . . . . 19.6 33.0 42.6 47.0

SOURCE: U.S. Maritime Administration, Office of Shipbuilding Costs, “’Construction Cost Estimates for United States and Foreign-Flag Vessels.”

Tabie 23.—CDS-Buiit Tanker Fieet

Vessei Deadweight tons Year buiit

Coronado. . . . . . . . . . . . . . . . .

Brookiyn . . . . . . . . . . . . . . . . .

Wiiliamsburgh . . . . . . . . . . . .

Cherry Vailey . . . . . . . . . . . . .

Golden Endeavor . . . . . . . . . .

Chelsea . . . . . . . . . . . . . . . . . .

Massachusetts . . . . . . . . . . . .

Golden Monarch . . . . . . . . . .

Mormacstar. . . . . . . . . . . . . . .

Worth . . . . . . . . . . . . . . . . . . . .

Patriot ... , . . . . . . . . . . . . . . .

Beaver State . . . . . . . . . . . . . .

New York. . . . . . . . . . . . . . . . .

Mormacsun . . . . . . . . . . . . . . .

Rose City . . . . . . . . . . . . . . . .

Ranger . . . . . . . . . . . . . . . . . . .

Chestnut Hill. . . . . . . . . . . . .

American Heritage. . . . . . . . .

Courier. . . . . . . . . . . . . . . . . . .

Rover . . . . . . . . . . . . . . . . . . . .

Mormacsky . . . . . . . . . . . . . . .

Kittanning . . . . . . . . . . . . . . . .

Arco Spirit. . . . . . . . . . . . . . . .

Arco independence . . . . . . . .

Stuyvesant a

. ... , . . . . . . . . . .

Bay Ridge . . . . . . . . . . . . . . . .

UST Atiantic . . . . . . . . . . . . . .

UST Pacific . . . . . . . . . . . . . . .

39,712

225,281

225,281

39,675

89,700

39,740

264,073

91,388

38,300

91,849

35,100

91,849

264,073

39,232

91,849

35,100

91,295

91,849

35,000

35,000

38,300

91,344

262,376

262,376

225,281

225,000

398,143

398,141

1973

1973

1974

1974

1974

1975

1975

1975

1975

1976

1976

1976

1976

1976

1976

1976

1976

1976

1977

1977

1977

1977

1977

1977

1977

1979

1979

1979

NOTE: In addition, two CDS tankers are currently under construction, Falcon

Leader and Falcon Champion, both 34,000 dwt. An additional ship, the

Golden Dolphin, was built in 1974 with CDS but was lost.

%DS haa been repaid.

SOURCE: U.S. Maritime Administration, Office of Trade Studies and Statistics;

“Ship Register,” Military Seallft Command, Department of the Navy,

Washington, D. C., January 19S3.

the domestic trade on a 6-month-per-year basis,

with a pro rata payback of subsidy.

The very large tankers (known as very large

crude carriers—VLCCS) have had a difficult time

in international trade. In the late 1970’s, two

VLCC owners requested and were granted permission by MarAd to refund to the Government all

CDS which had been paid and to enter the domestic

trade permanently. Protracted court cases ensued,

with the Supreme Court finally ruling for one vessel

that MarAd had acted within its power. The case

involving the second ship is still subject to litigation.

Following this precedent, a number of subsidized

tanker owners are now interested in paying back

subsidies in order to enter domestic operations,

primarily in the Alaskan trade. Current domestic

operators oppose such a policy as unfair, and hold

that it will result in overtonnaging in these trades.

Further complicating the issue is the question of
Ch. 3—The U.S. Shipping Industry ● 7 5

exporting Alaskan oil, which is currently prohibited. Allowing such exports would significantly reduce the markets reserved for domestic tankers.

The entire U.S. dry-bulk fleet operating in international trade consists of 23 vessels, many of

which are over 20 years old (see table 24). Most

of the ships continue to operate because they carry

Government preference cargoes, primarily AID

shipments, where they do not have to compete with

foreign ships.

A major characteristic of the U.S. dry-bulk trades

is the intense price competition. The shippers/consignees are large, sophisticated enterprises, many

generating substantial volumes with access to proprietary carriage of their cargoes as well as to longterm contracts with independent carriers. Low-cost

operators have essentially driven the higher cost

operators (most significantly, the U.S.-flag operators) out of the market. Lower costs have been

achieved through increasingly large, specialized

ships with small crews paid low wages (relative to

U.S.-flag crews).

Thus, it is likely that the U.S. dry-bulk fleet will

continue to depend heavily on whatever preference

cargo is available. The existing cargo preference

laws which are significant to the bulk trades are

those requiring 50 percent U.S.-flag shipping for

Government-aid cargoes, primarily grain. Two new

large grain carriers just entered this trade. They

are former liquefied natural gas tankers which were

converted in Korea and fitted with coal-fueled propulsion plants. These ships—large, modern, and

fuel-efficient— have reduced grain export costs by

a substantial amount—although not to the foreignflag level.

Proposals to reserve some percentage of commercial bulk cargoes for U.S. -flag have been debated

for several years. Studies have indicated that such

cargo preference could encourage building a more

modern, efficient U. S, bulk fleet, which would, in

Table 24.—U.S. Dry-Bulk Carriers in International Trade (as of Mar. 1, 1983)

Name of vessel Type Deadweight-tons Year built

Inger . . . . . . . . . . . . . . . . . Bulk 23,510 1945

Jade Phoenix . . . . . . . . . BO (Bulk/Oil) 63,200 1982

Kopaa . . . . . . . . . . . . . . . . Bulk 24,233 1944

Marine Princess . . . . . . . Bulk 52,565 1967

Merrimac . . . . . . . . . . . . . Bulk 25,002 1944

Overseas Harriette . . . . . Bulk 25,541 1978

Overseas Marilyn . . . . . . Bulk 25,541 1978

Point Manatee. . . . . . . . . Bulk 15,316 1944

Point Susan. . . . . . . . . . . Collier (Coal) 24,345 1945

tPride of Texasa . . . . . . . . Bulk 35,389 1981

Seadrift . . . . . . . . . . . . . . Bulk/Oil 15,155 1942

tSpirit of Texasa. . . . . . . . Bulk 32,100 1982

tStar of Texasa . . . . . . . . . Bulk 36,614 1982

Sugar Islander. . . . . . . . . Bulk 29,648 1973

Tamara Guilden . . . . . . . Bulk 23,800 1961

Traveler . . . . . . . . . . . . . . Bulk 25,130 1945

tUltramaF . . . . . . . . . . . . . OBO (Ore/Bulk/Oil) 82,199 1973

tUltrasea a . . . . . . . . . . . . . OBO (Ore/Bulk/Oil) 82,199 1974

Walter Rice . . . . . . . . . . . Bulk 23,510 1945

Betty Wood . . . . . . . . . . . Bulk (Tug/Barge) 23,751 1973

Calrice Transport . . . . . . Bulk (Tug/Barge) 25,000 1976

Jamie A. Baxter . . . . . . . Bulk (Tug/Barge) 24,372 1977

Moko Pahu . . . . . . . . . . . Bulk (Tug/Barge) 25,931 1982

Total (operating) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 764,051

tGolden Phoenixb . . . . . . BO (Bulk/Oil) 129,000 1983

Ogden Paranac . . . . . . . . Bulk 45,000 1983

Ogden Trentc. . . . . . . . . . Bulk 45,000 1983

tvessel built with CDS.

%rrently operating in preference trades under Sec. 614 of Merchant Marine Act.

bunder reconstruction, Former LNG carriers

cUnder construction.

SOURCE: U.S. Depafiment of Transportation, Maritime Administration, Office of Trade Studies and Subsidy Contracts, Division of Statistics, Mar. 8, 1963.
76 ● An Assessment ———.—.—

of Maritime Trade and Technology — ———.— —

turn, reduce the cost disadvantages of U.S.-flag

bulk shipping. IO No. test of this hypothesis is available, however, and the opposition, principally from

the farmers who would bear the burden of increased

costs for exporting, is very strong. It is significant,

however, that efforts to modernize the fleet and

make some segment cost competitive could bring

sizable benefits to this industry because of the

magnitude of present and future U.S. bulk trades.

(Existing and proposed cargo-preference policies are

discussed further in ch. 7.)

U.S.-bulk cargo reservation schemes and the

authority for U.S. carriers to operate foreign-built,

foreign-crewed ships under the U.S. flag are the

only proposals now under consideration, which

would bring a significant U.S.-flag bulk fleet into

existence. While the ability to buy foreign-built

ships would eliminate the capital cost disadvantage,

there would remain a large differential between

U.S. and foreign crew costs. As previously mentioned, the aggregate crew cost differential (including effects of higher U.S. manning scales and

indirect costs) is perhaps more important than

merely wage rate differentials.

The foreign-flag tanker and dry-bulk fleet under

‘ ‘effective’ U.S. control is cost competitive on a

worldwide basis. In the past, this fleet (and the fleet

on long-term charter to U.S. companies) has grown

substantially and serves a large portion of U. S. international trade and many other foreign-to-foreign

trade routes. The cost and technology advantages

available anywhere in the world generally have been

adopted by this fleet.

‘“See “Development of a Standardized United States-Flag Dry-Bulk

Carrier, a report prepared for the Maritime Administration by M.

Rosenblatt & Son, January 1979.

If U.S. dry-bulk export trade growth follows the

Wharton Econometric forecast of over 4 percent

per year between 1980 and 2000, such growth clearly will require additions to the fleet serving that

trade. Table 25 illustrates trade-growth projections

for several major bulk commodities. Without Government policy changes, the future fleet makeup

will depend largely on the business strategies of

large bulk shippers (the multinational natural resource companies) and the ship owners and operators who carry that cargo. Those business strategies clearly point

trolled fleet under

toward expanding the U.S. conforeign flags rather than the U. S.-

flag bulk fleet.

Table 25.—U.S. Dry-Bulk Export and Import Trades

(million tonnes)

1980 1990

Commodity (actual) (projected)

Coal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72.8

Iron ore. . . . . . . . . . . . . . . . . . . . . . . . . . . 25.5

Grain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97.2

Alumina/bauxite . . . . . . . . . . . . . . . . . . . 20.2

Phosphate rock . . . . . . . . . . . . . . . . . . . . 14.8

Rice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.0

Sugar . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8

Sorghum. . . . . . . . . . . . . . . . . . . . . . . . . . 5.4

Soybeans/Meal . . . . . . . . . . . . . . . . . . . . 28.8

Forest products . . . . . . . . . . . . . . . . . . . 27.6

Fertilizers . . . . . . . . . . . . . . . . . . . . . . . . . 13.4

Potash . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2

Sulfur . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,7

Chrome ore . . . . . . . . . . . . . . . . . . . . . . . 1.2

Gypsum . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8

Manganese ore . . . . . . . . . . . . . . . . . . . . 1.2

Iron/steel scrap . . . . . . . . . . . . . . . . . . . . 10.7

Petroleum coke. . . . . . . . . . . . . . . . . . . . 8.0

Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9

133.0

57.7

143.6

22.6

19.6

2.6

5.1

6.3

30.0

35.7

17.8

,2

.8

.9

9.5

.9

11.4

13.0

4.8

SOURCE: U.S. Maritime Administration, 1979 and FACS, 1982.

THE U.S. DOMESTIC FLEET

Under the Jones Act, all vessels in the domestic though it is a very significant U.S. transportation

trade must be constructed in the United States and sector on the inland waterways and on some coastal

be of U.S. registry. The domestic trades include trades.

coastwise, intercostal, noncontiguous, and inland

waterway trades. Since this report focuses on sea- Table 26 summarizes the domestic fleet. As the

borne trade, we have not included information or table shows, the vast majority of domestic trade

statistics on tug and barge transportation even ships are tankers. As of May 1983, of a total ac-
Ch. 3—The U.S. Shipping Industry 77

Table 26.—Active U.S. Flag Domestic Fleet

as of May 1,1983

Number of vessels Deadweight-tons

General cargo. . . . . . 34 484,000

Bulk cargo . . . . . . . . 7 202,000

Tankers a 

. . . . . . . . . . 175 9,139,500

Total. . . . . . . . . . . . 216 9,825,500

NOTE: Includes vessels of 1000~ gross tons and over.

Excludes vessels operating exclusively on the Great Lakes and inland waterways, those owned by the U.S. Army and Navy, and special types such

as cable ships, tugs, etc.

~hera are an additional 6 tankers, totaling 1,427,500 dwt, built with CDS, presently

operating in the domestic trades.

SOURCE: U.S. Maritime Admlnistration, Off Ice of Trade Studies and Subsidy Contracts, Dlvlsion of Statistics, July 1963.

tive fleet of 216 ships, totaling 9,825,500 dwt, 175

vessels of 9,139,500 dwt were tankers (93 percent).

The major domestic liner trades—Hawaii, Puerto Rico, and Alaska-have shown very little change

since 1970. Trade volumes are mostly dependent

on domestic economic growth, with some negative

impact coming from the increase in foreign sources

of goods for domestic consumption. For example,

between 1970 and 1981, U.S. real economic growth

was a rather modest 3 percent per year. Since much

of this growth was in the service sector, the growth

in the goods component was probably less than half

that amount. This slow economic growth in goods

correlates with very low annual growth rates in domestic commodity movements—5 percent per year

for total U.S. intercostal movements and 2 percent per year for the domestic noncontiguous

trades.

Most dry-bulk domestic cargo is carried on

barges. Eight major bulk commodities accounted

for 80 percent of total barge carriage. Barge service is generally lower cost than equivalent ship service because of the low manning levels which have

been negotiated for tug and barge operations as

compared with ships. Even if operators had access

to foreign-built bulk ships, high U.S. crew costs

probably still would favor barge service in the U.S.

domestic trades unless major technological advances

allow significant manning reductions. The shorter

distances in the domestic trades also help to make

barging more economical. While most of the barge

carriage is of bulk commodities, some U.S. operators (notably the Crowley Maritime Corp. ) have

been successful with short-haul liner-type service

on barges, especially in the west coast-to-Alaska

trade and the east coast-to-Puerto Rico trade.

The Domestic Tanker Trades

Domestic oil movements have undergone significant geographical shifts over the past 20 years, and

this change has affected the demand for tankers.

Twenty years ago the major oil trade was from the

gulf coast to the east coast. Crude and product

tanker movements totaled 2 million barrels per day

then. These movements remained essentially constant until the early 1970’s. In 1971 domestic crude

production along the gulf coast began to decline and

with it the demand for tankers to move this oil. Today, this crude trade—once accounting for over 25

percent of tanker movements—has essentially disappeared.

With the decline in crude production, product

movements also began to fall in the late 1970’s. In

addition to less production, this also reflected a

decrease in overall product demand and an increase

in pipeline capacity. Product movements from the

gulf to the east coast are expected to remain static

for the foreseeable future.

Figure 27 illustrates the decline in tanker trade

and the current increase in pipeline carriage from

the gulf to east coast from 1960 to 1982. The tanker

demand—for both crude and product movements

gulf to east coast—is now less than 50 percent of

what it was 20 years ago as pipeline systems have

proven more cost effective than ships.

While tanker demand was declining on the other

coasts, the west coast emerged as an area of crude

surplus. Huge oilfields on the North Slope in Alaska

were brought into production in the mid-1970’s.

Figure 27. —Gulf-East Coast Tanker Movements

3.0 Y

2.5 -

Product pipelines

i?u Crude tankers

h 20 a .

-

m

z& 1.5 -

-- -S .q -00 0

2

c

o

= 1.0 -

=

=

/ /

Product tankers

0.5 “

o ’

I 1 I I

1960 1965 1970 1975 1980

SOURCE: Exxon Shipping Co., 1963.
78 ● An Assessment of Maritime Trade and Technology

By 1978, production from the North Slope, which

is pipelined to a tanker terminal at Valdez in

southern Alaska, reached 1.1 million barrels per

day and exceeded the capacity of west coast markets. Substantial tanker tonnage was needed to

move this crude to the gulf and east coasts. Nineteen Jones Act tankers with deadweights in excess

of 100,000 tons each were built during the 1970’s

to serve the Valdez, Alaska, trade. Currently, an

average of 1.6 million barrels per day is transported.

Today, more than half of the domestic tanker

tonnage is associated with the crude oil trade from

Alaska, and many experts believe that the future

of the U.S. tanker fleet rests primarily with the

petroleum industry’s search for oil reserves off the

coasts of California and Alaska. Not only will new

discoveries lead to new demand for tanker services,

but much of the future potential is in Arctic or other

hostile environments where improved transportation methods and technology will be the key to economic petroleum production. 11 However, future

production off the coast of California and in the

Arctic is extremely uncertain. By 1988, Alaskan

North Slope production is expected to peak and

then decline through 2000. The deficit in domestic

tanker tonnage in the recent past has become a surplus in 1983 and will probably continue in the near

future. Without new discoveries, a significant surplus of tankers could exist by 1995. However, offshore Alaska and California are the most promising

regions in the United States for future oil and gas

discoveries.

Recent estimates for California put the offshore

oil resource potential of the region at 3.7 billion barrels, with two-thirds of this off southern California. New discoveries have already been announced

in the Santa Barbara Channel and the Santa Maria

basin.

The disposition of future offshore California

production —estimated at 300,000 barrels per day

by 1990—is uncertain. It could be transported via

pipeline to Texas or alternately by tanker to the

same area. A third possibility is displacement of

Alaskan crude in west coast markets. This would

increase tanker demand for the Alaska trade because that oil would be transported to more distant locations.

The largest potential source of undiscovered petroleum reserves lies in and off the coast of Alaska.

Estimates have placed this total as high as 25.5 billion barrels. Lease sales, followed by exploration

drilling scheduled for the next few years, could determine actual levels.

The areas where industry is most likely to discover producible oil and gas in the near future are

the Beaufort Sea near-shore area (9.5 billion barrels possible) and the North Slope area adjacent to

Prudhoe Bay (6.5 billion barrels possible). Assuming these fields are commercially viable, about 10

years can be expected to elapse between lease sale

and production. Thus, the Prudhoe Bay production decline could begin before new fields start, and

demand for new tanker tonnage to serve Alaska

would not be significant until after 1995. Figure

28 is a projection by Exxon of the demand for tankers serving Alaskan petroleum production with a

wide range of possibilities by the year 2000.

As shown, in the more distant future, major new

finds in the Alaskan Arctic could result in significant demand for tankers. However, this area represents formidable technological challenges because

I“’Future Requirements for Tank Vessels” by F. J. Iarossi, Exxon Shipping Co., presented at the SNAME Spring Meeting, April

1983.
Ch. 3—The U.S. Shipping Industry ● 7 9

Figure 28.—industy Outlook for the Alaskan

Tanker Trade

0

i I J J i L-J- J

1980 1982 1984 19s8 19s8 1990 1995 2000

SOURCE: Exxon Sh{pplng Co., 19S3.

of the physical conditions there. The costs of extracting and transporting such reserves would be

enormous. Potentially, a large market could result

for domestic tankers, but major challenges would

have to be met by ship designers, builders, and

operators.

Regulation of Domestic Liner Trades

The coastwise, intercoastal, and noncontiguous

trades are subject to regulation by the Interstate

Commerce Commission (ICC), which in recent

years has reduced or eliminated rate regulation of

domestic rail and truck carriers, effectively freeing

the carriers to set rates at market levels, The noncontiguous trades are also subject to regulation by

FMC. FMC and ICC require carriers in those

trades to justify requests for rate increases to FMC.

The currently accepted level of reasonableness for

such rates in the Hawaiian trade provides carriers

with a 13-percent return on assets. A recent request

from FMC—under Docket No. 82-14—for recommendations for changes in regulation of the noncontiguous trades received a unanimous response

from the carriers asking that the test of reasonableness for rates be dropped. FMC is still considering the issue.

Continuing the test of reasonableness by FM(3

should not prove a hardship on the carriers or the

service provided during times of low inflation. In

times of high inflation, however, the profits generated by rates limited by the current Ievel of reasonableness are inadequate to encourage either new

investment by existing carriers or to attract new

carriers to the trades because the rate base on which

the 13-percent return is calculated is depreciated

book value rather than current market value,

Use of Foreign-Built Ships in

Domestic Trades

Some in the U.S. shipping industry, as well as

consumer interests, have proposed that foreign-bufit

ships be allowed to enter the domestic trades. In

the noncontiguous domestic liner trades—Alaska,

Hawaii, Puerto Rico, and Guam—use of foreignbuilt ships could result in lower freight rates and

thus somewhat lower cost goods. Combined with

the trend toward attempts at Government “buyouts’ of ODS for U.S.-flag liner carriers, use of

foreign-built ships could permit a number of U. S.-

flag carriers to begin serving these trades en route

to or from their foreign-trade destinations. There

is considerable debate on the overall costs and

benefits of allowing foreign-built or previously 

subsidized vessels to participate in domestic trades, as

discussed further in chapter 6.

In the coastwise and intercoastal trades, where

ocean shipping is in competition with truck and rail,

access to foreign-built ships by itself would be

unlikel y to lead to new transportation services. The

availability of lower cost foreign-built ships combined with mixed proprietary and common carriage

and flexible union manning requirements, however, might well lead to new, more competitive intercoasta. services.

Significant opposition to these proposals for

foreign-built domestic ships has been voiced by

U.S. shipbuilders. Chapter 6 discusses that issue

in more detail.

In some domestic offshore trades, the U.S. liner

fleet is limited in size and capabilities, and shippers have had difficulty when there was a need for

special handling or equipment. Under present law,

a U.S.-flag, U.S.-built ship must be used for

domestic offshore carriage, even in cases where it

is marginally able to carry the shipment compared

to a foreign-flag ship of much more suitable design,

It has also been proposed to increase the limit

on foreign ownership of U.S. carriers (from 25 to
80 ● An Assessment of Maritime Trade and Technology

— —

75 percent in the domestic trades and from 49 to

75 percent in the U.S.-foreign trades). The rationale used is that, historically, foreigners have

been more willing than U.S. citizens to invest in

shipping—even though it is a low-return industry.

Thus, the argument runs, as owners they would

be more likely to invest in new ships and facilities,

thereby enhancing the efficiency and productivity

of the fleet. However, the countervailing argument

that increased foreign presence in U.S. shipping

could have a detrimental impact on national security should also be considered. Of particular concern

would be any investment by the U.S.S.R. or citizens of other controlled economies.

There is no reason to think that a good foreign

operator would make business decisions in the U.S.

environment any differently than would a good

U.S. operator, except that, being less involved with

U.S. shipping traditions, they might be expected

to phase out marginally profitable or unprofitable

businesses more quickly. Yet the current trend in

the U.S.-flag liner fleet toward takeover of marginally profitable U.S. companies by financially

stronger U.S. companies is already causing some

industry restructuring and revitalizing. It is not

clear that a change in the limitations on foreign

ownership is in the best interests of the U.S. industry at present.

Opening U.S. carriers to majority ownership by

foreigners could, however, increase the availability

of capital and management to U.S. carriers, and

it could open the way to joint ventures, and enhance

the viability of the U.S. carriers.

Technological Developments

The domestic trades are served by various and

specialized tanker, liner, and neobulk vessels (container, RO/RO, railcar, and lumber carriers) as

well as barges. The need for special product carriers and flexible services will undoubtedly continue. The size of domestic noncontiguous liner

ships should also increase as new ships are introduced into these trades. The size of the crews on

U.S.-flag liner ships operating in the domestic noncontiguous trades could be reduced as crew size concessions are won by U.S. operators in the foreign

trades. However, such reductions may be dependent on replacement of existing vessels.

The ancillary ship-related, container, and terminal technologies will probably be incorporated

into the domestic noncontiguous fleet in essentially the same time frame as they are for the U. S.-

flag ships operating in the foreign trades.

Liner service in the domestic inter- and intracoastal trades has declined markedly in the last two

decades. AMPAC, a recent U.S.-flag intra-west

coast service, did not survive. Because of the economic advantages of highway and rail transportation systems, it is unlikely that liner service in the

domestic intercostal and intracoasta.1 trades will

be introduced or provided in the near future except as an adjunct to other trades (e. g., U.S. Lines’

east coast-to-west coast service). There are certain

constraints now affecting the domestic maritime industry which, if lifted, could improve its competitiveness. One is MarAd’s requirement under

title XI regulations that prohibits the use of foreignmanufactured main machinery or major hull components. 12 There is, at present, discussion within

MarAd of eliminating that requirement. If this were

done, the construction cost of Jones Act ships with

title XI guarantees may be reduced substantially.

Significant opportunities for the U.S. domestic

fleet in the long run may lie in the need to move

all cargo by the most fuel-efficient means. If

unreasonable cost disadvantages of shipping versus other transport modes could be eliminated, it

seems most likely that many trades would favor

shipping because of its inherent energy efficiency.

1246 CFR 298.11 specifies no foreign source materialS or components

shall be included in the vessel cost figures submitted for a loan

guarantee except if the Secretary issues a waiver.
Ch. 3—The U.S. Shipping Industry . 81

—

THE FUTURE U.S.-FLAG FLEET

In the past, the U.S. Maritime Administration

published annual forecasts of the makeup of the

U.S.-flag fleet. ’3 This is no longer done. The 1981

forecast showed less than 10-percent decline in the

total number of ships in the privately owned fleet

from 1981 to 1991 (from 569 to 528 ships). It

assumed no major policy changes and no major

economic factors affecting trade flows. It also

showed replacement in the tanker fleet and substantial (percentage) growth in the now very small bulk

fleet (from 18 to 63 ships).

Whether or not this forecast was accurate, many

recent conditions have affected the assumptions

made about both policy and trade growth. The forecast base is very uncertain in 1983. The liner fleet

has growth potential but is very dependent on policy

actions which are yet to be clarified. The bulk and

tanker fleet faces a much more uncertain economic

picture in the near term. Pressures to shift subsidized tankers to the domestic trades and to reduce

both subsidies and preference cargoes will affect the

bulk carrier and tanker numbers drastically. Some

experts believe that without policy changes, all segments of the U.S. fleet will decline markedly over

the next 10 years.

The potential future U.S. liner fleet has been a

matter of discussion recently by industry spokesmen. One view was offered by C. 1. Hiltzheimer,

Chairman of Sea-Land Industries at the Joint Maritime Congress in June 1982.14 Hiltzheimer pointed

out that, in order to be competitive, large portions

of the U.S. liner fleet will need to be replaced by

modern, efficient vessels. Assuming that a costcompetitive, unsubsidized fleet carrying a 40-perent share of U.S. liner trade by 1990 is a feasible

. —

‘

3 The last one was “Forecast of the Privately Owned U.S. Ftag Fleet,

1981-1991, ‘ ‘ by the Maritime Administration, Office of Policy and

Plans, December 1981.

14c, H i]tzhelmer, Improk,ing the operating Efficiency of the LT.s.

Flag Aferchan( Marine (No\ato, Calif.: TRANSPORT 2000, 1982).

goal, he believes it can be achieved by a massive

capital improvement program. (Building 100 to 150

new ships and investing $8 billion to $9 billion).

He also states that significant Federal policy changes

would be required before industry would or could

make such investments. Among these policy

changes are: assured fair access to cargo, regulatory

changes to allow rationalization and improve utilization, and promotional taxation incentives. If

such changes were made and if industry invested

in fleet modernization, it is claimed that the U.S.

liner industry could compete in the world market,

capture a reasonable share of U.S. trade, and offer good service to shippers. Such a scenario would

show at least a doubling in capacity of the U.S. liner

fleet and a transformation from mainly subsidized

to mainly unsubsidized operations.

The potential for a U.S.-flag bulk fleet is considered by most to depend more on cargo-reservation policies than on ‘‘fair cargo access’ policies.

While growth in that fleet could be postulated in

the same way as that for the liner fleet, U.S. cost

disadvantages are considered much more significant in bulk trades. It appears, however, that some

consistency in existing cargo-reservation policies,

combined with tax and other similar incentives provided to liner operators, could spur some rejuvenation of the U.S. bulk fleet.

Therefore, it seems clear that Federal policy in

the 1980’s will determine the vitality of the U.S.

shipping industry in the decades to come. If there

are no changes in policy, there probably will be a

decline in most segments of the industry, while certain positive policy changes could lead to rejuvenation and growth.

Those policies, which would have a positive effect on certain sectors of the U.S. shipping industry,

are reviewed in chapters 6 and 7 of this report. Policies to promote growth in U.S. trade and assure
82 ● An Assessment of Maritime Trade and Technology

fair access to all international trade for U.S. carriers would naturally benefit all sectors of the shipping industry. However, such policies would be

most useful for continued success of those companies which have already attained high productivity and are now reasonably competitive in world

shipping. Such qualities apply to certain of the

U.S.-flag liner companies and to the U.S.-controlled, foreign-flag bulk fleet.

Several other Federal policy initiatives are also

of major importance to the U.S.-flag liner operators. These include: maintenance of existing Government-impelled cargo preference, modification

to the Shipping Act granting wider antitrust immunity in order to achieve benefits of high utilization and economies of scale, and modifications to

taxation policies and/or financial incentives which

would allow future capitalization on a cost-competitive basis with other shipping nations. Policies to

promote cost-competitive industry capitalization are

also critical to the U.S. effective control fleet.

For the U.S.-flag bulk fleet (tankers and drybulk) in foreign trades, future viability is uncertain unless major Federal support is applied. Since

the world bulk business is so poor right now, and

U.S. costs are significantly higher, U.S.-flag bulk

operators are not competitive with other major shipping nations (nor are they competitive with the foreign-flag U.S.-controlled fleet). Federal support for

the dry-bulk fleet to date has taken the form of cargo-preference policies, and current proposals are

to expand these to the commercial U.S. bulk trades.

Construction and operational subsidies (combined

with taxation, loan guarantees, and other incentives) were successful in the 1970’s in promoting

an expanded U.S.-flag tanker fleet. However, it

does not appear that such incentives would provide

sufficient support if they were reinstated at the same

level today. If it is considered in the national interest to promote through Federal support an expanded U.S.-flag bulk fleet, a thorough analysis

of alternative approaches would probably be useful.

For the U.S. domestic fleet, continuation of existing

Jones Act provisions would probably lead to continued viability of those sectors which are successful

today. Pressures to change those provisions will,

however, continue from shippers and consumers

served by the domestic fleet, who believe that increased competition would lead to more efficient

and less expensive service.
Photo credit: Avonda/e Shipyards, Inc.
Contents

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Characteristics of the Shipbuilding

Industry . . . . . . . . . . . . . . . . . . . . . . . . . 87

General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Definition of the U.S. Shipbuilding

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

The Markets of the U.S. Shipbuilding

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

U.S. Shipbuilding Industry Orders . . . . . . . 91

The Capabilities of U.S, Shipyards . . . . . . . 94

The Technology Level of the U.S.

Shipbuilding Industry . . . . . . . . . . . . . . . . 96

The Labor Force of the U.S. Shipbuilding

Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Demographic Characteristics of the

Shipyard Work Force . . . . . . . . . . . . . . . . 102

Shipyard Workers’ Hours and Earnings. . . 102

Organization of Shipyard Labor . . . . . . . . . 104

Shipbuilding Productivity . . . . . . . . . . . . 106

The Determinants of Productivity . . . . . . . . 106

Productivity Trends in the U.S.

Shipbuilding Industry . . . . . . . . . . . . . . . . 108

Improving U.S. Shipbuilding

Productivity . . . . . . . . . . . . . . . . . . . . . . . . . 110

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . 112

The

The

The

Physical Facilities Problem . . . . . . . . . . 112

Management Problem . . . . . . . . . . . . . . 113

Labor Force Problem . . . . . . . . . . . . . . 113

TABLES

Tablt’N’o. Page

27.

28.

29.

30.

31.

U.S. Shipyards Comprising the

Active Shipbuilding Industrial Base . . . 88

Proposed 5-Year Navy Shipbuilding

Program . . . . . . 4 . . . . . . . . . . . . . . . . . . . 90

Orderbook in Major U.S. Shipyards . . 93

U.S. Shipyard Work Experience . . . . . . 95

Examples of Projects That

Transferred Technologies to

Korean Shipyards, 1971-82 . . . . . . . . . . 100

Table No. Page

32.

33.

34.

35.

36.

37.

Method of Wage Payment . . . . . . . . . . . 103

Estimated Hourly Compensation

of Shipbuilding Production Workers

in 16 Countries . . . . . . . . . . . . . . . . . . . . 104

Shipbuilding Cost Increases, 1975-80. . 105

Unions in U.S. Shipbuilding Yards . . . 106

CGRT Measure of Productivity Gains

in Private U.S. ASIB Shipyards . . . . . . 108

Value-Added Measure of Productivity

Gains in U.S. Shipyards . . . . . . . . . . . . 109

FIGURES

Figure No. Page

29.

30.

31,

32.

33.

34.

35.

36.

37.

38.

Shipbuilding and Repair, Trends

in Value of Work Done . . . . . . . . . . . . . 89

Merchant Ship Construction in

U.S. Yards 5-Year Average,

1930-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

Merchant Ship Construction in

U.S. Yards, 1973-82 . . . . . . . . . . . . . . . . 92

Historical Trends in Ship Deliveries

From U.S. Shipyards . . . . . . . . . . . . . . . 92

Major Private Shipyards and

Navy Programs . . . . . . . . . . . . . . . . . . . . 94

Value of Shipyard Work on

Order, U.S. Private Shipyards . . . . . . . 95

Private and U.S. Naval Shipyard

Employment Levels, 1960-80,

and Projected Through 1990 . . . . . . . . . 100

Shipbuilding and Repairing

Employment in Private U.S.

Shipyards, 1978-82 . . . . . . . . . . . . . . . . . 101

Mobilization and Optimum

Employment Estimates and

Current Employment Levels in

the Major Private Shipyards . . . . . . . . . 102

Shipbuilding Industry Workload

Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Chapter 4

The U.S. Shipbuilding Industry: Status and

Trends in Technology and Productivity

OVERVIEW

This chapter examines the productive capacity

of U.S. shipbuilding. It traces the historic development of the industry and describes its present situation. It analyzes the status of technology employed

and the level of competitiveness for construction

of today’s major merchant ships. Finally, it presents

possible approaches to maintaining and improving

the health of the industry,

Over the past two decades, the United States has

only built major merchant ships when Federal subsidies were used to pay a large portion of the cost

or when laws, such as the Merchant Marine Act

of 1920 (’Jones Act), required that the ship be built

in a U.S. yard. The United States has, therefore,

been isolated from international competition for

these types of vessels.

In many other major maritime countries, shipbuilding is viewed on a global perspective. This is

not the same in the United States, where only 1

to 2 percent of the world merchant fleet is now built.

The U.S. shipbuilding industry is basically quite

different from that of Europe, Japan, and Korea.

Those countries have built most of today’s modern

shipping fleets and compete for orders in a world

market. The United States does not.

However, the United States does have a large

and diversified shipbuilding industry. Its total

employment (175,000 in 1982) is even larger than

Japan’s. The U.S. industry has some very productive and technologically innovative segments, including those who build barges, tugs, supply boats,

and offshore drilling rigs. Moreover, U.S. shipyards are foremost in construction of large, complex, and sophisticated naval warships.

In commercial shipbuilding, the Japanese, and

more recently the Koreans, have based their recent

success on responsiveness to developments in the

international shipping arena. They did this by:

●

●

●

obtaining the best combination of inputs, including skilled but low-cost labor, a strong

work ethic, advanced technological capabilities

(universities, technical institutes, etc.), financial means, qualified management, and many

new facilities;

tenaciously pursuing the largest volume ship

markets in recent decades, particularly liquidand dry-bulk vessels. This has allowed them

to ‘ ‘go up the learning curve, making personnel and technical improvements, enabling

them to build ships much more cheaply than

their rivals. A key aspect of their improvement

program has been standardization and integration of processes, to achieve efficiency; and

integrating ownership of major yards with

large industrial groups operating allied businesses such as steel, machinery, electrical machinery, and trading.

Part of the reason for Japan’s success in shipbuilding is that a large base of demand has come

from Japanese ship operators who purchase their

ships from Japanese shipyards. Thus, the yards

have had consistent, long-term contracts and have

often been able to offer incremental prices to buyers

from the rest of the world.

While there is no Japanese law that requires ship

operators to build in Japan, a review of world ships

on order in 1983 shows that all those under construction for Japanese owners are being built in Japanese yards.

Volume is the prime factor in a highly productive shipbuilding industry. Without large numbers

of ships to build, it is not possible to hone the productive process to a sufficient degree to reduce costs. —.—————

‘See ‘‘Fairplay Shipping W’cckly-World Ships on Order, April

1983—Japan has under construction for Japanese owners 4,7 million

deadweight tons (dwt), which is more than for an}’ other flag except

Liberia, and represents about 9 percent of world orders

85
86 ● An Assessment of Maritime Trade and Technology

This is why the Japanese and Korean strategies of

concentrating on building large numbers of relatively simple bulk vessels were so important to their

success.

Many other factors have played a role in the high

productivity of Japanese and more recently Korean

shipbuilding. These yards have developed their

technology to an advanced degree, beyond that

found elsewhere in the world. The investment-perworker in Japanese and Korean yards surpasses that

of almost all other nations, Their technology is

broad-based, and they have adopted technologies

that complement each other; i.e., they have purchased machinery and adopted production processes that are carefully interrelated to achieve a

smooth and highly efficient work flow.

In comparison to many other major shipbuilding

nations, the United States has not installed the level

of modern shipbuilding technology necessary for

high productivity in the construction of today’s major merchant ships.

In contrast to the Japanese and Korean model,

some major problems with U.S. shipbuilding technology have been:

●

●

●

●

It

long delays in introducing new technologies;

a reluctance to adopt foreign technology, and

a reluctance to enter into-joint ventures, licensing, purchasing, or other arrangements for the

speedy, effective transfer of technology;

a minimal exchange of technology among U.S.

shipyards; and

minimal evaluation of technologies in other

areas (aerospace, electronics, etc. ) that have

potential applications to shipbuilding.

is noteworthy that the problem of low output

chant ships, primarily caused by the elimination

of Federal funds for construction subsidy programs.

While the U.S. Navy has embarked on an expanded building progam, it will not require much

additional shipyard capacity until the mid-1980’s,

and only the few yards that specialize in warships

will benefit substantially. The trends in the industry

are thus toward more U.S. Navy work, more concentration in fewer large firms, and hard times for

those firms that have, in the past, depended on

commercial shipbuilding subsidies. Although U.S.

yards have made recent strides in improving productivity in the construction of merchant vessels,

the primary focus of the industry is still on U.S.

Navy work where high-technology, custom work

is the rule.

Two different approaches to improving U.S.

shipbuilding productivity appear possible. One

would concentrate primarily on Federal support or

assistance to the industry combined with incentives

to enhance productivity. Several other maritime

countries appear to be adopting such an approach.

Another approach would focus on developing

other emerging markets for U.S. shipyards, assuming that there is little chance that the U.S. industry

can reduce costs of conventional merchant ships

below the level of the low-wage countries. The U.S.

shipbuilding industry is geared to custom work and

the integration of highly technical with conventional

systems. Markets for such skills may develop in

fields like Arctic- or deepwater-resource extraction.

A challenge for industry and the Federal Government would be to cooperate to identify and develop

the most promising markets.

of labor from U.S. yards cannot be traced in any

part to worker skill. U.S. shipyard workers are as

skilled as their Japanese or Korean counterparts.

Rather, the problem is related to work organization and the production tools available. Briefly

stated, U.S. yards have never had sufficient volume

of merchant ship orders to specialize, to become

truly expert, or to develop high efficiency. Flexibility to build many different varieties of ships and

other marine equipment has been maintained in

U.S. shipyards. Thus, the economies of mass production have seldom been adopted.

The U.S. shipbuilding industry is facing a severe

decline in potential new buildings of major merPhoto credt: Lockheed Shlpbulldlng Co.

Construction of U.S. Navy warships such as the above

is expected to dominate the U.S. shipyard orders over

the next several years
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 8 7

— ——— . —

CHARACTERISTICS OF THE

SHIPBUILDING INDUSTRY

General

World shipbuilding is a cyclical industry with

fluctuating demand. It has experienced over nine

major cycles, each with more than a 40-percent

reduction in demand, since 1896. Three of these

cycles have occurred since World War II alone.

From 1930 to 1933, for example, there was a decline of 84 percent in shipbuilding output. Again,

at the end of World War II, between 1944 and 1947

a decline of 85 percent was experienced because of

the glut of ships built for the war. More recently,

a worldwide decline of 60 percent occurred from

1975 to 1979. In addition, smaller fluctuations of

10 to 20 percent every 7 to 10 years have become

quite common.

The shipbuilding industry is an assembly industry that is both capital- and labor-intensive. Large

capital facilities are required, and major components usually are purchased from man y sources.

The assembly process itself, using a mixture of large

and small, and single and complex components, is

very labor-intensive. As an assembly industry, shipbuilding has major and significant linkages to many

other industries, such as iron and steel, machinery,

electrical, and electronic manufacturing. Its assembly process can be expanded to include component,

and even machinery, manufacture or contracted

to include only ship assembly processes. As a result,

integrated shipbuilders with close relations to linkage industries can often more effectively weather

large cyclical fluctuations than shipbuilders who

lack integration with their major supplier industries.

The latter is the case with most U.S. shipbuilders.

Investment in shipbuilding equipment on a peremployee basis has mushroomed in recent years.

Although many foreign shipbuilders have recently cut back and consolidated facilities, certain

foreign shipbuilders are gearing up for a revival of

the industry by the introduction of more automation, robotics, modern measurement and control

techniques, computerized management methods,

and facilities that provide for greater product flexibility. Because shipbuilding is considered an important economic and defense asset, and also because it affects many related or interrelated industries and employment, many governments support

their shipbuilding industries directly or indirectly.

Furthermore, governments in many countries now

take an active part in the ownership of commercial shipyards (i. e., the United Kingdom, Sweden,

Italy Spain, Portugal, Netherlands, Taiwan, Malaysia, India, Israel, and the Communist bloc nations). Other types of government shipbuilding support, include:2

●

●

●

●

export credits (’Japan, Korea, Brazil);

shipbuilding subsidies (United Kingdom,

United States, Brazil);

new orders financed by the government for expansion of the domestic fleet or investment

(’Japan, Taiwan, Korea); and

exemption of import and other duties (Spain,

Korea, India).

These government interventions have made it increasingly difficult to compare shipbuilding productivity between various countries.

Definition of the

U.S. Shipbuilding Industry

The majority of the approximately 500 U.S.

shipbuilding and repair firms have fewer than 100

employees and correspondingly limited building

and repair facilities. Over 200 of the U.S. shipbuilding or ship repair facilities are surveyed annually by the U.S. Maritime Administration

(MarAd). Of these, 30 are “major” (i.e., have at

least one large building berth) and 26 (as of March

1983) are considered to comprise the ‘‘Active Shipbuilding Industrial Base” (ASIB).

The ASIB list changes (although only slightly in

recent years) as yards open, close, or turn to other

business. Criteria for inclusion in ASIB include not

‘See “Maritime Subsidies” (Washington, D. C.: U.S. Department

of Transportation, Maritime Administration, February 1983); and

‘ ‘Financing and Subsidizing the Marine Industries” (Copenhagen,

Denmark: MAN-B&W Diesel, November 1982).
. .

88 ● An Assessment of Maritime Trade and Technology

only facilities but also active conduct or pursuit of

shipbuilding work. ASIB yards must be ‘‘engaged

in seeking contracts for construction of naval ships

or major oceangoing or Great Lakes merchant

ships. *

Table 27 is the list, as of March 26, 1983, of the

ASIB. Defense planners consider these ASIB yards

to be the core of the Nation’s shipbuilding capability

and a principal measure of the United States’ ability

to respond to a national emergency. The U.S. Navy

keeps a current tabulation of these yards and notes

their capability of building major combatant, amphibious, auxiliary, and merchant ships. At present, 7 of the 26 yards are considered capable of U.S.

Navy combatant construction. The U.S. Navy also

periodically develops shipbuilding mobilization

plans (one is under development in mid-1983) and

surveys about 100 other shipyards to determine

which could be considered as extensions of the ASIB

in a national emergency.

● NlarAd definition, used consistently in publications concerning

shipbuilding, e.g., “Relative Cost of Shipbuilding. ”

Table 27.—U.S. Shipyards Comprising the Active

Shipbuilding industrial Base (ASiB)

Alabama Dry Dook & Sh@buiidh?g00., Mobile, Aia

The Ameriw Ship Sqiidin@O@W-Lorain, Ohio

Avondaia shimImw New &@kn$, la

Sath imdhlorks OorP., @ath, MaOW

Bay ShipBtilMlng Ca., SturgewI E@&, Wta. -

Bethiehem Steel Oorp,, Sparrows P@nt Yard, Baltltnora, Md.

General Dynami~c S@ Oivteion, Groton, Corm.

~e~e~w DynamiodQuincy Shlpbuiiding Division, Quincy,

Halter Marine, New &kans, La

ingd~ashipbuiiding Ohdeion of Litton industries, f%wagoui~

Leving8ton Shi@ui@i

Lookheed $hipbuildlno ,~~le,~a

Murinette Marine Oorp,, MMnetW, Wlu.

Maryland Sh@buMdiaf# ~ @’ydQ@ w., @@timuM4 MNational St@ & w~’tildi ~.,~ ~,~if.

Newport Newe $hi@bt#@n~”k“-tva

Norfolk Shipbulldin&& !Mydoak~,-k,Va

Pennsylvania SMpbuiidlw 00., Chestw, i%

Peteraon Bull= jno., St- @ay, W@. .

Taooma wilding W., inet, l?Qom!# Wm.

Tampa Shipy~ lno., Tam~ FW (subsidiary of Amertcan

s. B., 00.)

Todd $h{pyards ~rp., GalveetOn, ~OX.

Todd Shipyu’da OorP., Hou@?n, TQX~

Todd Paoifio Shipyerd$ Corp., W ‘Angeid$e, OaW

Todd Paoific $hiPYMiS ~rp,, $@l Franokoo, ~if.

Todd Pacific Shipyards Oorp., Sedtie, Wash.

SOURCE: Naval Sea Systems Command, March 19S3.

The 26 shipyards comprising the ASIB represent

over one-half of the total U.S. shipyard employment and an even larger proportion of total value

of work done. The so-called ‘ ‘second-tier’ shipyards also represent a viable U.S. industrial sector. These shipyards mainly build and repair

barges, tugboats, towboats, supply boats, crewboats, and offshore drill rigs. The industry group,

American Waterways Shipyard Conference, periodically surveys this sector of over 300 shipyards.

In 1981, about 75 of these yards reported a total

employment of 22,000 and gross revenues of almost

$2 billion, 95 percent of which was from the private

(nongovernment) sector.

The second-tier shipyards have been hit severely by the recent recession resulting in many yard

closings and a significant reduction in the labor

force (about 50 percent from 1981 to 1983). Even

so, some of these U.S. yards still build for and compete in foreign markets.

The shipbuilding supplier base has never been

compiled. The Shipbuilders Council of America

(SCA) has distributed a questionnaire to its members, asking them to identify all subcontractors or

firms supplying at least $300,000 worth of goods

or services annually. The resultant tabulation of

the supplier base will not be available until late

1983.3

The supplier base has a key role in the improvement of U.S. shipbuilding productivity. Shipyards,

particularly in the building of sophisticated naval

vessels, may funnel up to 60 percent of the total

vessel cost to equipment suppliers and program support functions. For some suppliers, the yard is a

key customer whose needs take priority; for others

the yard is almost a nuisance customer in terms of

volume and dollar value of order and technology

required. Leadtimes may pose a scheduling constraint, and problems in supporting industries may

govern ship delivery schedules.4

‘Telephone conversation with Shipbuilders Council of America,

March 1983.

4, {Building a 600.Ship Navy: Costs, Timing, and ~ternative Approaches” (Washington, D. C.: Congressional Budget Office, 1982),

p. 37.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 8 9

The Markets of the U.S.

Shipbuilding Industry

The U.S. shipbuilding industry builds or has

built for many markets, including U.S.-flag ship

operators in both foreign and domestic offshore

trades, the offshore oil industry, the U.S. inland

water transport industry, fishing and tugboat operators, and the U.S. Government—Navy, Coast

Guard, and other seagoing agencies.

The recent cessation of construction subsidies has

probably ended the prospect of orders from U. S.-

flag ship operators active in the foreign trades, while

the so-called ‘‘captive market’ of Jones Act and

Government vessels, at present, is inadequate to

sustain the U.S. shipbuilding industry at 1982 work

levels. U.S. shipbuilders’ share of world commercial orders also has averaged less than 5 percent over

the past decade.

It is naval building and repair that presently supports the U.S. shipbuilding industry. The naval

share of ASIB shipbuilding output has hovered

around 60 percent in recent years and is projected

Figure 29.—Shipbuilding and Repair,

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

to exceed 80 percent by 1987.5 In the past decade,

40 percent of new contracts and 45 percent of annual deliveries have consisted of naval vessels. The

commercial workload also reflected Government

support. Of the 229 merchant ships contracted for

by U.S. shipyards during 1972-82, 37 percent were

built with construction differential subsidy (CDS),

and virtually all of the remainder were constructed

for the domestic fleet which, by law (’Jones Act),

must be built in U.S. shipyards. G

Self-propelled new military ships in recent years

have comprised between 33 and 40 percent of shipyards’ revenues. When the repair of military ships

is included, the percentage rises to an average of

47 percent. Approximately 33 percent of all naval

repairs, alterations, and conversions are performed

in private yards—a proportion that has been steady

and probably will continue. Figure 29 illustrates

the trends in the value of work performed in all

private shipyards between 1972 and 1982, divided

5Defense Economic Research Report, Data Resources Inc., June

1982, p. 3.

%Shipbuilders Council of America, Washington, D. C., 1982.

Trends in Value of Work Done

-

New military ships=

1972 1974 1976 1978 1980 1982 1984

Year

SOURCE. SCA annual report 1982.

25-417 0 - 83 - 7 QL 3
90 An Assessment of Maritime Trade and Technology

. ● ✎

into major military and nonmilitary categories. It

should be noted that military (U.S. Navy) construction and nonpropelled (barge and rig) construction

have shown the most significant growth over this

period. The 5-year naval shipbuilding program (fiscal years 1984-88), involving 124 new vessels (51

of which are major combatants), and 21 conversions, promises to increase the significance of naval

work for private yards (see table 28).

In contrast to the 124 new naval warships to be

contracted for over the next 5 years, the Maritime

Administration projects that about 25 new merchant ships (20 tankers, 3 bulk ships, and 2 cargo

ships) will be contracted—mostly to replace older

vessels in the domestic fleet. In terms of value, the

U.S. Navy orders are expected to represent about

90 percent of shipyard revenues.7

Naval work is unevenly distributed among the

ASIB yards: seven yards are considered “combatant capable’ (i. e., capable of building at least conventionally powered combatant vessels), six are

considered capable of building ‘ ‘amphibious/auxiliary vessels, and the rest are classified as ‘ ‘capable of building seagoing merchant ships. ” Based

on the latest 5-year naval shipbuilding plans, it appears that the large concentration of major com7Data Resources, Inc., The Economic Impact of the U.S. Shipbuilding Industry, August 1982.

batants will place even greater emphasis on those

yards capable of complex warship construction.

One effect of the present high proportion of naval

work and repair is to focus U.S. yard attention on

customized rather than serial design and production. While this disadvantaged the U.S. shipbuilding industry in the 1970’s, when series production>

of large merchant vessels was at its height, its future

impact may not be the same. Economic conditions

may bring a return to low-unit demand for more

complex ships, with a corollary tendency to maintain labor-intensive production methods in shipyards. Cargo reservation/sharing, on the other hand

(if adopted on a broader scale), could produce a

growth of conversion or upgrading orders, or even

new building contracts.

An outgrowth of U.S. yards’ naval experience

could be an ability to capture orders for foreign

naval vessels. An increasing number of U.S. shipyards are eyeing the international warship market,

which has grown rapidly in the last decade. Many

countries have begun to replace their aging fleets,

and several countries (in ‘ ‘strategically active

areas’ have begun to build new navies. New generations of weapon systems have caused technical

changes that mandate design and construction

changes. The development of advanced weapon

systems has changed naval tactics and resultant ship

design and construction.

Table 28.—Proposed 5-Year Navy Shipbuilding Program (as of April 1933)

Number of ships planned in each fiscal year

Type of ship 1984 1985 1986 1987 1988

Trident missile submarines . . . . . . . . . . . . . . . . 1 1 1 1

Nuclear attack submarines . . . . . . . . . . . . . . . . 3 4 4 : 5

Nuclear aircraft carrier . . . . . . . . . . . . . . . . . . . . — — — — 1

Guided missile cruisers . . . . . . . . . . . . . . . . . . . 3 3 3 3 2

Guided missile destroyers . . . . . . . . . . . . . . . . . — l – 3 5

Destroyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 1

Landing ship dock. . . . . . . . . . . . . . . . . . . . . . . . 1 2 2 2 2

Amphibious assault ship . . . . . . . . . . . . . . . . . . 1 — 1 — 1

Landing platform dock . . . . . . . . . . . . . . . . . . . . — — — — 1

Mine countermeasures ship . . . . . . . . . . . . . . . 4 4 4 — —

Mine hunter-sweeper. . . . . . . . . . . . . . . . . . . . . . 1 — 4 4 4

Stores and ammo ships and tenders . . . . . . . . — — 2 4 3

Oilers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 4 4 4

Cable ship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – l – –

Ocean surveillance ships . . . . . . . . . . . . . . . . . . – 2 2 2 –

Total of new construction . . . . . . . . . . . . . . . . . 17 21 28 28 30

Conversions and reactivation . . . . . . . . . . . . . 6 5 3 4 3

SOURCE: Admiral Fowler, Commander, Naval Sea Systema Command, testimony before the House Armed Servicea Committee, Apr. 5, 1983.
Ch, 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity 91

In the 1970’s, worldwide naval shipbuilding export orders totaled about 460 combatant units, plus

some 40 auxiliaries (logistics ships, landing ships,

patrol craft). Compared to the 1960’s, when export orders totaled only 17 vessels, this is a significant growth market. a

Prices of naval vessels have risen sharply to reflect

the increased complexity of electronic ship systems,

particularly weaponry. While the United States has

garnered the majority of worldwide orders for military aircraft, it lags in ship construction. In recent

years, European yards have built 80 percent of naval ship export orders, sometimes with heavy government support. The United States may be disadvantaged by lack of suitable designs for export

naval vessels. However, in 1982, the orders of 4

U.S. shipyards included 10 foreign military ships

with a total value of almost $1 billion. g

‘Man”time Reporter, Nov. 15, 1982.

‘U.S. Navy, Annual Report on the Status of the Shipbuilding and

Ship Repair Industqy of the United States, 1980.

U.S. Shipbuilding Industry Orders

Both the long- and short-term variation in U.S.

merchant shipbuilding over the previous 50- and

10-year periods are indicated by figures 30 and 31.

Since 1980, a steady decline in orders, particularly for deep-sea vessels, has occurred with only three

new merchant ship contracts awarded in 1982.

Since 1960, the trend shown in figure 32 confirms

that the U.S. shipbuilding industry shared only

briefly in the profitability of the worldwide building

boom of the 1970’s and reverted, in the mid-1970’s,

to a level of output insignificant in world terms.

This is clear from an analysis of the total numbers

of merchant ship contracts awarded since the Merchant Shipping Act of 1970. A study by SCA found

that the volume of tonnage of commercial building

closely correlated with the availability of construction subsidy funds each year and fell far short of

the goals of the 1970 Act.

From 1957 through 1982, only 8 to 10 of the

ASIB yards shared in naval shipbuilding orders on

a regular basis. IO Thee indication is that those yards

‘“Ibid.

Figure 30.–Merchant Ship Construction in U.S. Yards 5-Year Average, 1930-80

c

.-o

=.-

Z

6

5 -

,

4 -

3 -

.’.

2 -

1 -

0

1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980

5-year midpoint

SOURCE: Marine Engieerlng/Log, 1982 annual.
92 . An Assessment of Maritime Trade and Technology

Figure 31.— Merchant Ship Construction in U.S. Yards, 1973=82

1.3 ‘

1.2 m .,

1.1 : ,

‘ .

1.0 -“ ,

0.9 -

0.8 “

0.7 “

0.6 “

0.5 -’

0.4

0.3

0.2

0.1

0.0 I

.!.

—

—

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982

In

a. .- 30 c

0

z

25 5

z

2

20

15

10

SOURCE:

SOURCE: Marine Englneerlng/Log, 19S2 annual.

Figure 32.—Historical Trends in Ship Deliveries

From U.S. Shipyards

1960 1965 1970 1975 1980 1985

Year

Office of Technology Assessment with data from Shipbuilder’s

Council of America.

Year

will continue to receive the overwhelming share of

new naval ship orders and that, of these, four major private shipbuilders will continue to receive

about three-quarters of the total value of naval

orders. *

Recent employment trends also indicate a growing concentration of ship construction in the few

large yards building complex warships. Table 35

shows production employment of about 79,000 at

14 ASIB yards at the end of 1982. Compared with

just 1 year earlier, total production employment increased by 2,000; several of the smaller yards lost

“According to U.S. Navy Annual Report, 75 percent of fiscal year

1983 naval shipbuilding funding of over $18 billion will go to General

Dynamics/Electric Boat, Newport News, Bath, and Ingalls.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity 93

up to two-thirds of their work force while the larger

ones added more than enough to keep the total

growing.

The current orders of U.S. yards for naval ships,

commercial ships, and drilling rigs is given in table

29. Figure 33 illustrates the locations and orders

for the private shipyards engaged in U.S. Navy

shipbuilding. Figure 34 illustrates the historical

changes in value of commercial and naval shipbuilding work from 1970 to 1982.

Yards not capable of winning U.S. Navy contracts will have to diversify or rely on repair work

for their near-term survival. Repair work is presently highly concentrated, with 15 percent of the yards

performing 80 percent of the dollar volume of business. This is further confirmation of the existence

of an underutilized capacity in the industry.

Table 29.—Orderbook (Vessels Under Contract) in

Major U.S. Shipyards (as of March/April 1983)

Number

of ships

U.S. Navy new construction:

Trident fleet ballistic missile submarines . . . . . . .

Nuclear attack submarines . . . . . . . . . . . . . . . . . . .

Nuclear aircraft carriers . . . . . . . . . . . . . . . . . . . . . .

Guided missile cruisers . . . . . . . . . . . . . . . . . . . . . .

Patrol frigates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Destroyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Dock landing ships . . . . . . . . . . . . . . . . . . . . . . . . . .

Ocean surveillance ships . . . . . . . . . . . . . . . . . . . . .

Other auxiliaries and support ships . . . . . . . . . . . .

Landing craft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cable ship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mine countermeasure ships. . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Commercial merchant ships:

Containerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Roll-on/roll-off ships . . . . . . . . . . . . . . . . . . . . . . . . .

Product tankers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bulk carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tug/barges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Other vesse/s:

U.S. Army dredge. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Geophysical research vessel . . . . . . . . . . . . . . . . . .

Incinerator vessels . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Coast Guard cutters . . . . . . . . . . . . . . . . . . . . .

Offshore drilling rigs. . . . . . . . . . . . . . . . . . . . . . . . .

Total. , , , , , , , , . . . ., , , . . . . . . . . . . . . . . . . . . . . .

8

20

3

6

24

1

3

12

17

6

1

2

103

1

3

8

1

4

17

1

:

9

12

25

NOTE: In addition to the above. U.S. Navv reDair and overhaul contracts on over

40 warships total almost $1.7 bil~ion” in value as of March 1983

SOURCE: Marine Engineering/Log, March 19S3. U.S. Navy, April 1983.

In addition to the recent concentration in U.S.

Navy markets, another problem for U.S. shipyards

has been the fluctuating size and diverse character

of the orders. First, the fluctuating orders force

management to seek maximum flexibility in their

mix of capital and labor. This results in laborintensive methods, restrictions on the levels and

type of capital investment, a high turnover in the

labor force, and an adversarial climate of labor

relations.

Second, the diverse character of the output of

U.S. yards forces frequent changes in workload and

resultant labor requirements, which are superimposed on the normal variations in labor requirements during the building cycle. Even yards heavily

involved in naval work are subject to these pressures. Changes in naval procurement methods and

cycles add further uncertainty. The labor turnover

in the shipbuilding industry has been estimated at

40 to 50 percent per year, and up to 95 percent after

5 years. Since shipbuilding processes are assumed

by the industry itself to continue to be relatively

labor-intensive, 11 the problem of managing the

labor force obviously is acute.

These problems are reflected in Pugh-Roberts

Associates’ findings regarding the factors perceived

by the industry to determine competitiveness .12 The

survey respondents felt that U.S. shipyard productivity was determined more by its external environment than by its investment and marketing program. A 1980 report by the National Academy of

Sciences summarized the problems vividly:

In summary, the indefinite nature of the market

inhibits prudent capital investment, with few exceptions. This ties shipbuilders to a job-shop trade

environment that is whipsawed between demands

of military programs and those of alternative commercial programs. As shipyard management sees

it, this further inhibits capital investment and

11 [nstitute for ReSearCh arsd Engineering Automation and prOclUCtivity in Shipbuilding, 5-Year National Shipbuilding Productivity Improvement Plan, Report of the Second Task Group Sessions.

lzKenneth G, Coopr and Henry Birdseye Wei], ‘‘Ocean Shipping

System Dynamics, December 1981 (for MarAd Office of Research

and Development) hereafter referred to as Pugh-Roberts Associates’

report.

I sMaritime Transportation Research Board, ‘‘personnel Requirements for an Advanced Shipyard Technology’ (Washington,

D. C.: National Academy of Sciences, 1980), p. 106.
94 ● An Assessment of Maritime Trade and Technology

Figure 33.—Major Private Shipyards and Navy Programs (Apr. 1, 1933)

SOURCE: U.S. Navy, April 19S3, updated by the Office of Technology Assessment.

creates hiring and training problems; and that further limits the availability of capital and brings into

question the wisdom of investment.

The Capabilities of U.S. Shipyards

Table 30 summarizes the past experience and

current work of the ASIB yards by vessel type. It

is immediately apparent that U.S. yards have built

a wide variety of ship types in the past, and in many

cases are presently making a serious effort to build

other types of industrial structures. Diversification

is necessary for all yards if they are to keep their

work forces intact and their facilities fully occupied.

The naval building programs will take some time

to gear up and will not help ail ASIB yards .14 The

push toward diversification also reflects the yards’

belief that naval work is much less profitable than

subsidized commercial work and that naval procurement policies may work to the disadvantage

of commercial yards. *

It is also important to recognize that not only did

the United States pioneer series production in

 associated with the construction ‘f

sophisticated warships, the impact on shipbuilders of the expected

U.S. Navy program is at least 3 years away, and ultimately less than

two-thirds of the present production base will be potentially utilized.

SCA Annual Report, 1981, p. 1.

“This was cited in many articles in the general and trade press.

See, for example, the Forbes article of 9/28/81, p. 114. of

Todd, is quoted as saying: (after Vietnam) “the military was viewed

so adversely that we lost a decade of shipbuilding.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● . 95

Figure 34.—Value of Shipyard Work on Order, U.S. Private Shipyards

Naval Commercial

0 0

-

—

-

—

-

—

-

—

-

—

-

—

—

—

-

—

=

-

—

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 198

Year

SOURCE. Seatrade (U.S. Yearbook, 1982).

Table 30.-U.S. Shipyard Work Experience

—

Past Current

Alabama Dry Dock &Shipbuilding Co., Mobile, Ala. ... ... ... ... ... ... AE E

American Shipbuilding Co., Lorain, Ohio . . . . . . . . . . . . . . . . . . . . . . . ... .ABC Repair

Avondale Shipyard, Inc., New Orleans, La. . . . . . . . . . . . . . . . . . . . . . . . . . . A B D A B C

Bath Iron Works Corp., Bath, Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A B D B D F

Bay Shipbuilding Co., Sturgeon Bay, Wis. . . . . . . . . . . . . . . . . . . . . . . . . . . . B A

Bethlehem Steel Corp.—Beaumont, Tex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . E E

Sparrows Point, Md. . . . . . . . . . . . . . . . . . . . . . . . . A C A C E

Equitable Equipment, New Orleans, La. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C A C

General Dynamics/Quincy Shipbuilding Division, Quincy, Mass. . . . . . . . . B C A B F

General Dynamics/Electric Boat Division, Groton, Corm. . . . . . . . . . . . . . . D D

Halter Marine, New Orleans, La. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A A C

Ingalls Shipbuilding Division of Litton Industries, Pascagoula, Miss. . . . B D D E F

Livingston Shipbuilding Co., Orange, Tex. . . . . . . . . . . . . . . . . . . . . . . . . . . A B ABE F

Lockheed Shipbuilding & Construction Co., Seattle, Wash. . . . . . . . . . . . . A B C C F

Marinette Marine Corp., Marinette, Wis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A B A B

Maryland Shipbuilding & Dry Dock Co., Baltimore, Md. . . . . . . . . . . . . . . . A B Repair

National Steel & Shipbuilding Co., San Diego, Calif. . . . . . . . . . . . . . . . . . . A B C B C

Newport News Shipbuilding, Newport News, Va. . . . . . . . . . . . . . . . . . . . . . A B D A B D F

Norfolk Shipbuilding & Drydock Corp., Norfolk, Va.. . . . . . . . . . . . . . . . . . . B D A

Pennsylvania Shipbuilding Co., Chester, Pa. . . . . . . . . . . . . . . . . . . . . . . . . . A B Repair, F

Peterson Builders, Inc., Sturgeon Bay, Wis. . . . . . . . . . . . . . . . . . . . . . . . . . A A C

Tacoma Boatbuilding Co., Tacoma, Wash. . . . . . . . . . . . . . . . . . . . . . . . . . . . A B B C

Tampa Shipyards, Inc., Tampa, Fla.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repair Conversion

Todd Shipyards Corp., Galveston, Tex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A B A F

Houston, Tex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A A F

Todd Pacific Shipyards Corp., Los Angeles, Calif. . . . . . . . . . . . . . . . . . . . . A D D

San Francisco, Calif. . . . . . . . . . . . . . . . . . . A C A

Seattle, Wash. . . . . . . . . . . . . . . . . . . . . . . . . A B D D

Legerid: A–simple commercial vessels; B–complex vessels; C–simple naval vessels; D–naval combatant vessels; E–rigs;

F—other industrial fabrications.

SOURCE: E, G, Frankel Report to the Office of Technology Assessment, 1983.
96 ● An Assessment of Maritime Trade and Technology

World War II, but that there has also been recent

U.S. experience with merchant and naval series

production. Some merchant series (e. g., barge carriers such as LASH) predate the 1970 Act, which

was intended to stimulate a major new construction program; others (liquefied gas carriers and

tankers) were a response to its provisions.

Some of the major U.S. ship series have been

divided among several shipyards, and programs

have not necessarily run continuously. Swedish experience, by contrast, typically included continuous

runs of 10 to 20 ships of one design. Series production in the United States has tended to focus

on tanker construction. Apart from the expected

duration of tanker overcapacity, it may be that

specialized foreign yards have a strong advantage

that may be very difficult to overcome, diminishing

the value of some of this U.S. experience.

In merchant vessel construction, U.S. shipyards

have the capability of building almost any type of

ship in the world today and have built at least a

few of each principal type, including supertankers

up to 390,000 dwt. For example, the ASIB yards

have collective and concurrent shipway capacity for

over 60 large containerships 610 ft by 90 ft or

twenty-three 100,000-dwt bulk carriers. U.S. shipyards possess 17 shipway equivalents capable of

building 1,000 ft and longer vessels and over 60

shipways capable of constructing vessels between

500 and 1,000 ft in length. At present, six of the

ASIB yards are capable of building tankers or bulk

ships over 100,000 dwt or of building super containerships of up to 1,000 ft in length. Twenty of

these yards can build cargo ships up to 475 ft in

length.

It should be noted that modern shipbuilding

methods minimize time on a building dock. Many

of the world’s most competitive yards use only one

building position. The physical capacity of U.S.

yards, therefore, does not pose a constraint on the

productivity of the industry, although the age and

layout of the yards most certainly do.

The Technology Level of the

U.S. Shipbuilding Industry

Three or more decades ago, the major yards constructed the entire ship themselves, with minimal

use of purchased components. Where ship components were brought in, the supplier tended to be

virtually an extension of the shipbuilding industry.

This has changed markedly since World War II.

Shipbuilders have attempted to reduce the labor

costs of their manufacturing technology through

standardization and automation. The use of purchased equipment and subassemblies has increased

exponentially, with shipbuilding increasingly becoming an assembly and erection industry.

Modern shipbuilding technology is characterized

by modular construction techniques, a high degree

of preoutfitting, and integration of design and production considerations. * The technology is based

on carefully designed materials-handling systems,

and is frequently accompanied by a high degree of

specialization of output. Edwin Hood, past President of SCA, remarked recently that there is a

marked ‘‘correlation between shipbuilding market

opportunities and incremental progress in shipbuilding technology. The rapid advance in shipbuilding of the early 1970’s was based on the explosive growth in demand for tanker and containership fleets and has declined markedly in recent

years. U.S. shipyards did not capture very much

of the huge market for merchant ships in the 1970’s

and, as a result, did not match the technological

advances made by European and Japanese yards,

which built for the world market.

A review of the technology of U.S. shipyards including comparisons with high-technology foreign

yards was completed in 1978 by Marine Equipment

Leasing, Inc. (MEL) for MarAd. MEL used A &

P Appledore’s methodology for this study, assigning each of several technology elements to one of

four levels of sophistication. The study gave rankings to U.S. and foreign shipyards in eight major

areas of technological development. MEL’s findings

were as follows:

*A ship is di~-ided into convenient sections (or modules), and each

section is completely ‘ ‘outfitted’ with machinery, piping, wiring, and

other equipment and components that make it a finished section (including painting). The modules are then fitted together into larger

assemblies that are themselves joined together to build the ship. In

this way, work can be accomplished on each module inside a building

that has materials-handling gear, easy access, good lighting and ventilation, and a host of automated tools at fixed workstations, rather

than aboard a partially finished ship. This work process has been shown

to improve shipbuilding productivity markedly.

‘

5

’’ Technology Survey of Major U.S. Shipyards, ” Department of

Commerce, Maritime Administration, contract No. DO-ADI-78-OO3037, prepared by Marine Equipment Leasing, Inc., 1978.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity 97

Modular construction of a 90,000-dwt tanker

● U.S. shipyards generally employed lower

levels of technology than foreign shipyards;

● low technology was found in some critical areas

in U.S. shipyards; these were primarily management- and systems-oriented; and

● U.S. shipyards were found to be excellent in

some areas, particularly those related to steel

work and production control.

Between 1978 and 1981, a further $851 million

was invested by U.S. shipyards to enlarge their facilities to handle supertankers, to complete specific

building programs, and to extend subassembly fabrication capabilities. l6 This has not necessarily

reduced the labor intensity of the shipbuilding proclbAnnu~ Sumey of Manufactures, 1978-1980; MarAd 1981 figures.

ess. To do that, further investment would probably

be required.

.

At present, the technological status of U.S. shipyards is generally lower than that of comparable

Japanese and Korean shipyards in terms of technological investment, research and development

(R&D) investment, use of labor, tooling, degree

of automation and use of robotics, and application

of modern automated management and control

techniques, as well as in the methods of processing,

joining, and assembly.

The curious fact is that many of the technologies

used in Japanese and Korean shipyards are the result of basic research performed in the United

States. The United States lags in the application

of its own research and the effective introduction

of innovations based on scientific and technological

discoveries. In the Orient, basic scientific and technological developments are often reviewed for applicability to improving shipbuilding technology,

productivity, and cost, yet no such process is evident in the United States. When it occurs, it appears to be more through chance than by design.

Thus, U.S. technological shortcomings are usually not due to a lack of basic scientific or technological development but to a lack of effective

organization of or commitment to applications research. One reason may be that in the United States

no effective mechanisms exist for collaboration in

both basic and applications research or for dissemination of the results of such research.

Many believe that U.S. shipyards made a strategic error, following the example of modern foreign

yards in the 1970’s and investing primarily in advance steel preparation, fabrication, and assembly

methods. These areas are traditionally labor-intensive, and the payoff is most pronounced in the serial

construction of large, simple ships such as tankers

and bulk carriers. However, this has never been

a significant market for U.S. shipbuilders. Another

more practical reason for such investments was that

many U.S. yards have serious space limitations in

existing facilities and could not justify the much

larger capital requirements to move to a new site.

The U.S. shipbuilding industry’s market, product mix, labor costs, and labor-management environment are quite different from those of other major shipbuilding countries such as Japan, Korea,
98 An Assessment of Maritime Trade and Technology

———.. .

and Spain, most of whom introduced these modern

steel-fabrication and building facilities in time for

use in the massive tanker/bulk carrier-building programs of the early 1970’s. U.S. shipyards introduced many of these technological advances only

during the last 8 to 10 years, at a time when large

tanker/bulk carrier orders started to decline, when

U.S. shipbuilding participation in the world market

was negligible, and when U.S. Government support for upgrading and rebuilding the domestic fleet

started to wane. At the same time, U.S. shipbuilding labor productivity continued to decline. It was

not recognized that the decision by foreign yards

to invest in steel fabrication and related technology

was primarily driven not by a desire for improved

labor productivity—the main U.S. objective—but

by the goal to speed the shipbuilding process. They

thereby achieved a greater utilization of capitalintensive facilities, such as building docks and

heavy-lift cranes, as well as a decrease in production times and the associated costs of holding construction materials.

It should be noted that the difference in the cost

of interest charges on material and work in progess for a ship built in 2 years instead of 6 months,

is 4 to 1. With interest charges for construction

loans at 12 percent, the difference in final cost of

interest would be at least 9 percent. Even considering only simple interest and constant dollars, a ship

built in 6 months at a cost of $100 million, including

$3 million in carrying charges, would cost $109 million to $110 million if built in 2 years, excluding

the additional cost of use (or lost opportunity) of

shipyard facilities.

Large Japanese and Korean shipyards also assume that opportunity costs of major shipyard facilities add to the actual differential costs for time

extensions in the construction of ships. Such costs

have been estimated to add about 25 percent to costs

of ships built in 2 years v. 6 months, assuming that

about 50 percent of the building time is spent in

the building dock or on a building way/platform.

Therefore, introduction of modern steel fabrication

and assembly technology is advantageous in Japan

primarily when it leads to a substantial reduction

in construction time. Of course, without substantial orders, opportunity costs are of little concern

to most U.S. shipyards.

The technology level in major U.S. shipyards in

steel fabrication is nearly on par with that of modern

shipyards in Europe, but lags behind those in the

Orient. This is due in part to a difference in technological approach to subassembly, such as flatpanel v. curved-panel fabrication. The U.S. (and

European) approach was to use largely automated

flat-stiffened panel-fabrication lines; while Japanese

and Korean shipyards use a so-called eggcrate approach, which is more flexible, less automated, and

combines the use of several parallel semiautomated

fabrication lines. Welding robots are extensively

used now in the Orient, while U.S. yards use less

fully automatic processes in assembly fitting and

erection. Other differences can be seen in the size

of blocks and modules and the degree of block and

module outfitting, both of which are appreciably

greater in the Orient.

U.S. shipyards lag in subassembly and assembly

fabrication, and in the installation of preassembled

outfit systems in modules. Automated pipeshops,

large block-machinery module-assembly plants,

etc.; are in common use in modern shipyards in

Japan and Korea. U.S. yards have, with some exceptions, made few modifications to the traditional

labor-intensive approach to ship outfitting. One

reason may be that until recently few ships designed

for construction in U.S. yards were configured for

efficient, large-scale preoutfitting or system outfitting. In part this may be due to the fact that many

ships constructed in U.S. yards were designed with

more attention to Government specification than

to cost-effective commercial production techniques.

Most foreign yards build mainly from their own

designs, which obviously permits consideration ofthe most efficient fabrication, assembly, and outfitting approach in the design of the ships. It also

permits design for more balanced utilization of the

different facilities and other resources of the yard.

Another area of U.S. technological lag is in materials handling. While many large U.S. yards have

invested in large erection-crane capacity, rarely is

consideration given to improvements in methods

and capacities for subassembly and assembly handling and manipulation. This is due often to the

fact that many U.S. yards use old converted buildings with limited headroom, support capacity, and

other constraints,
Ch. 4–The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 9 9

— — — —— .-—.

Materials handling is only one operational aspect

of shipbuilding which is constrained by the layout

and various other physical characteristics of U.S.

shipyards. The age of all but one major shipyard

exceeds 65 years, and more than a third are well

over 100 years old. They have reached their present configuration, layout, and facilities as the result

of many changes and additions over the years. Most

of those were compromises to permit the needed

addition or expansion to be accommodated in the

old yard.

Unfortunately, the area, water depth, access,

flow, and other shipbuilding requirements have

changed radically with ship size, type, and technology, as well as with developments in shipbuilding techniques. A modified 65-year-old yard

can never achieve the efficiency of a modern yard

configured and designed to build modern ships

using modern shipbuilding techniques.

With a few exceptions, U.S. yards generally do

not use modern, integrated computer-aided design/

manufacturing systems (CAD/CAM) in which design and manufacturing processes are integrated

(i.e., manufacturing inputs and controls, including

materials and tooling specifications, are developed

as an integral part of the design process). In welding, U.S. use of automatic numerically controlled

cutting has lagged behind foreign applications by

several years. Except for one experimental machine, welding robotics are not used in U.S. yards

at present, nor is laser cutting. Lasers are used in

many foreign yards for alignment, forming and cutting control. marking, and interference control. It

is interesting to note that most foreign shipbuilding

applications of laser techniques are based on U.S.

scientific developments.

In summary, major drawbacks in U.S. shipbuilding technology development include:

● the time lag between identification of a technological need and its development;

● the reluctance (and consequent time loss) to

adopt foreign technology, including joint venturing, licensing, purchasing, or other arrangements used for the speedy, effective

transfer of technology;

● lack of effective exchange of technology among

U.S. shipyards;

●

●

It is

lack of transfer of technology from other areas

(aerospace, electronics) for use in ship design

and construction; and

lack of recognition of technological voids in

U.S. shipbuilding.

interesting to note that the most advanced and

most competitive shipbuilding industries devote a

tremendous effort to inter- and intra-industry technology exchange as well as to the identification of

technological voids and the acquisition of new technology. All major Korean and Japanese shipyards

have large numbers of licensing, technology transfer, and similar agreements and continuously exchange information with their own competitors

within and without their country. Table 31 illustrates the range of projects and sources of technology transferred to four major Korean shipyards

from 1971 to 1982.

It should be noted that in the past 2 years, several

U.S. shipyards have made substantial efforts to

learn from and adopt some of the Japanese shipbuilding techniques that have led to high productivity. These yards have surveyed the Japanese

shipbuilding industry, employed Japanese consultants, and participated in MarAd shipbuilding research programs that covered such subjects as accuracy control, block construction, and zone outfitting. Several yards have begun to integrate these

techniques into their building programs and practices with an apparent improvement in productivity. It also appears that the U.S. Navy building program, in turn, may benefit from these advancements. *

● Ch. 5 describes the MarAd shipbuilding R&D program status and

plans. For a review of recent advancements in adopting productivityimproving technologies see, “Shipbuilding Productivity-Something

is Being Done, ” by L. Chirillo, January 1983. For a private industry

anatysis of foreign shipbuilding technology that could offer benefits

to U.S. shipyards, see Lockheed Shipbuilding and Construction Co.

Reports—(a) “A Survey of Modular Construction and Preoutfitting

Practices in the United States and Europe, ” 1982; and (b) “A Survey

in Japan and Korea, 1982. For an overview of shipbuilding productivity improvements that could benefit the U.S. Navy building

program, see the National Academy of Sciences, Marine Board report

“Productivity Improvement in U.S. Navat Shipbuilding, ” January

1983.
1oo An Assessment of Maritime Trade and Technology

Table 31.-Examples of Projects That Transferred Technologies to Korean Shipyards, 1971=82

Project type and year Transferee country and company Transferee (Korean shipyard)

Tanker design-1971 . . . . . . . . . . . . . . . . . . . . . . . . . . United Kingdom-A &P Appledore

Tanker design-1971/72 . . . . . . . . . . . . . . . . . .. .. .. West Germany-KDW

Tanker design-1975/77 . . . . . . . . . . . . . . . . . . . . . . . Norway-DNV

Tanker design-1979 . . . . . . . . . . . . . . . . . .. .. .. .. .Switzerland-Maierform

Tanker design-1979 . . . . . . . . . . . . . . . . . . . . . . . . . . Denmark-B&W

Tanker design-1981 . . . . . . . . . . . . . . . . .. .. .. .. .. Japan-Hitachi

Tanker design-1981 . . . . . . . . . . . . . . . . . . . . . . . . . . Norway-SRS

Cargo ship design 1974 . . . . . . . . . . . . . . . . . .. .. .United Kingdom-Govan

Cargo ship design 1975 . . . . . . . . . . . . . . . . . .. .. .Canada-GAMAT

Hyundai

Korea S.B.

Korea S.B.

Hyundai

Sore-Sung

DaeWoo

DaeWoo

Hyundai

Hyundai &Korea S.B.

Cargo sh(p design 1977 . . . . . . . . . . . . . . . . . .. .. .West GermanY-Eurolo~ Hyundai

Ore/bulk design 1977 . . . . . . . . . . . . . . . . . . . . . . . .

Ore/bulk design 1981/82 . . . . . . . . . . . . . . . . . . . . . .

Ore/bulk design 1981 . . . . . . . . . . . . . . . . . . . . . . . .

Ore/bulk design 1981 . . . . . . . . . . . . . . . . . . . . . . . .

Ore/bulk design 1976/77 . . . . . . . . . . . . . . . . . . . . . .

Containership design 1977 . . . . . . . . . . . . . . . . . . .

Containership design 1978 . . . . . . . . . . . . . . . . . . .

LNG/LPG design 1975/77/78/82 . . . . . . . . . . . . . . . .

LNG/LPG design 1974. . . . . . . . . . . . . . . . . . . . . . . .

Drilirigdesign 1979 . . . . . . . . . . . . . . . . . . . . . . . . .

Drill rigdesign 1981 . . . . . . . . . . . . . . . . . . . . . . . . .

Drill rig design 1981 . . . . . . . . . . . . . . . . . . . . . . . . .

Derrick/platform 1978 . . . . . . . . . . . . . . . . . . . . . . . .

Derrick/platform 1979 . . . . . . . . . . . . . . . . . .. .. .. . Japan-McGregor Hyundai

Derrick/platform 1980 . . . . . . . . . . . . . . . . . .. .. .. .United States-FOS Hyundai

Derrick/platform 1981 . . . . . . . . . . . . . . . . . .. .. .. .United States-FOS Hyundai

Computer programs 1973/76/81 . . . . . . . .. .. .. .. .Sweden-Swedeish Korea S.B.

Computer programs 1975. . . . . . . . . . . . .. .. .. ... Sweden-VOC Hyundai

Computer programs 1976/81 . . . . . . . . . . . . . . . . . . Norway-SRS Korea S.B.

Computer programs 1977 . . . . . . . . . . . . .. .. .. ... Spain-SENER Hyundai

Computer programs 1977 . . . . . . . . . . . . .. .. .. .. . Japan-Hitachi Hyundai

Computer programs 1980/81 . . . . . . . . . . . . . . . . . . Norway-SRS Hyundai/Dae Woo/Sore-Sung

Computer programs 1980 . . . . . . . . . . . . . . . . . . . . . United Kingdom-A &P Appledore DaeWoo

Computer programs 1980 . . . . . . . . . . . . .. .. .. .. .Japan-lKENAl Sore-Sung

SOURCE: ’’Status of the Korean Shlpbuildlng industry;’ChungMong Joon, lntwnational Forum onlndustrial Plannlng and Trade Policies, June 1902.

West Germany-CR Cu~hing

Denmark-B&W

United Kingdom-Y-ARD

Norway-SRS

Norway-SRS

United Kingdom-Y-ARD

Switzerland-Maierform

France-Gas-Transport

United States-MMC

United States

Norway-AKER

United States-Carrel/lngails/Santa Fe

Sweden-Ventel

Hyundai

Sore-Sung

DaeWoo

DaeWoo

Korea S.B.

Hyundai

Hyundai

Hyundai &Korea S.B.

Korea S.B.

Hyundai

Hyundai

DaeWoo

Hyundai

The Labor Force of the

U.S. Shipbuilding Industry

Figure 35.—Private and U.S. Navai Shipyard

Employment Leveis, 1960-80, and Projected

Through 1990

Total private shipyard employment increased

from about 120,000 in 1960 to almost 180,000 in

1980 as shown in figure 35. During the same period, employment in naval shipyards decreased from

almost 100,000 to about 75,000. Annual fluctuations of 20 to 30 percent in the totals mask even

larger fluctuations in the skilled labor force of the

ASIB yards. Up to 75 percent of the work force

has been laid off in the period since 1960 inmost

of the major ASIB yards. Since these account for

over 75 percent of total private shipyard employmerit, we can conclude that the majority of the work

force has first-hand experience- of the cyclical

1960 1965 1970 1975 1980 1985 1990

Year

SOURCE:U.S. Navy.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity 101

‘‘casualized’ nature of shipbuilding employment

(i.e., workers with little or no previous experience

are regularly hired for only short periods of time).

Figure 36 illustrates employment levels in private

U.S. shipyards over the past 5 years. It can be seen

that employment in the ASIB yards (new construction only) decreased from about 100,000 in 1978

to about 70,000 in 1982. It is, therefore, this segment of the total industry that has experienced the

most significant recent decline, and it is this same

segment that represents the U.S. potential for participation in the construction of major merchant

ships. It should also be noted that over the same

5-year period, the <

‘other marine construction’

shipyard segment experienced a compensating

growth in employment so that total employment

from 1978 to 1982 remained about level. This

‘‘other’ group includes the builders of tugs, barges,

service vessels, drilling rigs, and numerous other

small craft. Some of this group have substantial

capabilities and could be future candidates for inclusion in a listing of ASIB-capable facilities, especially as technology changes are made.

The proportion of production employees in the

total work force in the ASIB yards—a commonly

used capacity measure—has been reasonably constant—75 to 80 percent in the last decade. The 2-

to 5-percent fluctuations that have been experienced

do not appear to be systematically related to trends

in production techniques, although technological

advances increase the requirement for planners,

quality assurance personnel, and other specialists.

It is much more likely that the fluctuation reflects

cyclical layoff of production workers.

Current employment may be compared to an optimum employment to assess the utilization of

human resources of an industry with some accuFigure 36.—Shipbuiiding and Repairing Employment in Private U.S.

Shipyards, 1978-82

NOTE: Total employment is based on Bureau of Labor Statistics (SIC 3731).

180

160 All other marine

construction

1978 1979 1980 1981 1982

SOURCE: Shipbuilders Council of America.

American shipbuilding

industrial base (ASIB)

26 shipyards

I

1983
102 . An Assessment of Maritime Trade and Technology

racy, depending on how well optimum employment

can be estimated. Figure 37 shows the 1981 employment levels plotted against optimum levels cited in

the Lowry study .17 Utilization for the various

groups ranges from 83 percent (for the three largest

building yards, Newport News, Litton, Electric

Boat), to 68 percent (for other major building yards)

to 49 percent (selected major repair shipyards).

These levels are not changed significantly from

1979. It should be noted that the data are only

reliable enough to form ‘ ‘very approximate estimates of industry utilization . . . ‘‘ls

Projections of the shipyard work force are necessarily uncertain; however, a recent U.S. Navy

projection for private shipyards through 1990 is

shown in figure 38. The expectation is that overall

employment will be sustained at approximately

present levels for the near term with some modest

growth past 1986 if the present building program

proceeds as scheduled.

“’’U.S. Shipyard Program Planning” (Washington, D. C.: Lowry

& Hoffmann Associates, Inc., September 1980).

‘“Ibid.

Figure 37.—Mobilization and Optimum Employment

Estimates and Current Employment Leveis in the

Major Private Shipyards

+Qn

‘“”1 3 largest yards

120 -

110 ‘

100 “

90 -

80 “

70 -

80 -

50 “

40 -

30 -

20 —

10 “

o —

lx JLitton

EB

[3 yards)

75,000

Selected majoi

repair yards

(32 yards)

Other major

private

shipyards

[10 yards)

* 63,000

= Mobilization

t = Optimum

c = Current (6/81)

SOURCE: “U.S. Shipyard Program Plennlno,” a atudy by Lowry and Hoffmenn,

A8aoelates, Inc., for Navel Sea Systems Command, Septembr 1980.

Demographic Characteristics of the

Shipyard Work Force

The shipyard labor force is fairly mobile, partly

as a result of the known instability of employment

in the industry. The turnover rate has been higher

than in most other basic industries, but has declined

recently to roughly the same level as durable-goods

manufacturing. The decrease in turnover undoubtedly reflects many factors, including lower levels

of hiring in recent years, lack of employment opportunities outside the industry, and a reversal in

the aging trend of the work force. Like the marine

operating industries, shipbuilding has a high turnover among new (less than 1 year’s service) entrants, who seldom reenter the industry. Many

firms have used high turnover rates as a reason to

minimize worker training. However, such actions

could be an additional factor in employee turnover.

The shipbuilding labor force is overwhelmingly

male,19 and there are distinct groups in private and

naval shipyards. Civil service naval shipyard

workers are older and generally have a higher educational level than private shipyard employees, or

indeed than employees in most comparable industries. * Although a high proportion (40 percent) of

naval shipyard workers are over 45-years-old, the

educational distinction is likely to be perpetuated

by Civil Service entry requirements and craft orientation of U.S. naval yards. Entry-level educational

requirements in private yards have never been demanding and are unlikely to become so, given the

shift toward a fabrication-and-erection technology

and the availability of specialized vendor personnel.

Shipyard Workers’ Hours

and Earnings

The earnings of shipyard workers compare favorably with those of operatives in durable-goods

manufacturing. They compare less well (on an

hourly basis) with construction workers, a comparable group in many significant respects. Conversations with the Offices of Maritime Labor and

lgMaritime Tr~5portation Research Board, op. cit., p. 56.

“Forty percent of apprentices have at least 2 years of college. Hartigan, Director of Shipyard Training, Naval Sea Systems Command—

cited in GafYney, ‘‘Worker Participation and Organizational Change

in Shipbuilding: An International Review, September 1982, p.6.
Ch. 4—The U.S. Shipbuilding industry: Status and Trends in Technology and Productivity ● 103

200

150

100

50

0

Figure 38.—Shipbuilding Industry Workload Forecast

Private shipyard total

I Commercial new construction (under contract)

82 83 84 85 86 87 88 89 90

Year

afrrcludgs aWarded/UrraWarijgd “T-Ships” TAKRX, TAKX, TAKX(C), T-s, TAl+, TAGs, TAGM.

NOTE: The above portrays the U.S. Navy’s forecast of employment in the private sector shipyards through 1990. Included In the workload curve Is the current firm work

and projected work of commercial, Navy, and other nonshlp work. The projected new construction work Is derived from the unawarded Fiscal Year S3, the U.S.

Navy’s Fiscal Year & 5-Year Shipbuilding Program, and MarAd estimates of commercial new construction requirements.

SOURCE: U.S. Navy, ASN (S&L) RPE 19S3.

Training (MarAd) and Maritime Affairs and Shipbuilding Technology (NAVSEA) indicate that the

shipyard workers consider that their pay is lower

than that obtained in comparable skilled jobs and

involve far more risk and discomfort. Despite a

trend toward covered worksites, the level of amenities in many shipyards remains low.

The 10-year growth in earnings for shipbuilding

workers v. durable-goods workers is 8.4 and 8.1

percent, respectively, v. 7.2 percent in the total

private sector. Average hours have fluctuated, but

U.S. shipbuilding as a whole has been characterized

traditionally by a comparatively short (less than

40-hour) week. The 8.4-percent growth in shipyard

workers’ earnings can be contrasted with the 8.2-

percent growth of the Consumer Price Index (CPI)

over the same period.

Wages are almost universally time-rated in shipbuilding, and, as table 32 shows, only a minority

of yards have a range of pay rates for various jobs.

Table 32.—Method of Wage Payment

Percent

Time-rated pay systems. . . . . . . . . . . . . . . . . . . . . . .

Formal plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . %

Single rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Range of rates. . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Individual rates . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Incentive pay systems . . . . . . . . . . . . . . . . . . . . . . . . 2

Individual piecework . . . . . . . . . . . . . . . . . . . . . . . 1

Group piecework. . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Individual bonuses . . . . . . . . . . . . . . . . . . . . . . . . . —

Group bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

100

Note: Scheduled weekly hours:

40.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

44.0 . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . . . . 4

45.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

47.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

100

SOURCE: /ndustry Wage Survey, U.S. Bureau of Labor Statlstlcs, 1977.

These pay ranges, even where they exist, generally are considered by workers to be too narrow to

reflect the range of skill levels, resulting in a
104 ● An Assessment of Marine Trade and Technology

disincentive effect. The use of an individual, timerated pay system, rather than a group resultoriented incentive system, may perpetuate current

problems; i.e., the ‘‘greatest complaint of production workers about working conditions (involves)

inadequate scheduling, planning coordination, and

communications among crafts, shifts, and working

groups in the shipyard. Improvement of incentive systems or a complete change in the basis of

administration and payment may focus workers’

concerns on productivity and ease the transitional

character of the labor force.

Comparisons of international wage levels are

made difficult by the variety of payment systems

and the limitations of statistical reports. The Bureau

of Labor Statistics (BLS) data in table 33, although

biased by the strengthening of the dollar vis-a-vis

national currencies in major shipbuilding countries

such as Japan, is interesting in that it shows the

U.S. “percentage of additional compensation to

hourly earnings’ to be the average of the 16 countries’ figures but growing at a rate of 6.9 percent

——.—..—

● “The second greatest source of complaints involved inadequate

machines, equipment, and materials. Unsatisfactory aspects of the

physical working environment proved the next major source of worker

irritation. Work safety was the physical factor most often mentioned.

Maritime Transportation Research Board, op. cit., p. 96, citing G.

A. Muench, Scudy for the Improvement of Motivation in the Shipbuilding Zndustry, Phase I, San Jose, Calif., June 1976.

per year, six times faster than the Japanese rate.

Greek, Korean, and Taiwanese benefits have not

increased at all in the last 4 years; Italian and

Spanish benefits have declined by about 3 percent

per year; and the Association of Western European

Shipbuilders (AWES) countries’ benefits have

grown by only 1 percent per year on average. —

Table 33 also shows absolute U.S. wage rates to

be among the highest. The United States ranks fifth

among the 16 shipbuilding countries listed, with

estimated hourly compensation 32 percent higher

than the average and growing at over 10 percent

per year. The indexed comparison makes U.S.

wage rates even more striking—and highlights one

source of the Korean competitive advantage. Table

34 removes the upward bias in foreign rates by

calculating labor and material components of shipbuilding cost increases in national currencies. While

the percentage increase in labor prices, expressed

in dollars, was higher abroad, the same increases,

calculated in national currencies, show the U.S. rate

of increase to be higher than that in any country

except the United Kingdom.

Organization of Shipyard Labor

The U.S. shipyard industry is over 90 percent

unionized. Avondale Shipyard is the one exception

among the ASIB yards. The shipbuilding unions

Table 33.—Estimated Hourly Compensation of Shipbuilding Production Workers in 16 Countries

Percent of additional Estimated compensation

compensation to per hour worked Estimated compensation

hourly earnings in U.S. dollars index U.S. = 100

1977 1978 1979 1980 1977 1978 1979 1980 1977 1978 1979 1980

West Germany ., . . . . . . . 69,1 73.2 73.5 76.8

Sweden . . . . . . . . . . . . . . . 54.2 56.9 62.4 63.0

Netherlands . . . . . . . . . . . 71.1 73.0 75.8 75.2

Norway . . . . . . . . . . . . . . . 38.2 40.2 40.0 40.0

United States . . . . . . . . . . 34.9 37.5 38.8 45.6

Denmark . . . . . . . . . . . . . . 18.7 19.1 19.1 20.1

Canada . . . . . . . . . . . . . . . 20.3 24.7 26.8 27.8

France . . . . . . . . . . . . . . . . 65.6 65.9 68.5 69.9

Italy . . . . . . . . . . . . . . . . . . 101.9 90.7 91.2 89.7

Finland . . . . . . . . . . . . . . . 51.5 57.5 52.5 54,6

United Kingdom . . . . . . . . 25.6 28.9 30,4 33.0

Spain . . . . . . . . . . . . . . . . . 45.0 40.0 40.0 40.0

Japan . . . . . . . . . . . . . . . . . 14.9 17.9 18.5 15.6

Greece . . . . . . . . . . . . . . . . 30.0 30.0 30.0 30.0

Taiwan ... , . . . . . . . . . . . . 17.5 17.5 17.5 17.5

South Korea . . . . . . . . . . . 17.5 17.5 17.5 17.5

8.88

9.76

8.63

9.20

8.08

8.01

8.48

6.44

5,55

6.42

3.64

4.41

5.11

2.58

.91

1.40

11.16

10.47

10.50

10.27

9.03

9.45

8.89

8.70

6.61

6.89

4.60

5.05

6.70

3.33

1.16

1.83

12.83

12.21

12.02

10.91

10.06

10.68

9.81

9.35

7.77

8.17

5.76

6.61

6.46

3.84

1.44

1.87

14.25

13.22

12.69

11.97

11.94

11.33

10.76

10.73

9.10

8.75

7.58

7.13

6.77

4.29

1.66

1.72

110 124 128 119

121 116 121 111

107 116 119 106

114 114 108 100

100 100 100 100

99 105 106 95

— — — —

63 74 64 57 — — — —

11 14 16

17 4; 19 14

NOTE: Hourly compensation is converted to U.S. dollars using the average daily exchange rate for the reference period. Changes In hourty compensation In U.S. dollars

are, therefore, affected by changes in currency exchange rates as well as by changes in compensation.

SOURCE: US. Department of Labor, Bureau of Labor Statistics, Office of Productivity and Technology, Divlslon of Foreign Labor Statistics and Trade.
Ch. 4–The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity . 105

Table 34.–Shipbuilding Cost Increases, 1975-80

Percent change from 1975-80

U.S. dollars—hourly labor cost national currencies

1975 1980 Percent of change Labor Material

United States ... ... .. .$5.47 $8.59 57% 57 ”/0 52%

Japan. . . . . . . . . . . . . . . . 3.57 5.76 61 26 29

West Germany . . . . . . . . 4.34 8.26 90 38 23

Netherlands . . . . . . . . . . 4.21 7.43 76 37 89

Sweden . . . . . . . . . . . . . . 5.62 7.81 39 41 55

United Kingdom . . . . . . 3.12 5.86 88 81 48

SOURCE: BLS/SEA 017.

are characteristically craft unions, and, consequently, multiunion yards are the industry norm. Their

influence has been considered largely prejudicial

to maximizing productivity: the craft orientation

has produced numerous demarcation disputes.

More important, it prevents flexible use of labor,

complicates planning and scheduling, and discourages career changes.

It is notable that technological development in

“Organization and Operating Systems, ” where

U.S. yards otherwise compare well with foreign

yards, has lagged substantially in a subset entitled

“Organization of Work. ” This pertains to flexibility in assigning and supervising craftsmen’s work,

and the gap was the second largest found by the

MEL study .20

There have been several attempts to upgrade

practice in this area, While the first programs were

tried in naval shipyards, the interest in human resource management has spread to civilian shipyards, where there are a number of successes, including Lockheed Shipbuilding Co. well-established Quality Circles program and Bethlehem

Shipbuilding Co. comparatively new program at

20’ ‘Technology Survey of Major U.S. Shipyards, op. cit.,

the Sparrows Point, Md., plant. These programs

address flexible organization as one of many aims,

in conjunction with revised work practices. However, the overall craft form of U. S. shipyard organization is still the most common.

Table 35 lists the number of production workers

and the union affiliations and memberships in most

of the largest ASIB yards. Data from the 1980 census on the makeup of the shipbuilding work force

will not be published until late 1983—if then—but

the dominance of craftsmen as a worker category

is expected to persist. The 1970 breakdown, below,

appears to remain broadly accurate.

Worker category All industry Shipbuilding

Laborers, service workers . . . 21.0 percent 6.9 percent

Operatives . . . . . . . . . . . . . . . . . . 23.5 percent 24.8 percent

Craftsmen, foremen, etc. . . . . . 18.5 percent 52.6 percent

Manager, administrators,

technical professions . . . . . 30.9 percent 15.7 percent

These proportions indicate the predominantly

blue-collar character of the existing labor force and

suggest the rather flat organizational structure of

shipyards. Craft dominance of the shipyard labor

force means that technological change must be negotiated, which is time-consuming and can be extremely difficult.

25-417 0 - 83 - 8 QL 3
106 ● An Assessment of Marine Trade and Technology

Table 35.-Unions In U.S. Shipbuilding Yards

Total production workers

Yard as of November 1982 Union

Avondaie Shipyards, Inc. . . . . . . . . . . . . . . . . . . . . . . .

Bath Iron Works Corp. . . . . . . . . . . . . . . . . . . . . . . . . .

Bethlehem Steel Corp., Sparrows Point. . . . . . . . . . .

Bethlehem Steel Corp., Beaumont . . . . . . . . . . . . . . .

General Dynamics/Quincy Shipbuilding Division . . .

General Dynamics/Electric Boat Division . . . . . . . . .

Ingails Shipbuilding Division of Litton industries . .

Lockheed Shipbuilding & Construction Co. . . . . . . .

Nationai Steel & Shipbuilding Co. . . . . . . . . . . . . . . .

Newport News Shipbuilding Co. . . . . . . . . . . . . . . . . .

Todd Pacific Shipyards, Los Angeles. . . . . . . . . . . . .

Todd Pacific Shipyards, Seattle . . . . . . . . . . . . . . . . .

Bay Shipbuilding Co.. . . . . . . . . . . . . . . . . . . . . . . . . . .

Livingston Shipbuilding Co. . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(Total of 27 ASIB Yards = 90,492)

Totals

iUMSWA (industrial Union of Marine and Shipbuilding

Workers) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Metal Trades Council, AFUCiO. . . . . . . . . . . . . . . . . .

USW (United Steelworkers of America) . . . . . . . . . . .

iron Workers (international Association of Bridge,

Structural, and Ornamental ironworkers) . . . . . . . .

Boilermakers (international Brotherhood of

Boilermakers, iron Shipbuilders, Blacksmiths,

Forgers, and Heipers) . . . . . . . . . . . . . . . . . . . . . .

Nonunion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5,547

7,293

496

482

1,491

21,130

8,705

2,611

3,781

19,668

3,691

3,337

519

462

Nonunion

IUMSWA

IUMSWA

Metal Trades

IUMSWA

Metal Trades

Metai Trades

Metai Trades

iron Workers

Usw

iUMSWA

Metai Trades

Boilermakers

Metal Trades

79,213

12,971

36,727

19,668

3,781

519

5,547

SOURCE: Off Ice of Maritime Labor end Training Report, Feb. 10, 19S3 (Form MA-S1).

SHIPBUILDING PRODUCTIVITY

Shipbuilding productivity is the eficiency with

which the industry transforms its raw and semifinished inputs into ships, using the classical factors

of production—land, labor, and capital. The physical sites, fixed capital, and labor force of U.S.

shipyards have a major impact on their productivity. It is accepted generally that the productivity of

U.S. yards is in many cases constrained by their

sites and by the yards’ inability to effect comprehensive replacement of often obsolete physical facilities.

However, in many cases, phased facilities development plans are in place and low-cost, high-return

pilot human resources programs are being applied.

The productivity of U.S. shipyards is definitely increasing. The rate of increase, however, must be

improved in order to compete internationally.

The Determinants of Productivity

Shipbuilding productivity is clearly a function of

the interaction of:

● the length of the shipbuilding cycle;

c the number of man-hours required; and

● the extent of nonproductive peripheral costs.

The following sections discuss each factor as

related to U.S. v. foreign experience.

The Length of the Shipbuilding Cycle

Between 1975 and 1980, over 60 commercial and

80 naval ships were under construction in U.S.

yards at any one time. However, only about 20

commercial and 15 naval ships actually are deliv-
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 107

ered per year. This ship-under-construction-todelivery ratio, furthermore, has not changed appreciably over the past three decades. It indicates

that a commercial ship may take 3 years to construct, while a naval ship averages 5 to 6 years. This

conclusion admittedly is simplified because many

other factors contribute to the large discrepancies

between the number of ships under construction

and those delivered during any period of time.

However, ship flowrates (a ratio of deliveries to

ships under construction) in the United States historically have been about one-half those of European shipyards and less than one-third those of Japan. 21 This means that the average modern merchant ship spends over twice as much time in a U.S.

shipyard as a comparable ship in modern foreign

shipyard. Considering the capital invested per ship,

it is evident that the additional construction residence time adds at least 5 to 6 percent to the cost

of the ship. If this figure is augmented to reflect

the complementary cost of inventory—which

amounts to 4 to 6 months of supplies for the average

U.S. shipyard compared to 1 to 8 weeks in an

equivalent foreign yard—the total capital cost of

excess ship and material inventory time increases

U.S. shipbuilding costs by 8 to 9 percent. Similar

comparisons of the cost of construction of naval

ships are not possible; combatant and warships vary

extensively in detail.

Because there has not been extensive U.S. experience with continuous series production, learning curves for the U. S, shipbuilding industry have

not been established. Results from naval building

programs are misleading because of the extent of

changes expressly allowed in the production of the

series and the frequent splitting of lead ship and

series production between distant yards. It appears

that the industry is capable of realizing substantial

time savings in series production, with associated

reductions in inventory costs. This requires customer acceptance of standardized designs, as noted

earlier, but the extent of customization by U.S.

shipyards is incompatible with maximum production efficiency.

Zlshipbui]ders Council of America, Association of Western European Shipbuilders, and Zosen, annual reports, 1980, 1981, 1982.

The Number of Man-Hours Required

In a recent study by the Maritime Transportation Research Board of the National Academy of

Sciences it was noted that, despite increasing mechanization,

. . . direct labor costs in U.S. shipyards are between 40 and 50 percent of the finished product

cost, depending on type of ship . . . (the) ratio (between labor and material costs) has remained relatively constant since 1961, increases in labor efficiency being largely offset by rising wages.

High as these figures are, they tend to underemphasize the total labor component in shipbuilding.

For a ship, labor costs constitute 70 to 85 percent

of the value added. . . . In the 15-year period from

1958 to 1972, the share of added value received by

labor in U.S. shipbuilding averaged 77 percent,

never falling below 71 percent and rising as high

as 84 percent. . . . The labor-intensiveness of the

industry is underscored by noting that, among 22

industries, U.S. shipbuilding ranks 15th in assets

per employee and 3rd in sales per invested dollar.22

A basic source of data on the scope of productivity improvement through reduction of man-hours

is the MarAd-sponsored IHI-Livingston project.

This has been characterized as a ‘‘unique contract

for transfer of Japanese technology, ” but the project also established valid cost data on the comparative man-hour requirements and average length

of shipbuilding cycle. It showed that the length of

the U.S. shipbuilding cycle, in theory, could be reduced by 50 percent, from 24 months to 12. Similarly, the man-hour requirement could be reduced

by 60 to 70 percent However, there are social and

institutional barriers to the measures that would be

required to effect these changes; these will be discussed as they relate to specific productivity -enhancing measures.

The Extent of Nonproductive Peripheral Costs

Workplace Safety and Health Costs .—Zosen’s

annual statistical summary of Japanese shipyards’

safety record is frequently compared with the U.S.

shipyards’ record. 23 The U.S. accident-frequencyrate per thousand workers per year is 269; the same

Japanese rate is 2. While these statistics may not

zzMaritime Transportation Research Board, op. cit.

Z3BLS and Zosen figures, 1979 and 1980.
108 ● An Assessment of Marine Trade and Technology — — — ———

be comparable directly due to differences in accident-reporting practices between the United States

and Japan, it appears that the accident rate in U.S.

yards is considerably higher. Since benefit payments under the 1972 amendments to the Longshoremen’s and Harbor Worker’s Compensation

Act (LHWCA) have increased by an estimated 600

percent, this is one obvious area of concern .24 The

five shipyards responding to an SCA 1978 study

estimated these costs at 2.4 to 4.7 percent of the

price of the hypothetical ship and suggested that

the foreign equivalent requirements were ‘ ‘less

stringent and (had) a lesser cost impact than those

of the United States. ’25

“Buy America” Policy .—The U.S. supplier

base is comparatively independent of the shipyards,

and many shipbuilders argue that it does not make

economic sense to hinder the shipbuilding industry’s development to provide marginal support

to the supplier base. Existing ‘ ‘buy America’

policies (i. e., requirements that 50 percent of

machinery and materials for subsidized ships be of

U.S. manufacture) are difficult to supervise and

define, With more and more U.S. firms taking advantage of lower foreign labor rates—and higher

standards of productivity and industrial discipline

—it probably will become harder to follow this policy and more disruptive of production. This is particularly true given the trend toward increased buying of components in lieu of fabrication by the yard

itself.

Productivity Trends in the

U.S. Shipbuilding Industry

Many measures of production have been used

in the shipbuilding industry. Each has shortcomings, and the assessment of shipbuilding productivity remains difficult, particularly in the United

States. Comparing labor and production is particularly difficult because collected production figures

often relate only to larger vessels or larger yards,

but labor statistics typically are inclusive of the entire industry. Other problems with productivity

measures include:

— ———

‘+’ I.on~shorrmen’s and Harbor Workers’ Compensation Act Ncds

Amending’ (Washington, D. C.: General Accounting Office’, 1982).

25’ ‘Study of Cost of Federal Go\x’rnmcnt Rqgulatmn on Shipbuilding

Prices’ (Washington, DC.: Shipbuilders Council of America, 1978),

p. 4,

●

●

●

●

●

lack of accepted skills classification schemes;

a multiplicity y of ways of quantifying ship production;

difficulty in quantifying compensation and

fringe benefits on a comparable basis for international comparisons;

differing proportions of subcontracting in the

shipbuilding process, both intra- and internationally; and

too high a level of aggregation in statistics,

e.g. , assimilation of repair to shipbuilding.

Although there are many possible measures of output/productivity, the two most satisfactory measures of output are compensated gross registered tonnage (CGRT) and value-added.

CGRT, unlike gross tonnage, lightweight tonnage, or deadweight tonnage, attempts to allow for

the differing levels of complexity of ships, which

is particularly desirable where naval vessels figure

in many yards’ workload. However, the adjustment

coefficients are approximate, judgmental, and vary

over time and between studies. The present coefficients used by West European shipyards, for example, will be revised shortly to reflect changes in

the Organization for Economic Cooperation and

Development (OECD) system for calculating gross

tonnage. The OECD system is being aligned with

the 1969 International Convention on Tonnage

Measurement of Ships, which changes gross and

net tonnages for several vessel types. Table 36

shows the trend in the labor required to produce

Table 36.—CGRT Measure of Productivity Gains

in Private U.S. ASIB Shipyards

CGRT Employmenta CRGTI Manhours/

Year (000s) (000s) employee/year CGRT

1980 . . . 393.3 40.9 9.6 200

1979 . . . 545.3 39.9 13.7 140

1978 . . . 289.5 39.6 7.3 263

1977 . . . 446.6 40.0 11.2 172

1976 . . . 373.0 38.7 9.6 196

1975 . . . 276.7 35.4 7.8 243

1970 . . . 199.6 30.4 6.6 292

Growth in productivity per year . . . . 3.5°/0

aDerived number: proportion of total labor force in private yards (7O Percent) x

proportion of private yard labor in ASIB yards (88 percent) x proportion directly

engaged in shipbuilding (50 percent), i.e., 23 percent of total employees are shipbuilding production workers in ASIB yards.

NOTE: The CGRT output understates U.S. yards’ potential productivity, given a

stable workload, because it does not really reduce varying ship types to

equivalent tonnage. Only the direction of the trend and its average

magnitude are significant.

SOURCE: E. G. Frankel Report to the Office of Technology Assessment, 1983
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 109

one CGRT of output in U.S. shipyards. This measure indicates that the output per employee has increased by 45 percent in the past 11 years, a gain

of approximately 3.5 percent per year.

Value-added is the difference between total revenues and the cost of purchased intermediate goods

and services and, as such, may be affected by market imperfections. Value measures of productivity

also are less useful in international comparisons and

where different technologies, or levels of technology,

may be employed. Value-added is superior to sales,

however, because the latter reflects widely disparate

levels of Government support to shipbuilding.

Table 37 measures the ratio of value-added to the

capital and labor inputs and shows that the U.S.

shipbuilding industry has made a 12-percent absolute gain in productivity in the past decade, a rate

of 1 percent per year.

The ratios of CGRT and value-added to input

measures such as man-hours or dollar value of assets may be crude absolute measures of productivity, but they do indicate its trend. From 1960 to

1980, the value-added-per-employee productivity

measure for U.S. yards increased by about 27 percent while the payroll-per-employee measure increased 15 percent (in current dollars).

These real but modest productivity gains of the

U.S. shipbuilding industry have lagged the gains

of its Japanese, Korean, and European counterparts. In 1973, the Commission on American Shipbuilding compared some historic statistics on the

productivity of major shipbuilding nations over a

6-year period and found U.S. productivity to be

only 50 percent of Swedish and 43 percent of Japanese. U.S. man-hours per delivered-ton averaged

30 percent higher than Japanese and Northern European yards. These figures have increased at a rate

that reflects the small productivity gain computed

above; but in 1980, A & P Appledore concluded

that U.S. shipbuilding productivity is still generally

only half that of Scandinavia and Japan.

It is difficult to compare U.S. and Japanese and

Korean shipbuilding productivity because the type,

size, series, and complexity of ships built vary so

much. Japan and Korea largely have built series

of standard tankers, bulk carriers, and other types

of ships, usually designed by the yard itself for construction by the yard. U.S. yards, by comparison,

built small numbers of often custom-designed and

comparatively complex ships. Few of these ships

are built in series of three or more.

Comparing the productivity of U.S. shipyards

with those of Japan and Korea, it is possible only

to evaluate their respective performance in the

building of comparable vessels such as mediumsized tankers or dry-bulk carriers. The limited information available shows that:

● U.S. shipyards require 38 to 65 percent more

man-hours to build the same or similar ship;

and

● labor productivity in terms of output-per-manhour for basic measurable jobs such as stick

welding, is comparable and, in fact, often

shows U.S. workers to be more productive.

While U.S. shipyard workers appear to perform

equally well in the performance of comparable jobs

under identical conditions using similar equipment,

the percentage of time in which U.S. workers perform actual work is appreciably lower than that of

their counterparts in Korea and Japan.

The lower comparative productivity of U.S. shipyards is considered to be explicable largely in terms

Table 37.—Value-Added Measure of Productivity Gains in U.S. Shipyards

(millions of current dollars)

Year Value added + (Payroll + Depreciation) = Productivity ratio (PR) Index of PR

1980 . . . 5,338 3,360.4 163.3 1.51 1.12

1979 . . . 4,587 2,927.6 152.7 1.49 1.10

1978 . . . 4,107 2,647.5 138.7 1.47 1.09

1977 . . . 3,823 2,494.0 139.9 1.45 1.08

1976 . . . 3,287 2,219.5 1 lo.5a 1.41 1.04

1975 . . . 2,923 1,995.6 96.5a

1.40 1.03

1970 . . . 1,610 1,161.2 36.0a

1.35 1.00

aE~timated as 0033 percent of ~ro~~ fixed a~~et~: depreciation figures not collected before 1977 Census of Manufactures.

SOURCE: J.A. Gribbin.
110 ● An Assessment of Marine Trade and Technology

of: 1) the military market demand for excessive customization, 2) restricted opportunity for learning

from series construction, 3) older facilities and specific technological weaknesses, 4) materials availability and origin constraints, and finally, 5) a fluctuating and less effectively utilized work force, with

skill deficiencies arising from insufficient training

and inflexible union practices, which do not facilitate redirection of careers and expansion of skills.

The Appledore study attributed 30 to 35 percent

of the productivity difference to the latter cause

alone-foreign yards are said to have “superior organization and systems and a more effective work

force. ’26

Improving U.S. Shipbuilding

Productivity

Many U.S. shipyard facilities were laid out during World War II and have not been redeveloped

since. To enhance productivity in these yards,

greater attention is needed to integrate production

planning and engineering functions. Many believe

that the scope for improving the productivity of

U.S. shipyards is significant and that, in many

cases, only limited capital improvements are

needed. While the prevailing U.S. wage rates probably will make it impossible for U.S. shipbuilding

costs to be as low as foreign competitors such as

Korea, it would appear possible to get much closer

than today’s price differentials indicate. In a report

to OTA by E. G. Frankel, Inc., the following actions were suggested :27

. impose serial construction of ships in sets of

not less than 12, all built in one yard;

● allow material to be bought without reference

to national origin, with no import restrictions,

and no duty on imported materials used in the

construction of foreign-going ships;

. reduce inventory size and cost to no more than

1- to 2-month supply needs;

. Utilize lower U.S. capital costs when available;

26A k P Appledore, Development of a Standardized U.S.-Flag@-

Bulk Carrier: Innovative Analysis of Cost-Cutting Opportunities

(Washington, D. C.: Maritime Administration, U.S. Department of

Commerce, 1980).

27’’ Status and Trends of U.S. Shipbuilding Technology and Productive Capacity, ‘‘ written for the OffIce of Technology Assessment

by E. G. Frankel, Inc., December 1982.

●

●

employ modern production, production engineering, planning, and management methods;

and

incorporate latest methods of design and production through effective research-and analysis.

Many of these factors have been applied in U.S.

shipyards specializing in the construction of offshore

vessels, barges, tugs, and workboats with marked

success in achieving high productivity.

To make substantial productivity improvements,

most U.S. shipyards would need to concentrate on

production-oriented designs accompanied by industrial engineering applications such as simplified

materials flow, mechanization, use of three-dimensional subassemblies, and preoutfitting. Productivity-enhancing measures also would include introduction of integrated computer systems for outfitting, manufacturing, and assembly. Perhaps most

importantly, improving productivity would require

modernization of management, planning processes,

and organization of work.

The flexibility required by U.S. yards to respond

to changing product and output demands in the

past

●

●

●

●

●

●

has led to the following problems:

delay, deferral, or elimination of introduction

of new technology;

concentration on investment in basic processes

such as steel preprocessing, fabrication, and

subassembly, activities that are not among the

most labor-intensive in any yard;

large fluctuations in shipyard manning with

huge manpower turnovers of as much as 67

percent per year among blue-collar workers;

large expenditures for training, retraining, and

lost posthiring and prefiring time;

lack of medium- and long-term (strategic)

planning and management preoccupation with

short-run, even daily operational problems

that should be delegated to production management;

use of outside ship designers with the result

that designs usually have to be modified to accommodate the particular production/assembly needs of the yard. This results not only in

added costs, but also lost time and compromised designs;
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 111

●

●

●

●

It is

lack of effective marketing strategies;

lack of standardization in procedures, as well

as product parts and manufacturing and assembly standards;

insufficient R&D in methods, production aids,

basic processes, materials research, etc.; and

lack of coordination among the industry.

difficult to determine if this last factor is due

to concern with regard to antitrust actions or simple competitive posture. Yet countries like Japan

and Korea, where yards compete much more for

the same markets, have found more effective ways

to cooperate and coordinate their R&D in basic

processes, procedures, and standards. They rely on

the maintenance of competitive positions through

management efficiency, labor-management collaboration, marketing, and product design. This approach appears to result in efficient, effective technology development.

American shipbuilders have attempted to improve the industry’s productivity through:

. improvements in facilities and equipment;

● introduction of CAD/CAM; and

. increasing adoption of national shipbuilding

standards.

While facility and equipment improvements were

introduced starting in 1966, practical adoption of

CAD/CAM (described in ch. 5) was begun only

in 1972-74, and shipbuilding standards are under

development only now. U.S. shipbuilding lags

behind foreign shipbuilding in shipbuilding standards and even more so in standards for suppliers

and equipment manufacturers. Shipbuilding productivity is greatly affected by CAD/CAM and

standardization. Japanese shipbuilders, for example, use more than twice the amount of automatic

welding as U.S. shipbuilders. In Japan, computers

are used increasingly not only to assist in welding

automation but also in welding quality control, This

in turn has led to a large increase in the use of

welding robots. In U.S. shipyards, only one welding robot is in use as a pilot operation.

Standards

While 13 U.S. national shipbuilding standards

have now been published, and 100 are in various

stages of development, Japan has established 7)750

industrial standards with 518 shipbuilding standards that cover all types of components, equipments, materials, fabrication methods, and more.

It must be recognized, though, that Japanese industrial and shipbuilding standards are enforced

by an industrial standardization law enacted in

1949. U.S. shipbuilding-standard development and

adoption are completely voluntary. At present, a

panel of the American Society of Testing Materials

is developing U.S. shipbuilding standards.

Shipbuilding Management

American shipbuilding management and planning has become a topic of increasing discussion

in recent years, and various proposals for change

have been advanced. Many of these propose adoption of certain techniques and approaches successfully used in other major shipbuilding countries

such as Japan and Korea, where shipbuilding management is based on organizational, decisionmaking, and operating structures and procedures

founded on quite different cultural backgrounds,

human relations, and traditions than those found

in the United States. While some of the techniques

and approaches found successful in those countries

may be transferable, it must be recognized that

the environment in the United States cannot be

changed in the short run. This makes successful application of some of these methods difficult.

Factors that make Japanese and Korean shipbuilding competitive include the use of cost controls in engineering, quality circles, labor incentives, high-productivity manufacturing processes,

standardized ship design and production, labor flexibility, good supplier and customer relations, and

effective production-planning management and

control. There are some factors that are distinctly

unique, such as the lack of adversarial relations between shipbuilder and client, and management and

labor. There is a general agreement in these countries that adversarial relations and potential litigation hinder efficiency and timely, low-cost delivery.

Similarly, most supplier, client, and labor issues

with shipbuilding management are resolved by various informal approaches resulting in little if any

delay. This is quite different from the generally formal approach used in the United States, where procedure, documentation, and even conflict resolution methods are often defined.
112 ● An Assessment of Marine Trade and Technology

SUMMARY

Federal assistance to U.S. shipyards through construction subsidies over the past two decades appears to have discouraged independent attempts to

reach and maintain commercial viability. At present there is uncertainty about the implementation

and scope of overall maritime policy and naval procurement policy. Since subsidies for commercial

construction have been terminated, one policy alternative would be to replace subsidies with a form

of support that directly enhances productivity and

competitiveness, and at the same time put naval

procurement on a less cyclical basis. In addition,

the Federal Government could enhance industry

efforts to improve productivity by coordinating

those efforts or funding their coordination.

Some of the more innovative technical approaches to improving productivity employ a manmachine system perspective. It is considered more

cost effective to reduce the labor component of shipbuilding by using electronic assistance in easily

mechanized areas such as precision control, than

by making larger—often inflexible-investments in

capital equipment that attempt to emulate human

flexibility and pattern-recognition capabilities. In

addition, current social philosophies and the trend

toward increasing stability in the industry work

force require from employers a complementary effort to stabilize employment opportunities and improve the quality of industrial life. There is great

scope for productivity improvement through better use of human resources.

Possible directions for productivity improvements in U.S. shipbuilding have been discussed

throughout this chapter. It should be recognized,

though, that technological improvements will not

necessarily pay off unless accompanied by improvements in the structure, organization, and management approach used in the industry. Product development, client relationships, and marketing are

other important areas where improvements are

needed if the industry is to achieve a more competitive position in world shipbuilding.

Many of the deficiencies and opportunities identified in this report have been identified previously, particularly in the MEL survey (1978) and the

MTRB’s Shipbuilding Research and Development:

A Recommended Program (1973). Comparatively few of their suggestions were implemented. Some

in the industry have claimed that the reason is institutional barriers to transfer of foreign technologies for productivity improvement. Others

claim that the reason for lack of progress is the

tendency of the industry to identify a Governmentsponsored ‘‘stable increasing (sic) ship construction

program’ ’28

as the solution to the problem of lack

of international competitiveness, rather than to develop a program based on the industry’s own resources and planning.

A larger volume of business could allow U.S.

shipbuilders to realize economies of scale and increase productivity through higher utilization of

facilities, but only at realistic prices. Perceptive

marketing might enable U.S. yards to overcome

their cost disadvantage to some degree, particularly

if a new product were developed and offered. While

volume is important, it appears that facilities,

management, and labor are the principal areas

where improvement can be most readily effected

by joint actions of industry and the Federal Government. These are discussed below.

The Physical Facilities Problem

The work and material flow is severely compromised in a converted old yard, as is the method of

fabrication, assembly, weight handling, and ship

erection.

Most major shipbuilding countries have found

that it is cheaper and more effective to replace old

shipyards with new yards specially designed and

located for the production of modern ships. It is

interesting to note that the United States and Britain resorted to the modernization of existing yards

on a piecemeal basis, while most other major shipbuilding countries replaced many of their yards with

completely new yards because they found that in

the long run it was a cheaper and better approach.

The primary reasons for this difference appears to

be that U.S. shipbuilding management generally

zaMaritime Transportation Research Board, ‘‘Shipbuilding Research and Development: A Recommended Program’ (Washington,

D. C.: National Academy of Sciences, 1973), p. vii.
Ch. 4—The U.S. Shipbuilding Industry: Status and Trends in Technology and Productivity ● 113

plans only for the short term, while Korean, Japanese, etc. , shipbuilding management is organized

to plan for the medium to long term.

Possible policy approaches are to:

●

●

●

It

make investment funds available to yards for

development and implementation of viable

long-term plans;

guarantee loans for technology transfer by purchase, where other means—e. g., joint venturing—are demonstrably infeasible; and

devise a capacity reduction plan that could

convert some shipyards to other uses and ease

the closure of worst affected yards.

The Management Problem

has been argued that the dominance of subsidized and naval shipbuilding has stifled U.S. managerial innovations. In fact, subsidy has failed to

develop the U.S. shipbuilding industry and may well

be a cause of the failure to resolve fundamental

problems, such as the excessive customization of

vessel designs. Many believe that the shipbuilding

industry needs to extend its investment horizons,

especially since most U.S. yards are subsidiaries

of financially robust companies and have provided

poor return on investment for years.

Management must develop mechanisms for identification of technological voids and evaluation of

solutions. This requires diagnostic skills and an

alertness to developments in other industries, reinforcing the perceived need for a higher ratio of technically skilled managers at all levels in the industry

and higher qualifications for these professionals.

Possible policy approaches are to:

●

●

●

●

facilitate intra-industry information exchange,

technology transfer, and problem diagnoses by

sponsoring regular conferences, reporting, and

other means;

review the content and administration of joint

Federal/industry R&D and fund only high priority work;

improve the Federal R&D structure and encourage the industry to implement its efforts;

support a Government/industry management

training center;

●

●

ensure that any Government support stabilizes

the workload, which in turn allows the retention and training of the work force and the development of better operational planning techniques; and

provide Federal support to development of industry standards, even to the extent of legally

mandating their adoption.

The Labor Force Problem

The casualized employment system in U.S. shipbuilding is one of the largest barriers to improved

productivity. Since many of the theoretical foundations that underpin high foreign productivity are

of U. S. origins, there is logically substantial scope

for a program of institutional changes. This area

is one where the rate of progress is difficult to

predict but could be surprisingly fast.

Possible policy approaches are to:

●

●

●

●

●

disseminate information on the use of ‘ ‘social technologies, such as quality circles and

(semi-) autonomous working groups in U.S.

yards, both for their beneficial effects on productivity and for their effect in creating openness to new technologies;

implement technology transfer in areas of production skills and management methods by

training and fellowship programs and translation and dissemination of foreign references;

develop a cross-trained labor force to provide

better responses to fluctuations in the need for

various craftsmen (multiskilling);

require shipyards to attack excessive turnover

directly and set up interim programs for limited ‘ ‘outplacement’ of redundant employees;

and

support an industrywide training program.

The above approaches are some detailed actions

that could be used to enhance U.S. shipbuilding

productivity. OTA analysis suggests that U.S.

shipyards can improve their competitive position

in the world but only with a concerted effort on the

part of both industry and the Federal Government.

However, productivity improvements alone will

probably never close the very large foreign merchant ship price differentials that are partly the
114 ● An Assessment of Marine Trade and Technology

result of lower wage rates and the direct and indirect subsidies of other governments. Federal policy, therefore, must acknowledge that the future

viability of U.S. commercial shipbuilding will depend on some form of Federal support. Such support may be minimal where the United States has

some market or technological advantage (e. g.,

LNG ships, offshore drill rigs a few years ago, or

possibly Arctic tankers in the future) but will need

to be substantial where other nations now have technology, experience, and market advantages (e. g.,

large tankers and bulk carriers).

At present, the U.S. Navy is supporting the U.S.

shipbuilding industry with massive orders. It would

be useful for policymakers now to look beyond the

U.S. Navy building program and devise a plan for

U.S. shipyards at least 5 years hence. The existing

U.S. Navy program can be helpful for encouraging productivity improvement in the near term.

After the U.S. Navy program slows, either new

markets must be developed or Federal support must

be increased or U.S. shipyards will probably contract to a much smaller base.
Status

Chapter 5

and Trends in Ship Design

and Operating Technology

Photo credit: Maritim9 Institute of Technology
Contents

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . . . . . . ........0

Status and Trends in Ship Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technological Innovation in Liner Trades. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technological Innovation in the Bulk Trades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Arctic Transportation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Advanced Hull Forms.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trends in Propulsion Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technological Innovation in Ship Operations . . . . . . . . . . . . . . . . . . . . . . . . . .

Maritime R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MarAd R&D Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Navy R&D Related to the Merchant Marine . . . . . . . . . . . . . . . . . . . . . . . . . .

Technological Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Role in R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

TABLE

Page

117

118

118

120

121

123

123

129

132

133

134

137

137

7ablc No. Pa$(’

38. Relative Costs of Maritime Administration R&D . . . . . . . . . . . . . . . . . . . . . . . . 133
Chapter 5

Status and Trends in Ship Design

and Operating Technology

OVERVIEW

This chapter discusses technologies in ship design

and operations and identifies those that offer significant opportunities to U.S. shipping and shipbuilding enterprises. Trends in the design, construction,

and operation of merchant ships of the world’s leading commercial maritime nations are reviewed and

analyzed. The information base included surveys

conducted by the U.S. Maritime Administration

(MarAd), l 2 the Ship Technical and Operations

Committee of the Society of Naval Architects and

Marine Engineers (SNAME),3 and a study of

“Productivity Improvements in U.S. Naval Shipbuilding’ conducted by the Marine Board of the

National Research Council.4

This chapter also discusses current federally

sponsored marine research and development

(R&D) and strategies for upgrading technologies

of both ship production and ship operations.

The ebb of the economic cycle of any industry

is the time when technological improvements are

needed most to rejuvenate the industry and to support its continued operation at a profitable level

when it has recovered from its slump. Unfortunately for the maritime industry and for many others,

the reverse is most frequently experienced. R&D

1‘ ‘Research and Development Program Briefing, Maritime Administration, U.S. Department of Transportation, Jan. 27, 1983.

2’ ‘Merchant Vessel Propulsion Service Margins, ” Maritime Administration, U.S. Department of Transportation, contract No. MA-80-

SAC-01067, prepared by The Baham Corp., Columbia, Md., January

1983.

“’Assessment of Maritime Trade and Technology, ” questionnaire

for SNAME Ship Technical Operations Committee, for the U.S. Congress, Office of Technology Assessment, October 1982.

4’ ‘Productivity Improvements in U.S. Naval Shipbuilding, prepared by the Committee on Navy Shipbuilding Technology, Commission on Engineering and Technical Systems, National Research

Council, National Academy Press, Washington, D. C., 1982.

funds are withdrawn, and the training of people

in new technologies is reduced to the point that

when recovery comes, the industry is far behind

its competitors in vying for business and in reestablishing itself. Investments in R&D are vital to U.S.

maritime capabilities in the future.

Although the Merchant Marine Act of 1936 laid

the groundwork for a modern merchant marine,

the ship types in the resultant merchant fleet after

World War II did not give a competitive edge over

foreign fleets. Compounding the problem, postwar

reliance on World War 11 ships, and various conversions of these vessels, produced an aging fleet

with few modern, high-capacity, efficient ships

necessary for competitive operations. 5

Following the Merchant Marine Act of 1970, a

large peacetime shipbuilding program was started

and resulted in a number of technologically advanced ships, designed for specific missions and

cargoes. Now, in 1983, the U.S. merchant shipbuilding and ship-operating industries are at a low

point. Only a few new merchant ships are under

construction in the United States. Much of the

U.S.-flag fleet is aging and does not meet the technological level of our foreign competitors.

The impetus given by the Merchant Marine Act

of 1936 in the form of construction and operating

differential subsidies is no longer a popular strategy

for increasing the strength of the U.S. merchant

marine. Furthermore, the technological innovations

that gave strength to the shipbuilding program that

followed the 1970 Act now have been dissipated.

J’ Evolution of Vessels Engaged in the Waterborne Commerce of

the United States, ” by Robert Taggart, RT-41802, prepared for the

Corps of Engineers, Historical Division, January 1983.

117
118 ● An Assessment of Maritime Trade and Technology

STATUS AND TRENDS IN SHIP DESIGN

In the past two decades there have been numerous changes in the makeup of the world fleet. Tankers have increased in size four to five times, to

250,000 to 500,000 deadweight tons (dwt); dry-bulk

carriers have increased over twentyfold in total tonnage, and unitized cargo ships of all kinds have

been introduced. Until the oil embargo of 1973,

ship operators continued to increase speed and propulsion power to improve service. However, current trends have been to reduce or hold service

speed constant to control operating costs. The major

effort today to increase transport efficiency and

competitive position is via increased hull size and

faster turnaround time in port.

The healthiest sector of world shipping today is

composed of those fleets engaged in the liner trades.

A forecast presented by Kruse projects an increase

of double to quadruple the number of twenty-footequivalent units (teu) between 1980 and 2000.6

Liner shipping would continue to be dominated by

the demand for containerized cargo. There would

also be a continued shift from breakbulk cargo into

unitized cargo trade. Shipments in the form of neobulk, roll-on/roll-off (RO/RO), and lift-on/lift-off

(LO/LO) cargo will continue to grow in volume.

Shipping between developed ports will utilize large,

highly efficient carriers. High-value and perishable

cargo must be shipped at normal to high optimumcarrier-service speeds. Low-value cargo will be

shipped on an unscheduled basis. Medium to small

multipurpose freight carriers capable of handling

both breakbulk and unitized cargo will serve lesser

developed ports. These ships gradually will displace

tramp breakbulk freighters.

As discussed in chapter 2, worldwide liquid- and

dry-bulk trades probably will remain essentially

level or increase only a moderate amount in the

near term. Bulk shipping will be heavily affected

by changes in world energy consumption patterns.

A transition period in which petroleum consumption is declining gradually in favor of coal and other

alternative sources will ensure a continuing soft

market for crude-oil tankers. Major scrapping within the world supertanker fleet already has begun

/

‘Hans Jakob Kruse, “The Future of the Liner Industry, ” Shipping2&M, Conference Proceedings (London: British Shippers Council,

June 19, 1979), p. 49.

and will continue into the late 1980’s. Coal exports,

particularly from the United States, will continue

to grow well beyond the next two decades. Likewise, bulk shipping of grain will be a product sector with continuing strength due to an increasing

world population. This trade is particularly significant for U.S. interests.

Technological Innovation

in Liner Trades

Perhaps the most important strategy for maritime

industry improvement is to provide means to recognize potentially profitable technological innovations, to test and evaluate them, and to promote

their incorporation in ship production or operation.

The evolution of containerization illustrates a

successful maritime innovation. The present integrated, intermodal container system began with

an experiment conducted by a land transportation

company, McLean Trucking Co., which acquired

Pan American Steamship Co. and was later renamed Sea-Land. The innovation to be tested was

the shipboard carriage of trailers between U.S. gulf

coast ports and New York. From this beginning,

the present container system has evolved through

actual trials under field conditions.

The first step, in 1956, consisted of carrying the

trailers on specially constructed spar decks of

tankers operating between New York and Houston.

Having demonstrated the feasibility of the shipboard storage and carriage of trailers, the company

designed a RO/RO trailer ship, an idea that

was abandoned at the contract plan stage in favor

of the more technically feasible and economical

LO/LO principle. Six general cargo ships were converted to full containerships, equipped with shipboard cranes for loading and discharging. The ships .

carried 226 35-ft containers. The technical and

economic attractiveness of the system was demonstrated under these field operations. After this successful demonstration, the company instituted an

intercostal service in 1966, and by 1976 had entered foreign trade with the system. Today, SeaLand Industries, Inc., is one of the world’s largest

containership operators,
Ch. 5–Status and Trends in Ship Design and Operating Technology . 119

Photo credit: Sea-Land Industries

While containerization permits a vessel to be in

and out of port in 1 day—as opposed to a week or

more for breakbulk shipping—it is also a

capital-intensive industry

The importance of the implementation stage also

is evident in the adoption of containerization by

Matson Navigation Co. This company, which

operated a service between the U.S. west coast and

Hawaii, was having economic problems and decided that port productivity was a factor that required improvement. To find a solution, Matson,

in a move uncharacteristic of the industry, established an inhouse research department to analyze

its shipping operation and suggest improvements.

Using systems analysis techniques, including a

computer simulation model, this department was

able to analyze a number of possible changes. These

studies pointed to containerization as the best option to consider for further development and trial

demonstration.

Like Sea-Land, Matson introduced the new system cautiously by carrying containers on the decks

of conventional freighters. The success of these

demonstrations led to conversion of a C-3 type ship

to a full containership. During the planning and

development as well as the implementation stage,

Matson not only developed new technology-e. g.,

special terminal cranes—in support of the innovation, but also addressed the problems of labor and

customer acceptance. Therefore, as the trial implementation progressed, the feasibility of containerization was demonstrated both in terms of technical

design and in terms of meeting labor and marketing

requirements. The Matson project showed that field

demonstration of the feasibility of an innovation can

be strengthened by a formal evaluation strategy.7

Handling freight via breakbulk methods has given way to unitized cargo shipping. This includes

palletized cargo, containers, barges, and trailers.

The major advantage is that most high-volume cargo is now shipped in standard sizes. Shipping in

standard container sizes has allowed development

of specialized cargo-handling equipment. Ports

worldwide now have invested large sums in adapting dedicated berthing areas to loading and unloading of standard 20- and 40-ft containers.

In the design of the latest generation of containerships, the trend is toward multipurpose service on

major high-density Atlantic and Pacific routes. On

some mid- to short-haul routes this trend is rapidly displacing the breakbulk freighter service. The

consensus of opinion seems to indicate that the additional flexibility gained by this type of vessel offsets the higher cost of construction and lost deck

space. This type of vessel can moor in almost any

conventional berth by use of angled and skewed

ramps. Specialized handling systems are not required for RO/RO cargo. Two contrasting design

philosophies have developed among experienced

shippers. The first is that each ship should be fitted

with the necessary crane capacity to unload itself.

The second is that all self-unloading will be via

forklift trucks, even for containers. The choice of

design will be dictated by the particular trades of

each shipper.

Cargoes requiring refrigeration, such as food

products including meat, fruit, and fish, have been

transported in ‘‘reefer” ships in refrigerated holds

or compartments. In recent years individually refrigerated containers have steadily displaced cargo

carried on specialized ships. One of the new developments that will cause a significant shift of high7“Innovation in the Maritime Industry, ” Maritime Transportation Research Board, Commission on %eiotechnica.1 Systems, National Research Council, National Academy of Sciences, Washington,

D. C.} 1979.
120 ● An Assessment of Maritime Trade and Technology

value perishable cargo from the air-freight market

to containerized cargo is the development of controlled atmosphere containers. Perishable produce

now shipped via air can be shipped in modified 40-ft

refrigerated containers at one-fourth the cost, with

far superior quality produce delivered to the customer. These containers use inert nitrogen gas to

lower the oxygen level inside the container.

Technological Innovation in

the Bulk Trades

The major bulk trades include crude and refined

oil products, liquefied petroleum gas (LPG) and

liquefied natural gas (LNG), iron ore, bauxite and

other ores, coking and steam coal, grains for human

and animal consumption, and neobulk cargo such

as logs and other forest products. While most predictions for crude-oil shipping over the next two

decades are modest, the demand for other types of

bulk carriers should not be as bleak.

Although the United States pioneered the use of

specialized ships such as barge-carrying ships, we

have fallen behind the foreign competition in capitalizing on these technological innovations. The

tug-barge concept was considered to be only an attempt to get around manning requirements that

never achieved any economic success. The rest of

the world forged ahead of the United States in the

construction and utilization of large crude-oil carriers, and only in the development of the LNG systems and product carriers have we attained parity

with or superiority over other nations in liquid-bulk

carrier-design innovations. It is foreseen that marine transportation systems of the future will utilize

many more ships that are specifically designed for

particular cargoes and trade routes.

If the latter situation does come to pass, it may

or may not be good news for the U.S. maritime

industry. In the past, the United States has

demonstrated proven capabilities in optimizing ship

designs to match specific operational requirements.

However, we have not moved rapidly into such

markets and, in some cases, the operational requirement evaporated by the time the production began.

An example of this was the U.S. building program

for supertankers that only began after the rest of

the world had built tankers far in excess of demand.

Current projections for new very large crude carriers (VLCCS) indicate no requirements until the

mid-1980’s depending on the rate of scrapping.

New designs of crude carriers will not likely exceed

deadweight tonnages of 250,000,

Most recent industry announcements indicate

that a prolonged period of consolidation and scrapping of excess tonnage in crude tankers will be required to restore freight rates to values with which

carriers can survive. A recent commentary in The

Motor Ship notes that ‘‘recent levels of scrapping

may be historically high, but in the context of the

problem, it is miniscule: it would take 5 years of

scrapping at double the current rates before a balance of tonnage is achieved.

Operators will be looking for conservative gains

such as propulsion fuel economy and the ability to

burn heavy fuels. Two-stroke diesel engines will remain dominant as long as there are no precipitous

losses of oil supplies. Major emphasis will be placed

on increasing docking cycles to 5- or 6-year intervals when feasible. There will be a need for improvement in hull coatings and protection systems

beyond current levels to accomplish this. Bulk

trades will be the most likely for introduction of

steam plant innovations. Slower optimum service

speeds than the traditional 15 to 16 knots will

predominate. Most tanker operators have been running crude carriers at reduced service speed to offset in part excess capacity.

The demand for barge carriers such as LASH

and Seabee may continue to increase at a steady

pace. These two designs were U.S. innovations.

There are two major reasons for building bargecarrier systems. The first is that barges can be

loaded and unloaded at inland ports and floated

by tug to a rendezvous with the mothership. Loading and discharge of lighters (barges) on the mothership is rapid. The second advantage accrues to

barge carriers when serving developing countries

with limited capacity to handle containerized cargo.

Barge carriers are self-sufficient and do not need

elaborate shore-support facilities. The primary reason that they have not fulfilled expectations is that

they are expensive large vessels that require a continuous supply of cargo to be profitable. Large deck

openings or catamaran hulls are costly to construct

“’Viewpoint,” The Motor Ship, vol. 63, No. 748, November 1982,

p. 5,
Ch. 5—Status and Trends in Ship Design and Operating Technology ● 121

Photo credit: Por7 of New Orteans

A “Seabee’’-type barge carrier unloading in the Port of New Orleans

and some designs have very elaborate stern or bow

openings. Barges, unlike containers, have not been

standardized from one carrier to another. Also,

storage and handling of unmanned barges in port

causes problems.

Arctic Transportation

The severe environmental conditions in the Arctic require innovative technology for developing resource recovery systems. Arctic energy and mineral

resources are believed to exist in abundance;

however, exploration, production, and transportation will continue to be expensive relative to other

alternatives in the near term. In addition to oil and

gas, the Arctic contains large reserves of coal and

deposits of copper, lead, and zinc.

The Federal role in Arctic research has been one

of cooperation with industry. Petroleum industry

projects have included the use of Government laboratories and expert personnel. Some programs

have been jointly managed and funded. Continuing study is needed on the engineering properties

of sea ice. The dynamics of sea ice interactions with

ships and marine structures during wave-driven

storm conditions are critical, as is the collection of

ice/keel and ice/scour data and analysis of ice/seafloor-interaction dynamics. The effects of the force

of large ice features, such as pressure ridges, on test

structures need to be better understood through

field studies. g

Future expansion of Arctic oil and gas production activities will require new technology. Various

transportation methods have been proposed, including icebreaking tankers, submarine tankers,

LNG barges and ships, and air-cushion vehicles for

logistics support. The United States has a techno9’ ‘Research Needs for Arctic and Sub-Arctic Region, Staff paper,

Office of Technology Assessment, U.S. Congress, June 15, 1982,

p. 21.

25-417 0 - 83 - 9 QL 3
122 An Assessment of Maritime Trade and Technology

Photo credit: University of Alaska

Future transportation in arctic conditions may require icebreaker support such as shown here

logical lead in some of the above areas but is considered to be behind the U. S. S. R., the Scandinavian countries, and Canada in icebreaking design.

Among present plans are shipments of Canadian

crude to Japan passing through the Bering Strait

on icebreaking tankers. However, navigation in the

Beaufort and Chukchi Seas now depends completely on ice conditions.l”

In addition to the potential for future offshore

oil and gas discoveries that would lead to increased

shipping needs in the Arctic, there are proven reserves of land minerals in Alaska, including coal

and iron ore that could be developed soon. Northwestern Alaska has large coal deposits that could

be extracted and shipped if new port facilities were

built. New ports have been planned near Nome.

Since the entire transport network for any major

Alaskan mineral development would need to be

constructed, considerable shipping needs are evident.

The presently producing North Slope oilfields in

Alaska also contain considerable quantities of gas

that have never been produced. Industry plans of

 p. 77.

5 years ago were to build a gas pipeline from the

North Slope through Canada to the U.S. Midwest.

Those plans have never been carried out, mainly

because of the huge capital requirements of such

a pipeline. Other methods of transporting the North

Slope gas have been considered—including constructing a fleet of LNG tankers for the purpose.

It appears now that some shipping scheme is still

a viable option. Improved shipping technology as

well as lower costs would be major factors in such

a decision.

There have been numerous studies of the feasibility of submarine tankers for carrying crude oil

or LNG. Conceptual designs of both nuclear and

conventionally powered versions have been proposed. At present, no sea tests have been conducted. The General Dynamics Corp., Electric

Boat Division, has proposed versions of submarine

tankers that they claim could be economically competitive with surface icebreaking tankers or pipeline

systems, 11

 Carrier Proposed by General Dynamics 

Arctic Regions, ” Maritime Reporter, Mar. 1, 1982, p. 12.
Ch. 5—Status and Trends in Ship Design and Operating Technology 123

The Beaufort Sea is usually frozen 8 months of

the year and in the process of freezing or thawing

for another 3 months. Oceangoing barges without

icebreakers can be used for resupply only once a

year. To extend this window, the use of icebreaking air-cushion barges has been tested by VECOInternational and Global Marine Development,

Inc. The development and successful testing of a

100-ton cargo-capacity barge was financed by Sohio

Alaska Petroleum Corp. and Shell Oil Co. at Prudhoe Bay. 12

One important consideration that affects any oil

and gas development in the Arctic is that of pollution prevention and control. There is limited knowledge about the environmental effects of oil spills

in Arctic regions, but most indications are that they

would be more severe and persistent than in warmer ocean waters. In any case, special care in design

and operation of both production and transportation systems seems to be warranted to avoid pollution problems. New systems also will be required

for oilspill cleanup if that becomes necessary.

Arctic shipping—especially from the Alaskan

North Slope or the Beaufort Sea—is subject to a

number of political considerations as well. For example, shipping through either the Bering Straits

or the Northwest Passage is subject to international agreements for both rights of passage and

pollution prevention. Agreements with both the

U.S.S.R. and Canada regarding the extent of any

offshore resource jurisdictions are also a factor. Any

major development also will need to be considered

in light of possible impacts on Arctic environments

and the native people of the region,

Advanced Hull Forms

Monohull displacement ships make up the total

of the existing merchant fleet, and most design concepts are still based on traditional hull forms operating in the 15- to 30-knot speed range. There are

very few exceptions. Advanced or higher speed hulls

eventually may find their niche in commercial service but probably not under present economic conditions nor for employment in any major commercial cargo service. Advanced hull development has

lz’ ‘Air Cushion Vehicle Successfully Tested for Arctic Icebrcaking, A4aritimc Reporter, Mar. 1, 1982, p, 12.

occurred only in the market categories of offshore

supply and passenger/ferry vessels. These hull form

concepts include:

● hydrofoil-supported vehicles;

. air-cushion vehicles (ACVS);

. surface effects ships (SESS); and

● catamarans and small-waterplane-area twinhull (SWATH) vessels.

Both surface-piercing hydrofoils and ACVS have

been built for the small passenger vessel and ferry

markets during the past several decades, but these

vessels cannot compete with displacement hulls in

cargo-carrying capacity. Their poor seaworthiness

at high speeds also has limited their use to relatively

confined waters.

Totally submerged hydrofoils and SESS overcome the seaworthiness problem to some extent

since they have the potential of providing highspeed performance in relatively rough seas. Several

offshore supply vessels have been built in the United

States using the SES principle.

Catamarans are being used as pusher tugs at sea,

and SWATH vessels have seen some commercial

application in servicing ocean drilling and work

platforms in heavy seas. However, these vessels

have limitations when extended to other uses, and

the SWATH vessels especially have been hampered

by high construction costs.

A related hull development is the semisubmersible hull used primarily for drilling rigs and ocean

construction platforms. Here, an abovewater column-supported platform is carried by totally submerged twin hulls. This configuration has marked

advantages in maintaining station in heavy seas,

but its transit and variable load-carrying abilities

are limited.

In general, advanced-hull forms undoubtedly will

continue to be investigated for certain commercial

applications but, in each case, cargo-carrying capacity and economic feasibility will be the major

determinant of commercial viability.

Trends in Propulsion Technology

The propulsion plants in service today for merchant ships have been subject to continuous development during the past decades. This development
124 ● An Assessment of Maritime Trade and Technology

has been generated principally by concern for future

fuel availability and the economic burden of increasing fuel costs on shipowners.

Most of the U.S.-flag fleet has steam-powered

machinery. The traditional steam-turbine powerplant represents the culmination of many extended

development programs in both the electrical utility and the maritime industries. The development

has reached a level of diminishing returns with

respect to cycle efficiency. The maritime industry,

however, has not followed electric utility practice

to the same level of development because it has not

been justified economically for a powerplant at

typical marine ratings. Secondly, electric utility

units operate for very long periods at constant

speed; consequently, the refinement of those units

is not practical for a marine engine which operates

at variable speeds, reverses rotation, and has to be

on-line within a few hours. The expected improvements in marine steam-turbine powerplants will

come in four general areas: further refinements in

the steam cycle, use of boiler reheat cycles, change

to coal-firing, and more efficient auxiliary drives.

Diesel propulsion is used extensively in the world

fleet-diesels power over 90 percent of the world’s

merchant ships. Recent interest by U.S. operators

and Government agencies in diesel propulsion has

led to the licensing and construction of slow-speed

diesel engines in this country. The American President Lines (APL) new C-9 class containership, the

President Lincoln, represents the first diesel-powered containership to be constructed in the United

States. APL has constructed three C-9S. With a

gross registered tonnage (grt) of 40,500 each, they

are the largest in this country. The total container

capacity is 2,500 teu which includes accommodation of 400 refrigerated 40-ft containers. The slowspeed two-stroke engines are Sulzer Brothers Ltd.,

designed and licensed for construction by Allis

Chalmers Co. in the United States. They are the

first such engines constructed in this country in the

past 30 years. Changes in MarAd regulatory requirements were necessary to allow construction of

the engines with a high percentage of foreign manufacturer components.

Diesel engines are the most efficient prime mover

available in mass production in the size ranges required for main propulsion plants. The diesel industry has a long history of improvements in the

performance and power ratings of their engines.

In recent years, the ability to burn heavy fuels was

developed for the low-speed engines which gave

them an economic advantage over steam turbine

plants. This experience has been extended to the

medium-speed diesels although typically with somewhat lighter fuel characteristics. Since the fuel crisis

of the mid- 1970’s, the efforts to use less expensive

fuels and to recover waste heat to the greatest extent have been intensified.

Diesel engine manufacturers have worked toward

raising the mean-effective-cylinder pressure (mep),

together with improved designs for turbocharging,

to improve both the efficiency of the engine and

the power rating of each cylinder. Parallel efforts

have been made to protect the engine from the

products of combustion with heavy, dirty, and corrosive fuels. Very recently, several major engine

builders and research organizations have experimented with firing pulverized coal as an injected

slurry. The results of tests to date have been encouraging. Typical slurries have been 68 percent

oil and 32 percent coal by weight and 66 percent

water with 34 percent coal by weight. Synthetic

fuels, derived from coal, also can be used as diesel

fuels.

Alternate Fuels

Currently, the merchant fleet consumption of

bunker fuels amounts to 3 percent of the world petroleum supply. 13 Bunker fuel sold in 1981 totaled

730 million barrels at an average cost of $32 each.

Current prices are dropping rapidly along with

crude reductions below $30 per barrel. Marine consumers represent a large single user of petroleum

products but not enough to affect the mix of fuel

products produced by the world’s refineries. In general, the mix of distillate and residual products

refined by the oil industry is dictated by consumer

and industrial demand for gasoline and light distillate-fuel oils. The marine, utility, and asphalt industries consume the remaining residual-oil products. The properties of residual oils have been

deteriorating in recent years due to the improved

efficiency of new refineries. A greater percentage

IJL. Bergeson, et ~., ‘‘Wind Propulsion for Ships of the American

Merchant Marine, ” Wind Ship Development Corp., U.S. Maritime

Administration Report No. MA-RD-940-81034, NTIS No. PB-81-

162455, March 1981.

126 ● An Assessment of Mar/t/me Trade and Technology

of distillate-oil products is now produced from each

barrel of crude oil.

Since the oil embargo of 1973 there has been a

gradual shift from oil firing back to coal in landbased steam utility boilers. This increased utilization of coal will increase demand for worldwide coal

transportaton. Coal remains an outstanding resource, with about six times the proven world

reserves of crude oil. As a result, an increase in coal

shipping seems assured during the next century.

If U.S. coal exports grow as most experts project,

new bulk carriers will enter that trade. These ships

also could burn their cargo as fuel. Advanced technology for handling and burning coal now is being developed. For example, research in fluidized

bed combustion and the use of micro-coal slurries

for firing piston engines is well underway.

Coal-fired ships only recently are being reintroduced in a few bulk trades. General Dynamics

Corp. shipyard at Quincy, Mass., delivered a

36,000-ton coal-fired coastal collier in July 1983 for

New England Electric. This ship is the first coalburning vessel built in the United States in over

30 years and is projected to offer considerable savings to the utilities that transport coal from Norfolk to New England powerplants. Mitsubishi’s

Nagasaki shipyard completed the first of a series

of two coal-fired bulk-carriers in September 1982

for Australian National Line (ANL). Two additional coal-fired bulk-carriers will be constructed in Italy

for TNT Bulk Ships, another Australian operator.

All four ships are chartered to carry bauxite ore,

The ships’ main boilers are twin, U.S.-designed,

Combustion Engineering Co. boilers licensed for

construction by Mitsubishi. All coal-handling operations from transfer to ash disposal as well as boiler

combustion control are automated or remotely controlled in accordance with recommendations issued

by Lloyds Register of Shipping. ANL currently es-
Ch. 5—Status and Trends in Ship Design and Operating Technology 127

timates an annual savings of $1.3 million from operation of these vessels. The company indicates coal

prices would have to double relative to heavy fuel

oil for operating cost parity. In addition, two former

LNG tankers were converted to grain carriers with

coal-fired boilers at a Korean shipyard for U.S.

owners.

Nuclear-fueled steam plants have been installed

in oceangoing vessels for several decades. The

largest number of nuclear vessels are naval submarines. A small number of nuclear-powered merchant vessels have put to sea during the past several

decades. The technology of these vessels has improved gradually. Most experts agree that, based

on the price of oil, they are not yet economically

competitive with their fossil fuel-fired counterparts.

Other obstacles have hampered the development

of nuclear ships, including the issue of disposition

of spent nuclear fuel. In addition, there is significant popular opposition to the entry of nuclear-powered ships into major world ports.

Research has been intensive during the past decade in alternative fuel sources due to the expected

crude oil shortfalls. A range of synthetically produced fuels from coal have long-term development

potential. Likewise, natural gas vented from oilfields has not been competitive due to uneconomical

transportation costs. Reserves of shale and tar sands

represent about 13 percent of all fuels but are considerably more expensive to extract. As supplies of

crude oil tighten and the price rises, producing competitive alternate fuels will become more feasible.

The recent drop in crude oil prices may cause interest in alternative fuel for marine propulsion to

wane.

Advanced Powerplants

The declining availability of liquid fossil fuels

may provide long-term incentives for changing to

new advanced powerplants. A recent MarAd study

identified several advanced powerplants with development potential for marine applications. 14 Each

was found to be potentially compatible with future

marine plant requirements and to be economically competitive with the best existing technology. A

. —

‘+’ ‘Merchant Vessel Advanced Power Systems, Maritime Administration, U S Department of Transportation, contract No. MA-80 -

SAC-01072, prepared by The Baham Corp., Columbia, Md., January

1982.

crucial factor was freedom from the use of crude

oil-derived fossil fuels. After screening several dozen

options, the following plant types were selected for

‘ ‘long-term’ development potential:

●

●

●

machinery plants under development that

burn solid (coke and coal) slurry fuels include

two-stroke marine diesels, fluidized-bed boilers

for steam plants, Stirling cycle reciprocating

engines, closed Brayton cycle gas turbines;

lightweight nuclear powerplants in the near

term using light-water reactors and high-temperature gas-cooled reactors beyond; and

fuel cells.

The suitability of those advanced powerplants is

directly related to the type of ship considered for

their application. Representative hull forms were

tested for applicability. The advanced powerplants

that show a potential advantage were compared

against one another and against the projected development of present-day powerplants. The results

of the study indicated that fuel consumption rates

of advanced plants are not likely to be significantly better than the current performance of low- and

medium-speed diesel engines. Their only advantage is the ability to burn alternative fuels.

Propulsor Technology

While a few other special-purpose propulsor devices are used occasionally on merchant vessels, the

screw propeller is accepted universally as the most

efficient and cost-effective propulsor that can be

used with any type of powerplant. Over several

hundred years of development, the capabilities and

limitations of the screw propeller have been thoroughly analyzed and are well understood. When

the ship hull is defined, the powerplant selected,

and the operating conditions are known, the optimum propeller for the ship can be designed.

This is not to say that all ships are operated at

their maximum propulsion efficiency. Constraints

imposed by hull form, powerplant characteristics,

variable trim or displacement, or variation in speed

requirements may compromise the propeller design

to the point where its efficiency is much lower than

what might otherwise be realized. An explanation

of the effect of some of these factors on propulsor

performance, and the means of circumventing some

of the problems, are described below.
128 ● An Assessment of Maritime Trade and Technology

To carry the maximum cargo within a given

length, beam, and draft, it is often the practice to

design a ship hull that has very full stern lines.

These in turn interfere with the flow to the propeller and create a very high wake. This means that

the inflow to the propeller is restricted, reducing

propulsive efficiency. The situation can be improved by converting to large-diameter propellers

that capture more of the flow around the hull or

by using wake-adapting nozzles or ducts that selectively accelerate the flow from the ship sides and

bottom into the propeller where it can be utilized

more efficiently.

The characteristics of marine powerplants have

much to do with propulsive efficiency. Steam reciprocating engines and steam turbines are uniquely

applicable to the torque demands of a screw propeller at a given RPM. In other words, there is a

relatively flexible relationship between the torque

and RPM of a steam engine that can adapt it to

the torque-RPM demands of a screw propeller.

This gives the propeller designer a bit more leeway

in keeping the design in an efficient range. However, as cited earlier, the higher fuel consumption

and costs of steam-powered propulsion systems tend

to more than offset this design advantage.

A diesel drive, on the other hand, requires a

much more precise matching of the propeller power

demand with the engine output capability. Care

must be exercised that the propelter torque demand

does not exceed the engine torque supply before

the engine gets up to speed. Thus, the designer’s

tendency is to design the propeller on the low-torque

side of the maximum efficiency curve to stay out

of trouble; as a result, the propeller may not be of

optimum efficiency.

As a general rule, the efficiency of a screw propeller can be improved by increasing the propeller

diameter and decreasing the propeller RPM, Obvious limitations on diameter are the cross-section

dimensions of the ship’s hull, the need for adequate

tip clearance, and the desire not to have the propeller swing below the keel line. The low-RPM limitation is a function of minimum speed of main propulsion engines and the size of reduction gears required. As engine RPM decreases and reduction

gear size increases, there is a point of diminishing

cost effectiveness in improving propeller efficiency with large-diameter, slow-turning propellers.

The overall weight of the propulsion system is also

a serious consideration in selecting propellers.

There are also several alternatives to increasing

the diameter of a propeller. Various forms of ducted

propellers can be used since, with a flow-accelerating nozzle surrounding the propeller, the thrust

load is divided between the propeller and the nozzle with the nozzle delivering up to one-half of the

total thrust under certain conditions. Also, a propeller in a nozzle can turn at a higher RPM than

an equivalent open screw, alleviating the problem

of lowering the rotational speed to impractical rates.

Another alternative that can be used to reduce

propeller blade loading is to employ tandem or contrarotating propellers. In these units, the forward

propeller gives an initial acceleration to the flow,

and the after propeller provides additional acceleration with the result that neither propeller is as heavily loaded as would be a single propeller under the

same circumstances. The after contrarotating propeller also can recover additional energy from the

tangential outflow of the forward propeller, giving

this system a higher propeller efficiency than the

tandem propeller for corresponding size and hydrodynamic conditions.

Each of these additional techniques for improving propulsive efficiency has certain drawbacks.

Propellers in nozzles are subject to problems, and

the cost of’ acquisition, installation, and adequate

support of a duct with the required small tip clearance is high. However, some of these drawbacks

are ameliorated in the Mitsui integrated-ducted

propeller where the nozzle is placed aft of the propeller. Tandem propellers involve the additional

cost of the second propeller. Moreover, the extra

aperture length and shaft support augment the design difficulties and installation and repair problems. Despite the fact that contrarotating propellers

have been used since the 1830’s and are known to

give a significant increase in propeller efficiency,

the mechanical difficulties of turning propellers on

concentric shafts in opposite directions and the associated high installation and maintenance cost

have deterred ship operators.

One promising method of increasing propulsive

efficiency is the use of vanes forward and after the

propeller to convert the tangential flow generated

by the propeller into forward thrust. This technique
Ch. 5—Status and Trends in Ship Design and Operating Technology ● 129

was patented by the Goldschmidt Corp. in the

1930’s and called the “contrapropeller” or “contrarudder.

The contrarudder principle was used in the early Maritime Commission ships (during World War

II) and, on a model test of a C3 cargo-ship hull,

a propulsive efficiency increase of 15 percent was

demonstrated over that obtainable with the then

customary flat-plate rudder. Such significant improvements cannot be anticipated with modern rudder-foil configurations, but Mitsubishi has reported

power savings of up to 7 percent with similar modifications to the stern and rudder that now are being called ‘ ‘reaction fins. This appears to be a

promising propulsor system modification that can

attain demonstrated fuel savings at a modest initial investment and no additional operating costs.

Sail Propulsion

Ocean winds have been a traditional source for

ship propulsion for the past several millenia. Historically, trade routes and shipping patterns were

designed to be compatible with seasonal wind and

current patterns. With the advent of mechanical

propulsion, there developed a tendency to ignore

weather in setting routes and schedules. But, over

the past 25 years, ship operators have come to recognize the savings made possible by routing their

vessels to avoid adverse weather and to use favorable currents. Advances in satellite weather observation and computerized prediction techniques

have made weather routing practical.

In the past few years, proposals have been made

to employ wind energy as the means for propelling small- to moderate-sized oceangoing ships,

either as the sole means of propulsion or as a supplementary form of thrust to reduce the required

main engine output. The most suitable applications

appear to be for smaller vessels, particularly those

operating on an open schedule. Economic assessments of modern sail installations have been made

both as a retrofit to an existing ship and on a new

ship designed for sails. The proposals presented to

date are quite varied, and several small ships have

been fitted out with modern sails for evaluation in

service. Most proposed applications are for small

motorships of 500 to 4,000 dwt. To minimize the

hazards to personnel, and the manning and maintenance costs of traditional rigging, these proposals

generally are based on power-operated devices with

remote controls for setting and furling sails,

It appears that modern sail arrangements are

feasible for some types of cargo ships as a supplementary means of propulsion. Evaluations

would have to be done on the type of sail, the vessel,

and the operating route. A study was conducted

by MarAd and published under the title “Wind

Propulsion for Ships of the American Merchant

Marine . The results of the MarAd study, conducted by Wind Ship Corp., indicate the cost of

sail-assisted motorships to be competitive with conventional motorships and predicted that they would

consume 18 to 25 percent less fuel. The Japanese

built a 1,600-dwt sail-assisted motorship in 1980

and have been operating it as a pilot project since

then. They claim similar fuel savings as Wind Ship

Corp. Wind Ship also operated a converted small

freighter in Caribbean trades which has a sail added

for supplementary propulsion and fuel reduction.

These projects, while limited in scope and at an early stage, do provide valuable data about the feasibility of future applications of sail power for merchant shipping.

TECHNOLOGICAL INNOVATION

IN SHIP OPERATIONS

There is a strong perception on the part of many gradual increase in the cost of U.S. ship operations

in the maritime industry that the noncompetitive relative to foreign ship operations. Likewise, this

nature of the U.S. merchant marine is due to a noncompetitiveness is often associated with the be-
130 ● An Assessment of Maritime Trade and Technology

lief that technological innovation has not resulted

in implementation of new concepts into the U. S.-

flag fleet.

To address this question, OTA sent a questionnaire to members of SNAME’S Ship Technical

Operations Committee. 15 The following summarizes the opinion of those responding to each of the

four questions. * While the responses differed on

many points, there were important areas of agreement.

Question 1:

How do the U.S.-flag, U.S.-owned and foreign-owned, foreign-flag fleets compare in

technological advancement, including automation, fuel efficiency, propulsion, cargo

specialization, or others that you consider important?

Two-thirds expressed the concern that the overall

technological advancement of U.S.-flag fleets

lagged behind foreign competitors. Two made the

point that recent U.S. construction has tended to

incorporate a significant amount of new technology.

One insisted that U.S. innovation is on a par with

the rest of the world, and that ‘‘the popularly perceived deficiencies in U.S.-flag, U.S.-owned fleets

are not technological in nature, but institutional and

economic.

All agreed that with respect to fuel efficiency and

the introduction of diesel engines, the United States

has lagged considerably. Various reasons were

given including lack of available diesel engine industry ‘‘infrastructure, low fuel cost (prior to the

1973 embargo) for steamplants, and insufficient

research facilities and expenditures.

=~~ ‘A~~~SS~ent of Maritime Trade and Technology, questionnaire

for SNAME Ship Technical Operations Committee, for the U.S. Congress, O!Xce of Technology Assessment, October 1982.

“Respcnses to footnote 15: Matson Navigation Co., A. J. Haskell,

Jan. 27, 1983; Reomar, Inc., N. M. Miller, Feb. 11, 1983; Sun Refining & Marketing Co., Joseph D. Mazzei, Feb. 11, 1983; Society of

Naval Architects and Marine Engineers, James J. Sweeney, Chairman, SNAME Panel O-21, Feb. 14, 1983; Energy Transportation

Corp., E. G. Tornay, Feb. 14, 1983; Exxon Shipping Co., T. W,

Gillette, Feb. 25, 1983; Mobil Oil Corp., J. V. Caffrey, Mar, 3, 1983;

Chevron Shipping Co., W. H. Banks, Mar, 3, 1983; E. V. Lewis

(formerly Webb Institute Director of Research), Mar. 12, 1983;

Marine Transport Lines, Inc., Donald V. Horn, Mar. 2, 1983; U.S.

Lines, Inc., William B. Bru, Apr. 21, 1983; Delta Line, Richard F,

Andino, Apr. 4, 1983; Cushing & Co., C. R. Cushing, Jan, 11, 1983,

Automation in U.S.-flag fleets generally was conceded to be inferior to foreign-flag, foreign-owned

fleets. Most U.S.-flag ships are not certified for

unattended engineroom operation. The reasons put

forward were basically that it is difficult to automate

steam-propulsion systems and that operators have

no incentive to do so because prevailing labor agreements do not allow removing watchstanders.

Cargo specialization is another area in which

U.S.-flag ships generally lag foreign competitors.

Those innovations that have been developed in this

country have long since been replicated by foreign

competitors. A telling example was cited in the case

of containerized liner cargo. A U.S. operator pioneered the concept over two decades ago. The U.S.

liner operators are generally conceded to be the

healthiest segment of industry. However, today the

U.S. liner fleet is less containerized overall than

its major European and Far East competitors. The

United States has not participated in cargo specialization developments, particularly in the bulk and

specialty trades. The one exception mentioned is

in the area of product tankers. The extensive importation and coastwise shipping of refined crude

oil products have resulted in refined practices being developed for these ships by U.S. fleet operators.

Question 2:

What new technologies are most likely to be

incorporated in the fleets over the next 20

years and will have a major impact on how

future ships are designed, built, and operated?

The overwhelming opinion of the respondents

was that technological resources in the shipping industry would concentrate on reducing operating

costs with the cost of manning and fuel of most concern. The largest number of respondents, identified the need for automation technology to be implemented to reduce manning requirements on

U.S.-flag ships. Crew costs are high on U.S. ships

because crew sizes are larger than competitors and

cost per man is among the highest in the world.

They cited several areas where microprocessor technology could be applied with a minimum of development effort. These included reducing onboard

administrative burden, satellite navigation, weather

routing, and cargo management. With automation
Ch. 5—Status and Trends in Ship Design and Operating Technology . 131

technology currently available and implementation

of new training, maintenance, and administrative

procedures, crew size could be reduced to 20. With

the technology that will be introduced in the next

decade, it will be possible to reduce crew size to

10 on diesel-powered ships, and, in the long term,

no personnel will be required onboard for normal

operations. However, several respondents noted

that even if these latter options could be negotiated

with labor unions and regulatory bodies concerned

with vessel safety, it would not necessarily be the

most economical way to operate. An optimum balance must be derived that takes into account not

only the technological implications but also the

economics of ship acquisition, manpower costs, and

safety considerations.

Eight respondents noted that phasing-out steam

turbine, high-speed diesel, and gas turbine propulsion in favor of medium- and low-speed diesel engines for most ship designs is a likely trend. As long

as oil remains the primary marine fuel, diesel engines will predominate as the most efficient propulsion system. Decreased availability of oil and

high prices relative to other energy sources will

favor development of other engines. The only nearterm alternative for large ships is steamplants using coal-fired boilers. Coal is not readily available

at all major ports. Thus, its use is likely to be limited

by fuel supplies. Five respondents predicted the return of coal-fired ships, particularly for bulkships

hauling coal. Twenty-five percent of the respondents identified nuclear propulsion as the most likely

long-term development beyond the next two decades.

As mentioned earlier, fuel consumption is one

of the major cost factors that shipping companies

will target for reduction. More than half of the

respondents identified improved hull-form design

and acceptance of ablative (self-polishing) antifouling hull coatings as a continuing trend. Optimum

speed of inservice vessels, particularly for bulk

trades, will continue to reduce. There will be a continued trend to larger hull sizes for most high-volume trades except tankers, which have peaked in

tonnage. Cargo specialization such as containerization, RO/RO ships, and automobile carriers will

cross-over increasingly into the bulk trades. Although LNG technology was introduced prematurely, it most likely will be viable over the long

term. Icebreaking tankers will be required for arctic shipment of crude oil. Finally, 25 percent of the

respondents identified cargo-handling and portfacility improvements for reduction of loading time

as an area of continuing improvement.

There were a number of additional elements of

ship operations identified by less than half of the

questionnaire respondents that affect operating

costs. They include the hydrodynamic efficiency of

the propeller, power losses associated with appendages, and the mechanical efficiency of the main propulsion system as well as hotel services for the crew.

About 25 percent of the respondents identified these

areas for selected improvements.

Question 3:

What technological innovations in operation

of ships and shipping systems are most important for future U.S. shipping? (i. e., where

U.S. shipping conditions are unique or where

opportunities exist for the United States to

take the lead).

There were five respondents who expressed the

opinion that the U.S. Government and shipping

industry should concentrate on crew organization,

training, laws, and regulations that affect operating

cost. Specific recommendations included making

substantial changes in maritime law and manning

regulations to delete the three-watch requirement

and allow cross-training of trades, particularly deck

and machinery. In the area of industry practices,

it was mentioned that rationalization of galley/messing practices that would lead to use of a single messspace, preplanned meals, or perhaps self-service

would yield savings.

Twenty-five percent of the respondents indicated

they felt the area of greatest ‘ ‘business opportunity’ for U.S. technology was the application of computers to every facet of the shipping industry. Rapid

assimilation of computers into shipping operations

would give U.S. companies a competitive edge,

Similarly, 25 percent of the respondents identified opportunities in the specialty trades that would

have a high payoff for U.S. companies. In the liner

trades, encouragement of laws and regulations favoring intermodal shipping would be most beneficial in giving U.S. companies a boost. In the bulk

trades, ‘‘neobulk’ shipping of commodities such
132 ● An Assessment of Maritime Trade and Technology

Photo credit: Atlent/c Rlchfleld, Inc.

Computers such as this one for satellite

communications are commonly used aboard modern

merchant ships for automation of many tasks

as vehicles, forest products, and refrigerated cargo

represents a large area of trade in which U.S. shipping companies have almost no presence. Export

of perishables and grain should be high on the opportunity list. One respondent suggested that the

presence of a U.S. cruise ship operator in the Caribbean trade would be desirable.

Question 4:

What Federal policies and programs have a

significant effect in encouraging or inhibiting

technological innovations in U-

. S. shipping?

The opinion of half the respondents was that, in

general, substantive,long-term changes are required in U.S. maritime policies affecting the shipping industry. However, there was no agreement

on what these policy changes should be. Policies

that tend to reduce the size of the U.S.-flag fleet

also will tend to retard innovation. Long-term stability also was mentioned as being needed for reducing the risk for new investment. The current rapidly

changing policy environment creates uncertainty.

Four respondents indicated that ship construction and operating subsidies have impeded innovation and investment in U.S. shipping during the

past several decades. Either removal or restructuring the subsidy programs to encourage investment

of new ships was recommended.

Three respondents noted the following areas of

concern:

●

●

●

●

“buy America” provisions for building and

repairing ships are considered excessive Government intervention;

U.S. Coast Guard (USCG) regulations are

unnecessarily restrictive, particularly where

they exceed international standards;

labor policy should be directed toward reduction of U.S. manning and watchstanding requirements; and

MarAd R&D programs should be directed

toward industry cooperative efforts with

‘‘front-line’ shipping organizations rather

than consulting firms and academic institutions. In general, the level of research activity should be increased.

MARITIME R&D

The majority of direct Federal Maritime R&D Navy program is watched carefully for fallout that

support his been provided by MarAd, augmented will benefit the merchant marine. As one example

by support from USCG for work falling within its of cooperative effort that has been in effect since

jurisdiction. U.S. Navy R&D frequently benefits World War II, the NAS Ship Structures Committhe maritime industry as a whole, and thus the U.S. tee is supported jointly by MarAd, USCG, the
Ch. 5—Status and Trends in Ship Design and Operating Technology 133

Naval Sea Systems Command, the Military Sealift

Command (MSC), and the American Bureau of

Shipping (ABS).

MarAd R&D Program

Most federally sponsored R&D that is applicable

to merchant ship design, construction, and operation is that currently funded by the MarAd R&D

program. 

The relative costs of the various aspects of

MarAd R&D are indicated in table 38, listing fiscal

year 1982 procurements as percentages of the

$14.45 million total.

These funds include both cost-shared projects

and projects that are interagency reimbursable. It

can be seen that shipbuilding research, cargo-handling, and CAORF* account for two-thirds of the

total budget with all other areas of R&D making

up the remainder. A brief examination of the R&D

results is contained in the paragraphs below.

‘“ ‘Research and Development Program Briefing, ” Maritime Administration, U.S. Department of Transportation, Jan. 27, 1983.

*CAORF is a ship’s bridge, harbor, and navigation systems computer-assisted simulator, located at MarAd’s Kings Point, N.Y. facility. It is used to study ship control, navigation, and maneuvering

and new devices for safe operations. It also is used for operational

training.

Table 38.—Relative Costs of Maritime Administration

R&D (fiscal year 1982)

Research area Percent total

Shipbuilding research . . . . . . . . . . . . . . . . . . . 26.09

Ship machinery . . . . . . . . . . . . . . . . . . . . . . . . . 6.25

Fleet management . . . . . . . . . . . . . . . . . . . . . . 5.83

Ship performance and safety . . . . . . . . . . . . . 3.07

Cargo-handling . . . . . . . . . . . . . . . . . . . . . . . . . 12.58

University research . . . . . . . . . . . . . . . . . . . . . . 1.72

Structures (ship structure committee). . . . . . 0.24

Arctic technology . . . . . . . . . . . . . . . . . . . . . . . 2.50

Marine science . . . . . . . . . . . . . . . . . . . . . . . . . 1.95

Navigation/communication . . . . . . . . . . . . . . . 6.54

Advanced ship systems . . . . . . . . . . . . . . . . . . 1.69

Computer assisted operations

research facility (CAORF) . . . . . . . . . . . . . . 28.59

Port and intermodal development . . . . . . . . . 1.81

Market analysis . . . . . . . . . . . . . . . . . . . . . . . . . 1.16

SOURCE: US. Maritime Administration, 1983

The National Shipbuilding Research Program

The shipbuilding productivity aspect of the

MarAd program is essentially the National Shipbuilding Research Program (NSRP) being carried

out with joint sponsorship of SNAME and a number of shipyards and other members of the maritime

industry. This program is considered effective by

most participants, and the joint industry/Government cost-sharing approach has been cited as a

mechanism that assures resources are applied to the

most pressing problems.

The program currently is conducted on a costsharing basis with four major shipyards: Todd

Pacific Shipyard, Avondale Shipyards, Inc., Bath

Iron Works, and Newport News Shipbuilding.

Todd is working on improved outfit and production aids. Avondale is working on improved surface preparation and coating and the feasibility of

incorporating process lanes in U.S. shipyards. Bath

is developing shipbuilding standards and improved

production methods, and Newport News is working on design/production integration methods and

on welding productivity and quality. This program

was instituted in 1973 by the Ship Production Committee (SPC) of SNAME, the cooperating shipyards, and MarAd. Some important advances in

ship production technology have resulted.

One element of the program involved setting

up the Institute for Research and Engineering

Automation and Productivity in Shipbuilding

(IREAPS). IREAPS is a not-for-profit organization of shipbuilders and other members of the

maritime industry set up to facilitate contracting

procedures and the dissemination of information

resulting from NSRP.

The SPC and IREAPS have prepared “The

Five-Year National Shipbuilding Productivity Improvement Plan (1983 -1988 17 This plan was

prepared under the guidance of a steering commit-

“’’The Five-Year-National Shipbuilding Productivity Improvement

Plan (1983 -1988),” prepared by the Ship Production Committee and

the Institute for Research and Engineering for Automation and Productivity in Shipbuilding, March 1983.
134 ● An Assessment of Maritime Trade and Technology

tee composed of nationally recognized experts in

the field of shipbuilding, including members from

both Government and industry. Seven task groups

participated in the preparation of this plan. The

plan contains a large variety of proposals for shipbuilding research projects. The authors claim that

it details a strategy for restoring the U.S. shipbuilding industry to a position of worldwide leadership, the structure of an implementing organization, a methodology for project development and

screening, a means of measuring project performance, suggested sources of funds and a funding

plan, and a procedure for plan review and adjustment.

The plan appears to provide a reasonable approach to many aspects of productivity research.

Such research could

tive and profitable

United States.

Cargo Handling

contribute to a more producshipbuilding industry in the

The MarAd cargo-handling program is devoted

mostly to the development, testing, and evaluation

of techniques and equipment for handling and stowing military equipment aboard containerships. Fifty-one percent of the financing is provided by the

U.S. Navy. Results so far have been the design and

fabrication of very large transport units for a project called ‘‘Sea Sheds’ that will permit containerships to carry a full range of military vehicles and

equipment. Crane installations aboard containerships for handling Sea Sheds also are being studied. A significant portion of this work is financed

by the U.S. Navy, and it is directed toward U.S.

Navy problems.

CAORF

The operation of MarAd’s CAORF, which is

principally the bridge simulator with associated

equipment, consumes a larger percentage of the

MarAd R&D budget than the expenditures figure

indicates. Of the 1982 total of $4.13 million spent

on CAORF, $2.61 million was for operation, maintenance, and engineering support; only $142,000

was expended directly for outside agency project

work. The remainder presumably was used for

MarAd project work, although the output from this

remaining $1.38 million expenditure is not readily identifiable in MarAd program summaries. The

output of this facility has not been evaluated adequately. Its cost appears to exceed the importance

of this type of research relative to the overall MarAd

program.

CAORF has absorbed a major part of MarAd

R&D program funds over the last several years.

Despite the fact that the construction of this facility was based on conducting research work, its primary use has been for training that might have been

accomplished more economically by other means.

U.S. Navy R&D Related to

the Merchant Marine

There are a number of areas where the work being done by the U.S. Navy is directly applicable

to merchant work. It is assumed that U.S. Navy

R&D will continue to be funded adequately. So

long as there are no security problems involved,

it is important that those efforts that produce results

of value to the maritime industry are made available to the industry.

Ship hydrodynamics encompasses hull-form configuration for minimum resistance and maximum

seaworthiness, frictional resistance of the hull, propulsion system performance, interaction between

propeller and hull, performance of maneuvering

system elements (including rudders and maneuvering propulsion devices), performance of bilge keels

and other antiroll devices, and hydrodynamically

induced noise and vibration. The U.S. Navy has

active R&D in all of these areas, including both inhouse R&D and contract work under the General

Hydromechanics Research Program. 18 The results

of these programs are generally applicable to merchant ships and, except for a few programs related

to hydrodynamic noise, most results are available

directly to the maritime industry through reports.

The only hydrodynamic research probably required on merchant ships that is not covered by

U.S. Navy programs is that related to inshore maneuvering and docking in rivers and harbors, particularly of large-beam, shallow-draft vessels. However, there is research on ship mooring loadings

sponsored primarily by the Naval Facilities Engi-

‘

8

’’ General Hydrornechanics Research Program, ” fiscal year 1983,

Ship Performance Department, David W. Taylor Naval Ship Research

and Development Center.
Ch. 5—Status and Trends in Ship Design and Operating Technology ● 135

neering Command, and the results of work in this

field are equally applicable to both naval vessels and

merchant ships, In fact, the U.S. Navy has a specific interest in merchant ships that are moored for

long periods at advanced base locations as part of

the Rapid Deployment Forces supply system. 19

Navy structures research that is related to merchant ships is carried out primarily by the NAS

Structures Committee, which the U.S. Navy sponsors through both the Naval Sea Systems Command and the MSC. Other research on ship structures carried out by the U.S. Navy in its own laboratories and under contract is devoted generally

to studies of special materials or to structures subjected to high-submergence pressures. This latter

work is not of any particular interest in merchant

ship construction.

Shipbuilding productivity is of as much interest

in the construction of naval vessels as in the construction of merchant vessels. The U.S. Navy has

supported the joint SNAME/MarAd/Industry programs and also has encouraged private shipyards

to incorporate high-productivity techniques in naval

construction. Several technological advances in this

area have been attained on military construction

projects. 20 Many yards have adopted computeraided design and manufacturing (CAD/CAM) systems in some portion of their operations. Several

yards have begun implementing zone construction

and outfitting techniques, in some cases utilizing

Japanese consultants to evaluate the most suitable

process. Since the U.S. Navy is now, and for the

near future will continue to be, the principal

customer for U.S. shipyards, productivity improvements here are most important to reduce the cost

of military ships.

Computer-Aided Design and Manufacture

The term CAD/CAM is commonly used to refer

broadly to the use of computers in industrial design

and manufacturing. Currently the most sophisti-

‘“ Forces and Moments on Ships To Be Moored at Diego Car- (. ia ~ ~ prepared by Robert Taggart, R’I’-4 1401, submitted to

Chesapeake Dl\ision, Ocean Engineering and Construction Project

Office, Na\al Facdlt]cs Englnecring Command, July 1980,

20’4Shipbuilding Producti\it): Something is Being Done, discussion b) Peter F.. Jaquith, Bath Iron Works, panel discussion at the

joint AS.NE, Flagship/S.NAhl E, Chesapeake Section mcetlng on Jan.

18, 1983

cated systems are ‘‘integrated information systems’

that encompass product definition as well as engineering and manufacturing configuration control.

It is recognized now that a key factor in the successful utilization of CAD/CAM technology is developing a product definition database with the

ability to communicate with other information systems. During the past decade, MarAd and the U.S.

Navy have been promoting the transfer of this technology into the shipbuilding industry. Directly and

indirectly as a result of these efforts, a variety of

incompatible software systems have been instituted

and now must be integrated.

A recent study conducted for the U.S. Navy by

the National Research Council (NRC) found that

new applications of CAD/CAM in the last decade

have resulted in applications over a broad range

of industries internationally. Over 25,000 workstations are in use worldwide in all industries today. The Navy Shipbuilding Technology Committee of NRC concluded that less than 500 CAD/

CAM workstations are in use by the U.S. Navy

and shipbuilders in the United States currently. The

major findings of the committee were:

●

●

●

Navy and MarAd support for NSRP should

be continued;

the productivity of the U.S. shipbuilding industry for commercial vessels is one-half that

of foreign competitors. Naval vessel construction productivity was not evaluated; and

CAD/CAM applications in U.S. shipyards

have resulted in reductions in fitting and welding costs to date. The U.S. Navy is in a good

position to resolve CAD/CAM issues to foster

its rapid application in shipbuilding in conjunction with the industry.

The NRC study specifically recommends CAD/

CAM technology as a method for improving the

relative productivity of shipbuilding design and production. Computer hardware and software companies in the United States have developed stateof-the-art CAD systems that have an important

share of the world market. U.S. commercial yards

utilize this technology to some extent. NRC esti-

‘“ ‘Productivity Improvements in U.S Naval Shipbuilding, ” Committee on Navy Shipbuilding Technology, Marine Board Comm isslon on Enginccnng and ‘lTechnical Systems, National Research Council, Nat ional Academy Press, Washington, D, C,, 1982.
136 ● An Assessment of Maritime Trade and Technology

mates that 1 to 5 percent of shipbuilder design and

drafting tasks are conducted with CAD assistance.

Additional tasks can be incorporated in the future

when database information necessary to utilize the

CAD system potential becomes available.

The U.S. Navy, both inhouse and through design agents, creates thousands of drawings and

design reports when designing a ship and establishing its specifications. These are then passed to the

contracted shipbuilder in paper form as a design

information package. The same hull geometry is

redrawn and manipulated by many engineers and

designers in different organizations prior to shipbuilder preparation of production plans. The shipbuilder then manually reviews the design paperwork to complete material and equipment ordering, develop schedules, and other activities. To

date, computers have been used for such design

calculations as preparing hydrostatic curves, powering and stability analysis, longitudinal strength

calculations, structural design, and structural finiteelement analysis.

The use of integrated CAD/CAM has not been

implemented fully in the world shipbuilding industry. However, according to a report prepared by

A & P Appledore, Ltd., for this study, the European, Japanese, and Korean yards are considerably

more advanced than U.S. shipyards at the present

time. 22 The Appledore report concludes ‘‘a necessary adjunct of installing CAD/CAM is that all

design and drawing offices and the loft (shipyard

layout functions) must be brought together. ” While

shipbuilding shares many design and construction

requirements with other production industries, it

has

●

●

three unique features. They are:

the use of a single set of technical and production resources with overlapping contract cycles.

The products of a typical production line often

are quite different from one project to the next.

Completely standard ships and series production are more the exception than the rule;

the large variety of hull-surface geometries that

must be matched with hull-volume and payload constraints; and

ZZ’ ‘Technjc~ and Capability Developments in Shipbuilding,

prepared for the Office of Technology Assessment by A & P Appledore

Ltd., Document No. OTA: OOO1, November 1982.

● the amount of data required to generate an accurate definition of the spatial geometry of the

hull and its stiffening structure and foundations is very large compared to other industries.

The potential benefit of CAD/CAM technology

to the shipbuilding industry is improving productivity by reducing the direct labor contribution and

facilitating coordination of management and engineering functions during the shipyard production

phases. Reliance on the traditional paper mode of

product description produces a slow rate of information flow. Tighter schedules and increased control of production results from increased information flow. Real productivity improvements can be

realized from more efficient planning, scheduling,

and sequencing of the work processes of manufacturing, inspection, and testing of the ships’ subassemblies.

CAM packages have been developed in a number of countries (including most West European

shipbuilding countries, Japan, and the People’s

Republic of China), but with initial use in their

domestic yards only.

Now, however, a number of them are being exported. AUTOKON (from Norway) and FORAN

(from Spain) have the highest export sales. Japan

has actively promoted the export of their shipbuilding technology abroad. A Japanese shipbuilder, Ishi Kawajima, Harima Heavy Industries

Co. (IHI), is under contract to Avondale Shipyard

and Bath Iron Works. Several U.S. yards have acquired versions of the Norwegian AUTOKON system as well as a number of additional systems. Examples of systems used by U.S. yards are:

Avondale:

CADAM (drafting system) by Lockheed Corp.

AUTOKON by SRS, Norway

SPADES by Gali Associates, United States

Newport News:

CADMAN by Lockheed Corp.

AIDS (topological model) by Italcantieri, Italy

AUTOKON by SRS, Norway

AD 2000 (drafting system), by Newport News

Electric Boat:

AUTOKC)N by SRS, Norway

AIDS by Italcantieri

CADDS 4 (drafting system) by Computer vision

Each shipyard now must integrate the variety of

software they own; however, no U.S. shipyard has
Ch. 5—Status and Trends in Ship Design and Operating Technology ● 137

accomplished the necessary integration. Appledore,

in its report to OTA, identified the importance of

focusing on a broader range of database and software capabilities to obtain the full potential savings from CAD/CAM implementation. Increased

productivity accrues from creation of one common

database and then using it in several different shipbuilding applications such as lofting, weight estimating, vibration analysis, hull geometry, lines

definition, material requirernents, and production

management. Major U.S. companies in other industries such as General Electric Corp., Boeing

Corp., and General Motors Inc. are committed to

moving from product definition on paper to product definition in electronic form. Today the most

sophisticated systems are part of integrated information systems that encompass product definition,

engineering configuration control, manufacturing,

purchasing, materials planning, quality assurance,

and customer acceptance testing.23 A system for

shipbuilding would include the following typical

modules:

 geometric design and manufacturing:

— steelwork geometry and hull-form generator,

—piping and electrical cable-routing system,

—accommodation design system;

● design analysis:

—naval architectural design analysis,

—finite-structural-element model-analysis

package; and

. management information and control:

—material/drawing/work information database,

—contract management package (network

analysis)

—purchasing and expediting system,

—man-hour recording and job scheduling system,

—material control system, and

—estimating and forecasting system

Technological Innovation

Technological innovations in ship production and

ship operation do not necessarily stem from R&D

programs such as those cited earlier. These innova-

‘

3

’ ‘Productivity Improvements in U.S. Naval Shipbuilding, ” op.

cit. , p. 47,

tions often are the result of an operator or design

office observing a requirement or a potential market

and evolving a design, selecting from available

R&D results, to meet the need. This results in an

innovation moving from the drawing board to shipyard production and into operation. Classic examples of this are the containership, LASH, Seabee, and the various seagoing tug-barge systems.

Incorporation of technological innovations applies

to subsystems as well as to total ship systems, e.g.,

the Ebel mechanical guy or split-vang cargo-handling gear, dockside container-handling systems, and

bow thrusters for inshore maneuvering control .24

There seems to be no apparent reason why this

trend will not continue to apply in the future as it

has in the past.

This is not to say that R&D programs are not

important but that they should be recognized for

what they are. As an example, laser photogrammetry is a development resulting from the combination of research on lasers and research in the science

of obtaining reliable three-dimensionial measurements from photographs. When laser photogram -

metry is applied to the fabrication and precise

mating of two hull sections in a shipyard, this

becomes an innovation in ship production technology.

Federal Role in R&D

There is obviously some overall national need

for maritime R&D. An important part of such research should be a continuing assessment of those

areas where technological innovation can be applied

to acquiring a greater share of the world maritime

transportation market and a greater share of the

world shipbuilding orders. Additionally, the R&D

should include an ongoing evaluation of the work

going on in marine and other fields (both U.S. and

foreign) that can contribute to applicable technological innovation. This should be supplemented

by programs to incorporate these innovations into

design, production, and training programs that

would lead to building and manning ships, as well

as selling ships to other maritime powers to assure

the United States an improved posture in world

shipbuilding and ship operations. Both long-term

24’’Inno\ation in the hfaritimc Industry, op. cit.

25-417 0 - 83 - 10 QL 3
138 ● An Assessment of Maritime Trade and Technology

financial support and a research plan are needed

to assure effective utilization of resources.

There are several basic problems associated with

existing Federal maritime R&D programs. First,

since there is no comprehensive policy defining the

Federal role in maritime affairs, there also is no

clear policy regarding the Federal role in maritime

R&D. While the Federal approach to industry promotion has changed drastically in recent years,

there appears to be little attention given to the

resulting effect on R&D. The program now under

the authority of MarAd has no clear focus nor set

of long-range goals. This program is much too small

to be expected to address in depth the broad range

of technical problems in the maritime transportation business. Furthermore, there is no rationale

for selection of a few projects as worthy of Federal

support while others are left for industry or some

other research enterprise. For example, the MarAd

program is skewed toward supporting an expensive computer-aided ship-maneuvering-simulation

facility that has several counterparts in industry.

And, shipbuilding productivity research, while a

good program, is difficult to justify as a MarAd effort when U.S. shipyards are building only military

ships, and a major MarAd policy initiative is to promote foreign building of U.S. merchant ships.

For the future, it would be useful to define the

Federal role in maritime R&D before additional

funds are allocated and before a program is designed. As discussed in this chapter, near-term

needs for energy-saving and automation technology

are being addressed by numerous industries and

private research groups worldwide. A broad range

of new maritime technologies have been developed

in a number of other countries and are readily

adaptable. The U.S. Navy and other Federal agencies spend considerable funds on basic and applied

maritime research problems, and applicable data

can be transferred.

The future Federal role in maritime R&D should

be based on a few overall principles:

●

●

●

●

the Federal role in R&D should be a subset

of an overall maritime policy;

the Federal research effort should consider and

exclude what U.S. industry can better do itself.

There may be considerations of indirect incentives for industry R&D;

the Federal effort should include methods of

coordination and transfer of technology within

the industry and from military, foreign, and

other sources; and

the Federal effort should focus on long-range

problems and high-risk areas that are not addressed adequately by industry or elsewhere,

the solution of which could contribute to overall national goals.
Phoio credif” Sea-Land /ndustries
Contents

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Development of Maritime Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

General History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

Policies for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

Comparison With Other Transportation Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146

U.S. Coast Guard Safety Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

Subsidy Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152

Maritime Regulatory Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157

U.S. Shipping Taxation Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160

Cabotage Po!icies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168

TABLES

Table No. Page

39. Comparison of U.S. and U.S.S.R. Merchant Fleets . . . . . . . . . . . . . . . . . . . . . . 146

40. Maritime Subsidy Outlays—1936-80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154

41. U.S. Shipyard Orders, 1970-81, Financed Under Title XI Program ....,... 155

42. “BuyAmerica” Comparisons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Chapter 6

U.S. Maritime Policies

OVERVIEW

An array of Federal policies and programs has

been established in the past with the goal of aiding,

assisting, or promoting the U.S. maritime industry.

It is widely held that most of these policies are ineffective under current conditions and that major

changes are needed. Some significant changes, most

notably in funding cuts of subsidy programs and

relaxing of some ‘‘buy America’ provisions, have

been instituted by the present administration over

the past 2 years. Also, a regulatory measure to provide increased antitrust immunity and greater flexibility for U.S. liner operators to compete with

foreign shipping is working its way through Congress. *

However, many argue that the United States has

no overall, coordinated, consistent, and effective

maritime policy that is based on today’s challenges

and problems of future survival for the U.S. maritime industry, nor is it directed toward assuring

that future national needs are met. Clearly, existing

maritime policies are a patchwork. The Federal role

in maintaining an industrial base, assuring competition, and coordinating national and interna-

“The Shipping Act of 1983 passed the Senate as of Apr. 4, 1983.

tional initiatives, is poorly defined. The administration has spent 2 years in an attempt to articulate

a new maritime promotional program. The result

has been announcements of a variety of program

elements with a promise of more to come. 1 Several

of these elements were incorporated in a draft bill

to amend the Merchant Marine Act of 1936 and

were submitted to the Senate on April 8, 1983.2

The legislative package is being considered in H.R.

3156 in the House and in S. 1038 in the Senate,

This chapter will describe briefly the development of the more significant maritime policies that

exist or are part of major current debates. It will

also discuss some important future considerations

covered in previous chapters and will compare existing maritime policies with other transportation policies. Separate sections will discuss subsidy policy,

maritime regulatory policy, taxation policies, and

cabotage policies.

‘See “Initial Elements of Maritime Policy Announced by DOT, ”

May 1982; and ‘ ‘Lewis Announces Additional Elements in Administration Maritime Policy, August 1982.

‘Letter from Secretary of Transportation to President of the Senate,

Apr. 8, 1983.

DEVELOPMENT OF MARITIME POLICY

General History

It is possible to trace maritime policy development from the beginning of the Nation. For example, in his second annual address to Congress on

December 8, 1790, President George Washington

said:

I recommend it to your serious reflection how

far and in what mode, it maybe expedient to guard

against embarrassments from these contingencies,

by such encouragements to our own Navigation as

will render our commerce and agriculture less

dependent on foreign bottoms. . . .

One of the first acts of the First Congress of the

United States dealt with the promotion of industry,

trade, and shipping. Between 1789 and 1828, over

50 additional statutes and commercial treaties were

approved to protect and promote American shipping. Since that time, Federal assistance in support of the Nation’s maritime industry has been

a constant of Government policy, including the

Tariff Act of 1789, the Cabotage Law of 1817, the

141
142 . An Assessment of Maritime Trade and Technology

Reciprocity Act of 1828, Government mail contracts in 1845, the Subsidy Act of 1891, the Military

Transportation Act of 1904, the Shipping Act of

1916, the Merchant Marine Act of 1920, the Merchant Marine Act of 1928, the Intercostal Shipping Act of 1933, Public Resolution 15 in 1934,

the Merchant Marine Act of 1936, Public Laws 480

and 664 in 1954, the Merchant Marine Act of 1970,

and the Trade Act of 1974.3

Since the 1930’s, U.S. maritime policy and the

development of U.S. maritime industries have been

influenced heavily by the philosophies of Admiral

Alfred T. Mahan, which were published in 1918

in his book, The Influence of Sea Power Upon

History, 1660-J783. In essence, Mahan held that

national power was dependent on sea power and

that sea power consisted of merchant ships, naval

vessels, and the necessary supporting bases and industries.

Prior to the passage of the Merchant Marine Act

of 1936, the U.S. merchant marine was at a low

ebb. Inconsistent Government policies had discouraged capital investment, and a subsidy system tied

to mail contracts proved to be ineffective. The Merchant Marine Act of 1936 was modeled after the

Mahan philosophy and provided for Government

subsidies to U.S. maritime industries.

Following 1936, the role of the maritime industries was perceived as vital and heroic during World

War II and the Korean and Vietnamese conflicts.

The performance of the maritime industries in

World War II enabled America to sustain a twofront war across both the Atlantic and Pacific

Oceans. Due primarily to the running start afforded

by the Merchant Marine Act of 1936, the country

produced 5,500 merchant ships for the war effort.

Both the shipbuilding and operating industries

cooperated in the construction and operation of the

wartime merchant fleet. The merchant marine was

the only civilian industry directly exposed to the

combat of war. The extent of the involvement is

evidenced by the fact that by 1943 there were a total

of 130 ship-operating organizations, called general

agents, serving the U.S. Government. * The U.S.

—

‘Irwin M. Heine, “The United States Merchant Marine: A National Asset’ (Washington, D. C.: National Maritime Council, July

1976).

4McDowell & Gibbs, Ocean Transportation (New York: McGrawHill, 1954), p. 452.

Army utilized 330 ports of debarkation for over 7

million troops and 268 million tons of cargo.5 With

only 14 percent of the world’s merchant tonnage

at the start of World War II, the U.S. fleet grew

to 60 percent of the world tonnage after the war.

The experience of World War II is relevant because

it has a profound and continuing influence on the

policy and performance of our maritime industries.

In all statements of policy or purpose of past major maritime legislation, the national defense is

mentioned first. This is not surprising when the

timing of the acts is considered. The Shipping Act

of 1916 followed the outbreak of World War I in

Europe in the summer of 1914. At the time, the

United States was dependent on foreign-flag vessels

for 90 percent of its foreign trade. As foreign vessels

disappeared from the sea lanes, U.S. cargoes were

left rotting on the piers. In August 1914, Congress

acted to allow the registration of foreign-built ships.

By 1916 the experience was fresh in the minds of

both the public and the legislators. The motives

underlying the legislation of 1916 were stated in

historical texts as “fear of trusts and monopolies;

realization of inadequacy of the U.S. fleet for commerce, particularly in times of emergency. . . .‘‘G

The Merchant Marine Act of 1920 was enacted

basically to dispose of Government-owned ships

constructed for World War 1, most of which were

delivered after the war was over. Here again, this

policy was conceived and enacted in a war environment.

The Act of 1936 was passed at a time when Europe was on the brink of war, and the United States

saw the need to prepare. The Act of 1936 resulted

after 15 months of debate and the compromise of

many disparate points of view. Although the pending war was the primary motivation behind passage

of the act, it included promotional features which

encouraged investment in both the operating and

building industries.

In retrospect, the Act of 1936 was most appropriate for the times. The policy it espoused served

the Nation well in the ensuing 10 years. It was undoubtedly the headstart afforded by the Act of 1936

that allowed the United States to respond so rapidly

51bid. , p. 445.

‘Ibid., p. 412.
Ch. 6—U.S. Maritime Policies ● 143

to the merchant ship demands of World War II.

The Act of 1936 was a useful policy for its time,

but many believe that its time is past.

Policies for the Future

In the future, the most effective U.S. maritime

policies will be those that can respond to changing

conditions of the industry and competition, changing conditions of trade and technology, and changing conditions in the international arena.

Virtually all maritime nations provide direct or

indirect aid to their merchant fleets and shipbuilding industries. Assistance may include operating subsidies, construction subsidies, trade-in

allowances, official low-interest loans, interest subsidies, official loan guarantees, accelerated depreciation, tax-free reserve funds, duty-free imports of

required materials, cargo preference, and cabotage.

In addition, social, economic, and political assistance may be provided. Examples include schools

for training merchant seamen, hospital and medical

care for seamen, social security family payments,

and laws requiring that materials and component

parts for ships be acquired from domestic sources.

A recent report prepared by the Maritime Administration (MarAd)7 describes maritime policies

of 48 nations. It contains examples of many approaches to industry assistance, reflecting the concern of other nations for the support of their merchant marine. It should be recognized that the

international competitive nature of shipping and

shipbuilding makes it imperative to consider relative

influences of many other governments on the viability of the U.S. maritime industry.

Industrial Changes

Some recent analyses have concluded that major changes have taken place in industrial America.

Plants and factories that closed because of reduced

consumer demand are being replaced by modern,

more automated facilities or, in many cases, the

work has been exported to low-cost foreign countries. Several recent studies claim that the United

States is in a transition period from an industrial

society to an information-based society and that the

— — —

‘U. S. Maritime Adm inistrat ion, ‘‘Maritime Subsidies, February

1983.

production of industrial hardware is irretrievably

moving out of the country toward those countries

with low wage rates.

The same studies project that the U.S. economy

is moving away from self-sufficiency and that all

the industrialized countries, including Japan and

Germany, are deindustrializing. There appears to

be some evidence of this in the maritime field with

Korea emerging as the second largest shipbuilder

in the world and with significant amounts of its

business diverted from Japan.

The predictions about U.S. deindustrialization

could significantly affect the maritime industries.

An example is the well-known disadvantage of highcost labor in both our ship-operating and shipbuilding industries. Despite a myriad of studies with

proposed solutions, the problem remains as chronic

today as when it was first perceived. Therefore,

some believe that the tide of inevitable change in

our maritime industries will be met from the bottom up by entrepreneurs and scientists with creative

new solutions.

It appears that if U.S. ship operators are to compete in the future, it will require new breakthroughs

in vessel design and system operation that increase

efficiency and system capabilities. Shipyards, as

well, will become competitive only through innovative approaches, products, or marketing. Future

policies— if they are to benefit the Nation—must

allow and encourage a high degree of innovation.

National Defense

The future of the maritime industry is important to the national defense. The Department of

Defense (DOD), with assistance from MarAd, is

in the process of defining specific national defense

needs for ships and shipbuilding. Two separate

studies were initiated early in 1983. One addresses

the possible wartime demands for and existing capabilities of the U.S. shipyard mobilization base, and

the other examines similar demands and capabilities

of the U.S. sealift (merchant shipping) base. Neither was released as of September 1983, but initial

findings of the shipyard study were discussed in a

paper in May 1983.8 Policy proposals in that paper

— —

‘R. V. Buck, ‘ ‘Maritime Policy Formulation: Preservation and

Enhancement of the Maritime Industrial Base, ” presented to the

Senior Officers’ Forum, Naval Amphibious School, May 1983.
144 ● An Assessment of Maritime Trade and Technology

varied from support for broadly based cargo preference to preserving the Jones Act to suggestions

for more study.

The second study—examining sealift needs and

capabilities— is based on a projected scenario specifying military requirements to deploy and support

forces under wartime conditions. The requirements

do not include support to U.S. mainland industry

or civilian activities. The study assumes that ships

of several fleets-Military Sealift Command (MSC)

fleet, U.S.-flag active commercial fleet, U.S.

defense reserve fleet, fleets of U.S. allies, and the

U.S. Effective Control fleet-all would be available under appropriate time constraints. The general conclusion of the sealift study, as discussed informally, is that the collection of all shipping assets

that probably would be available to the United

States in a national emergency are “marginally inadequate .

Following the release of both of these reports,

DOD intends to conduct a separate analysis of

specific national objectives to support a certain level

and type of a shipbuilding and sealift base to meet

the defense needs described. The method of support of those objectives are key elements in any

future U.S. maritime policy. The release of both

reports is scheduled for late 1983. They should serve

to clarify defense needs and identify approaches to

meet those needs.

Although there is continuing discussion of the

need for an active shipbuilding base and a strong

merchant marine to serve the national defense, the

concepts most often discussed are those of World

War II and before. In a future war, there may be

very different needs. Major conflicts today might

result in the use of nuclear weapons; limited conflicts would require an existing force. This latter

capability, insofar as it involves merchant vessels,

probably can be met through continuous purchases

of new and existing vessels for both operations and

reserve. Whatever scenarios are postulated, policies

must include a realistic appraisal of shipping and

shipyard capabilities, a commitment of resources

to maintain acceptable levels, and careful and continuous evaluation and support of the necessary

reserves.

‘Meet ing with staff of the Secretary of Defense, Office of Program

Analysis and Evaluation, July 27, 1983.

Although the Merchant Marine Act of 1936 cited

a ‘‘Declaration of Policy, the exact meaning never

has been defined in terms of specific national goals

for maintaining a merchant fleet adequate to serve

in a national emergency. Many believe that relatively few ships under U.S. registry today have the

genuine capability to meet military needs. Containerships rarely are equipped with cranes to handle

their cargo. There are few heavy-lift, breakbulk,

or roll-on/roll-off (RO/RO) ships under U.S. registry, though these types are very useful for carrying military cargo. Industry spokesmen have suggested that defense features should be incorporated

and continually maintained on the U.S.-flag fleet

and that DOD should bear the cost of these features.

One of the most expensive national defense features (for large merchant ships) is the requirement

that they be able to maintain cruise speed with a

U.S. Navy task force deployed in time of war. In

light of current design trends, it appears that the

ability to maintain such cruise speed at adequate

range will not always be present in ships constructed

to be competitive on the open commercial market.

Such considerations of defense requirements

needs to be more completely defined to devise national and international policies to satisfy those

needs.

The U.S.S.R. Comparison

The Soviets have a large, modern, and diversified oceangoing merchant fleet consisting of 1,727

ships totaling about 19 million deadweight tons

(dwt) (as of April 1983). While the number of ships

is over three times the U.S.-flag fleet, the total tonnage is nearly the same. The Soviets, however, appear to have been much more successful than the

United States in developing and maintaining a

strong merchant fleet that has substantial military

support capabilities. In addition, the Soviets recently have expanded their capabilities of serving commercial worldwide trade and, by offering low rates,

have made substantial advances as cross-traders.

After the Cuban missile crisis in 1962, the

U.S.S.R. carried out a series of fleet expansion and

IOSee ‘ ‘Recent Figures and Movements of Soviet Merchant Marine, a research department report by Mitsui OSK Lines, Ltd.,

November 1982.
Ch. 6—U.S. Maritime Policies 145

modernization plans. As a result, the Soviet merchant fleet showed a fivefold increase to 1981. The

growth in size of the fleet has slowed in recent years,

but there appears to be a trend toward modernizing and diversifying—especially with additions of

new flexible types of ships—RO/ROs, barge carriers, heavy-lift ships, and containerships—all of

which have significant military adaptability as well.

The Soviets have been quick to recognize the military significance of these new commercial-type

ships. Their fleet contains 50 RO/ROs totaling

510,000 dwt (the third largest RO/RO fleet in the

world) plus a number of smaller vehicle/train ferries. The RO/ROs have stern ramps and decks

strengthened to carry tanks. The newest designs,

some of which are now under construction, have

service speeds of 20 knots and ranges of up to

20,000 nautical miles. This compares to the U.S.

fleet of 25 RO/ROs, totaling 380,000 dwt.

“% “ ?$l

The Soviets possess five heavy-lift ships and five

barge carriers of two types, both constructed in

Finland. The lighter-aboard-ship (LASH) type

carry 26 barges. The smaller type can carry either

barges or patrol craft, and have heavy-lift capability. They are equipped with 350-ton-capacity gantry cranes. Also, construction of a new nuclear-powered LASH is almost completed. The Soviet containership fleet consists of about 125 vessels. Nearly

all of their containerships have the ability to offload without port assistance.

The Soviet’s new Five-Year Plan (1981-85) includes construction of many modern specialized

ships replacing the older, smaller, general cargo

ships. The trend is toward a smaller number of

larger, more specialized ships with only modest

growth in total fleet tonnage. To be completed by

1985 are about 250 vessels, including 50 containerships, 64 RO/RO ships, heavy-lift and barge car-

.

\

1 -

.

Photo credit: U.S. Navy

The Russian fleet of RO/RO ships is one of the largest in the world
146 ● An Assessment of Maritime Trade and Technology

riers (including nuclear-powered icebreaking designs), and over 1 million dwt of tankers.

Table 39 shows a comparison of the U.S. and

U.S.S.R. merchant fleets as of April 1983. Of

course, the Soviet merchant fleet is operated by the

State under a system different from that of a free

economy. This means that commercial operators

from the United States and the rest of the free world

cannot compete on an equal footing. Most of the

Soviet merchant fleet is maintained within the

U. S.S. R Navy’s budget, and crewmen of merchant

and naval ships are regularly exchanged to train

seamen in line with naval strategic objectives.

The Soviet fleet does not operate on a commercial basis but exists to fulfill specific national goals

of: contributing to military strategies, expanding

influence over developing nations, strengthening

maritime transport capacity for its own trades, and

earning foreign currency through cross-trades.

Many of these are similar to U.S. goals, but the

U.S. Government is far less involved in any commercial activities. Therefore, the competitive position of U.S. operators may be influenced substantially by future Soviet actions, especially as they

advance more and more into commercial shipping.

Table 39.—Comparison of U.S. and U.S.S.R. Merchant

Fbets (vessels 1,000 gross registered tons and upward)

U.S. active U.S.S.R.

Type ship (numbeddwt) (numbeddwt)

Cargo. . . . . . . . . . . . . . . . . . 271/4,948,000 1,355/11,647,000

Tanker . . . . . . . . . . . . . . . . . 272/16,167,000 308/7,884,000

Passenger. . . . . . . . . . . . . . 11/62,000 64/142,000

When built:

Cargo:

1982 and prior . . . . . . . .

1983 through 1972 . . . . .

1973 through 1983 . . . . .

Tanker:

1962 and prior . . . . . . . .

1983 through 1972 . . . . .

1973 through 1983 . . . . .

Passenger:

1982 and prior . . . . . . . .

1983 through 1972 . . . . .

1973 through 1983 . . . . .

86

115

70

140

45

87

7

4

0

255

706

394

58

159

91

29

15

20

Speed by type: 14 knots or more:

Cargo. . . . . . . . . . . . . . . . . . 261 884

Tanker . . . . . . . . . . . . . . . . . 259 197

Passenger. . . . . . . . . . . . . . 11 60

NOTE: The US. fleet includes only the privately owned, active oceangoing fleet

(no reserve fleet). The Russian fleet includes only active oceangoing ships.

SOURCE: U.S. Navy, April 1983

U.S. maritime policy must be developed with a

clear understanding of Soviet capabilities and participation in world maritime trade.

Comparison With Other

Transportation Policy

Ocean transportation is a unique transportation

industry, particularly in the foreign trades. Although some parallels can be found between foreign

and domestic transportation, as well as international

air and ocean transportation, in most cases the circumstances differ greatly, and meaningful comparisons are possible only in the academic environment.

To understand the differences, similarities, and

bases for transportation regulation, it is first

necessary to examine the history. The regulation

of transportation in the United States can be traced

directly to the late 1800’s when American railroads

were pushing into the last of the western frontiers.

Between 1865 and 1870, there was an unprecedented burst of construction, centering on the Midwestern and western grain States. Competing lines

were run adjacent to each other, and railroads were

actively recruiting homesteaders to settle the surrounding land in hopes of creating business to pay

for their investments. However, by the mid-1870’s,

the expectations of the new homesteaders had not

been realized, and the railroads rapidly fell into

disfavor. As one text noted, railroads ‘‘were no

longer the pioneers of dawning civilization or the

harbingers of increased prosperity; they were the

tools of extortion in the hands of capitalists. 11

Antagonism toward the railroads and big business eventually culminated in the Act to Regulate

Commerce (1887). This act—now the Interstate

Commerce Act (ICA)—has served as the foundation of U.S. transportation regulation from 1887

until the present. The areas of rate regulation included in the Act of 1887 focused on such railroad

abuses as unreasonable rate levels, service discrimination, rebates, and combines that destroyed competition. The act created the Interstate Commerce

Commission (ICC). Part I of the 1877 Act applied

to railroads; part II, added in 1935, applied to

— .

t 1 F~ir ~d willi~s, The fionomjcs of Tmmportacion (New York:

Harper, 1959), p. 429.
Ch. 6—U.S. Maritime Policies ● 147

. — .

motor carriers; part III, related to water carriers,

was added in 1940; and part IV, treating freight

forwarders, was enacted in 1942. Air carriers were

the only domestic mode of interstate commerce to

remain outside the act.

A rise in freight rates at the turn of the century,

plus continued abuses by powerful business interests, spawned a new round of regulatory bills. In

1903, the Elkins Act sought to improve the enforcement against rebating. The Hepburn Act of 1906

also focused on rebating and allowed the ICC to

set maximum rates. Also, it prohibited carriers from

carrying articles they produced. The Panama Canal

Act of 1912 forbade railroads to own, lease, operate,

control, or have any interest in water carriers operating by way of the canal.

It was against this background of active domestic

regulation of transportation that the Nation began

to focus on waterway transport. At the turn of the

century, there were two aspects of ocean transportation that differed substantially from today. First,

there was an active intercostal and coastal liner

trade that was in competition with the railroads,

and second, the United States, prior to World War

I, was an extremely insular country, with little interest in foreign trade.

The Shipping Act of 1916, the primary regulatory law affecting ocean transport, was prompted

by two specific conditions—the shipping shortage

caused by the initiation of hostilities in Europe in

1914 and the country’s general economic philosophy toward free and open competition. One part

of the Shipping Act of 1916 applies to domestic

transportation, the other to foreign transportation.

For domestic trades, the act applied similar

principles of regulation to domestic water carriers

as were applied to railroads competing for the same

traffic. In the domestic sphere, the 1916 Act followed the lead of the ICA by setting maximum rates

and prohibiting rebates, This authority over coastal

and intercostal water carriers was shifted to the

ICC by the Transportation Act of 1940 (part 111

of the ICC Act).

For international water transportation, the

Shipping Act of 1916 applied some uniquely American regulatory principles to an international

marketplace, However, the so-called Alexander

Committee prepared an Investigation of Shipping

Conditions under H. Res. 587 that preceded passage of the Shipping Act of 1916 and concluded that

conferences and cooperative industry agreements

should be allowed. The following statement was offered in the Alexander report:

To terminate existing agreements would necessarily bring about one of two results: the lines

would either engage in rate wars which would mean

the elimination of the weak and the survival of the

strong, or to avoid a costly struggle, they would

consolidate through common ownership. Neither

result can be prevented by legislation, and either

would mean a monopoly fully as effective, and it

is believed more so, than can exist by virtue of an

agreement. Moreover, steamship agreements and

conferences are not confined to the lines engaging

in the foreign trade of the United States. They are

as universally used in the foreign trade of other

countries as in our own.

Based on the Alexander report, U.S. ocean carriers were allowed antitrust exemption in the 1916

Act under the provisions of section 15. The U.S.

Shipping Board, predecessor to the Federal Maritime Commission (FMC), was given the power to

grant antitrust immunity to shipping conferences

and to approve, cancel, and modify proposed agreements.

The 1916 Act required all carriers by water in

foreign commerce to file rates on all commodities

except those carried in bulk. The remainder of the

act gave considerable attention to the prohibition

of rebating and discrimination.

Any comparison of regulatory and promotional

policies among various transport industries must

be based on the recognition that both are in transition. The domestic air, rail, and motor industries

have been deregulated, including prohibitions concerning common ownership of various modes. Both

the domestic offshore and foreign merchant fleets

are the subject of pending legislation and administrative review.

The term ‘ ‘deregulation, however, has different

meanings and connotations when applied to different industries. For example, domestic air, rail, and

trucking deregulation recently has been enacted as

quid pro quo for the reduction of antitrust immunity while, in foreign ocean shipping, the legislative

concept currently under consideration proposes

lesser regulatory controls plus greater antitrust

immunity.
148 ● An Assessment of Maritime Trade and Technology

—

Domestic waterway transportation has been regulated historically by the same principles as domestic rail and motor carrier transportation. There are

some differences and anomalies:

●

●

●

●

●

Where rail and motor carriers have been regulated by one agency, domestic water carriers

have been controlled by two agencies—the

ICC for Great Lakes, inland, and coastal; and

the FMC for noncontiguous areas. For all

practical purposes, there has been very limited

ICC-regulated service because of the demise

of the coastal and intercostal liner carriage

and the lack of Great Lakes package services.

Inland waterway service generally has consisted of bulk carriage, which is exempt. In recent years, increasing levels of Alaska trailer

and container traffic have moved under ICC

tariff as substitute water-for-motor carriage.

Recent court decisions also have permitted

ICC regulation of rail/water and motor/water

intermodal carriage in the offshore trades (e. g.,

Puerto Rico),

Regulation of domestic water carriers, where

it has been exercised, has been primarily in

maximum rate regulation, financial responsibility of passenger carriers, and in collective

agreements, However, there are no conferences in the domestic trades. Historically,

other domestic modes have been subjected to

a higher degree of rate regulation, plus entry

and abandonment regulation.

Domestic water carriers are required by the

Jones Act to employ U.S.-built vessels,

manned by U.S. citizen crews, and owned by

U.S. citizens. This restriction does not apply

to the same extent to domestic rail, motor, and

air carriage.

In terms of promotion, domestic water carriers

have had the benefit of Government aid in harbor improvement and aids to navigation. Subsidized vessels, however, are not allowed to

serve the domestic trade except on waiver.

Motor and rail carriers also have received significant Government aid in the form of highway construction and maintenance and in

original land grants to railroads.

The comparison of domestic water carriers

with domestic air carriers is less relevant because the latter is engaged primarily in passenger transportation, while domestic water

carriers engage almost exclusively in cargo

bulk transportation. Historically, domestic air

carriers have been more closely regulated than

domestic water carriers, although the regulation of’ air carriers has been greatly reduced.

Regulation and promotion of the shipbuilding

industry can be compared with the aerospace and

transportation equipment industries. Generally,

there are few differences in terms of regulation,

albeit different agencies are involved in approving

the safety of the products they produce. In the promotional area, both the aerospace and shipbuilding

industries benefit from military spending. The shipbuilding industry is unique in that it has been subsidized in the past through a construction differential subsidy (CDS) awarded to operators to cover

differences in cost between U.S. yards and competitive foreign yards. The U.S. shipbuilding industry also is afforded a captive market by the Jones

Act and benefits from other ‘‘buy America’ policies

not prevalent in the other transportation equipment

industries.

In the international sphere, U.S. ocean carriers

are subject to the provisions of the Shipping Act

of 1916 and regulated by FMC. In comparison with

domestic surface carriers, the U.S. internationalocean-carrier industry operates in an international

market with unlimited entry, numerous stateowned or state-subsidized carriers, and a long history of accepted traditions and business customs.

The U.S. international air carriers are similar

to U.S. international ocean carriers in that they

operate in an international market, but they are

dissimilar in that their major concentration is in

passenger services as opposed to cargo services. In

addition, international air carriers operate within

a regime of bilateral agreements setting the rules

for air commerce, while in shipping there are few

intergovernmentally agreed on rules of competition.

In comparing domestic-surface-carrier regulation

with U.S. international-ocean-carrier regulation,

the differences have been primarily in the regulation of the entry of carriers and in rate regulation,

with the domestic regulations being the more stringent. FMC has no authority to set or approve rates

of ocean carriers in foreign trade but does require

the filing of tariffs. Relative to the internationalair-carrier and domestic-surface-transportation in-
Ch. 6—U.S. Maritime Policies . 149

dustries, the U.S. international-ocean-carrier industry has been comparatively unregulated.

U.S. Transportation Regulatory

Concepts v. an International Market

The principal point in comparing domestic and

international regulation is that the regulatory

remedy for a domestic industry where all players

can be regulated equally is completely different

from the international arena where most of the players do not recognize American rules and usually

cannot be forced to comply. The area of antitrust

prohibitions and rebates has been the most troublesome. Even though the legislative history of the Act

of 1916 shows that the framers of the act recognized

the unique nature of international shipping and

gave authority to the regulatory agency (i.e., FMC)

to grant antitrust exemptions, the Justice Department frequently has fought the granting of such exemptions. Foreign carriers serving the U.S. trades

are more likely to receive immunity to collaborate

and rationalize their services than U.S. carriers.

Attempts to do so by U.S. carriers have been met

with stringent and frequent Justice Department

protests and Government-initiated and financed

litigation, as in the case of the attempted U.S.

Lines/R. J. Reynolds merger. Deferred rebating,

a common practice in ocean shipping worldwide,

is prohibited in the U.S. trades and stringently enforced.

Prior to 1977, a number of U.S. and foreign

companies allegedly engaged in illegal rebating activities within the established liner conferences of

the time. FMC investigated these activities and,

between 1977 and 1980, settled claims against 27

liner operators (21 foreign and 6 U. S.) and against

almost 100 shippers. The amount of the individual

claims ranged from about $5,000 to $4 million and

totaled $15.6 million. The claims settled with the

6 U.S. liner operators totaled $7.4 million and with

the 21 foreign liner operators totaled $5.1 million. 12

Many believe that this example illustrates the disparity of treatment of U.S. v. foreign operators

under U.S. law. Certainly, in this case, foreign

operators dominated the trade (by factors of two

to three times) and were suspected of a major share

of illegal rebating. Yet claims settled were much

less. The contention is that U.S. laws cannot be

evenly enforced in such an international business,

and U.S. operators have a resulting economic disadvantage.

IZData on claims set~ed as of Dec. 31, 1980, obtained from the Federal Maritime Commission, GeneraI Counsel’s Office.

.

U ..&

. . *

. . . .

. .*

. ,, ,

:-.. .m?s-?z!~ -,. ,

.- ’-%%

--s

--

Photo credit: Pori of New Orleans

A Greek-flag liner ship entering the Port of New Orleans
150 An Assessment of Maritime Trade and Technology

.——

The other anomaly involving the application of

U.S. regulatory concepts is the existence and use

of the Canadian and Mexican gateways. For instance, ocean carriers serving Montreal need not

file tariffs with FMC for U.S. origin or destination cargoes and can form intercarrier agreements

as necessary to serve the U.S. trade without disclosing relationships or receiving FMC approval. Foreign-flag carriers serving the United States through

the Canadian gateway have maximum flexibility

and have been able to charge differential rates, including marginal (noncompensatory) rates, to shippers in order to fill their ships. This same flexibility is not available to U.S.-flag carriers competing

out of U.S. ports. In the United States, rates can

be dropped immediately on filing, but rates cannot be increased without a 30-day filing notice.

Comparison of International Ocean

and Air Regulation and Promotion

In comparing U, S.-flag international-ocean-carrier regulation and promotion with internationalaviation carriage, there are essentially four areas

that can be examined:

. rates and fares;

. mergers and acquisitions;

. entry requirements; and

● promotion.

Rates and Fares. —Both the Civil Aeronautics

Board (CAB) and FMC require rate filing for

scheduled service, and both recognize conferencetype ratemaking, although CAB is backing away

from routine acceptance of International Air

Transport Association (IATA) airline agreements.

By law, both agencies may grant antitrust immunity to ratemaking groups and in practice have

granted this immunity after a hearing and full disclosure. CAB has authority to suspend or reject

rates that are unreasonable, although the President

may override the CAB decision. CAB seldom suspends rates in international service. Also, there are

provisions in most bilateral air agreements that

allow the designated authority to reject rates. FMC

can find that rates are too high or too low and thus

impede the foreign commerce of the United States,

and it can order the carrier to discontinue charging that rate. However, it has rarely exercised this

power over rates in foreign trade. Under the Controlled Carrier Act (CCA), FMC can suspend rates

that it finds unreasonably low, and in fact has done

so in several instances involving the Far-Eastern

Shipping Co., a Soviet-owned cross-trading shipoperating company. Both agencies (CAB and

FMC) regulate against rebates, and law dictates

that both air and ocean carriers must adhere to published tariffs. According to case law, ocean-carrier

rates must cover fully distributed costs.

Mergers. —CAB is required to approve airline

mergers of U.S. airlines, but may be overruled by

the President where international routes are concerned. FMC may not approve U.S. ocean-carrier

mergers that are subject to antitrust laws.

Entry.— There is a basic difference in entry

regulation in that U.S. ports are open to all ships

of all nations (with the exception of some security

considerations at some ports) that adhere to our

laws. Air carriers, on the other hand, are subject

to bilateral agreements limiting the number of

flights and carriers that can enter a country’s air

space and that are granted landing rights.

Promotion. —Promotion includes subsidy and

other measures to assist LT

. S. carriers. Although

CAB is authorized to provide direct subsidy to U.S.

air carriers, as a matter of practice it does not, other

than premiums on mail rates. The authorized aircarrier subsidy may be paid regardless of where the

aircraft were built. On the other hand, most U. S.-

flag ocean carriers are paid an operating differential subsidy (ODS) directly by the Maritime Subsidy Board (as specified in the Merchant Marine

Act of 1936) only on ships built in the United States.

The subsidy is technically a contract in which the

carrier agrees to serve an assigned (i. e., ‘ ‘essential’ trade route and observe other specific operating constraints. However, MarAd is moving to

phase out ODS by not granting new contracts and

encouraging early termination of existing contracts.

As mentionied previously CDS has been paid to

U.S. ocean-carrier operators to cover cost differentials for vessels built in U.S. shipyards. At the current time, no new construction subsidy awards are

being made. There is no construction subsidy counterpart in the aviation industry.

Bilateral agreements reserving cargo also are considered forms of promotion. Aviation bilateral
Ch. 6—U.S. Maritime Policies ● 151

— . —

agreements usually limit competition to carriers of

the two countries and selected third-flag carriers

but do not allocate market share. Equivalent competitive opportunities are afforded. In the maritime

sphere, bilateral agreements tend to specify cargo

shares to be carried by each trading partner. Bilateral agreements are the rule in international air

transport and are the exception in U.S. ocean trade.

U.S. Government-impelled cargo-reservation

policies for U.S.-flag ships could also be compared

to Federal aviation policy, which requires all Government personnel to use U.S. airlines whenever

possible on international travel.

U.S. Coast Guard Safety Regulations

The U.S. Coast Guard (USCG) plays an important role in promoting safety in marine transportation and has specific regulatory responsibilities

in commercial vessel safety. Some of these safety

requirements have been criticized by the maritime

industry as putting undue burdens and excessive

costs on U.S.-flag operators that foreign-flag operators do not have to comply with. Industry examples of these requirements are different for new vessels built in U.S. shipyards than conversion of foreign-flag vessels to U.S.-flag.

The most frequent complaint by the industry regarding new vessels is the increase in costs of both

materials and labor associated with the application

for USCG approval. USCG has not required that

many materials be different from that desired by

an owner or required by a classification society or

Industrial Standard. However, the material control costs have increased because USCG requirements duplicated functions (i. e., certification and

factory inspections) provided by classification societies or Industrial Standards, The net effect is that

‘ ‘off-the-shelf’ components have cost more merely because suppliers must provide evidence of

USCG approval.

Other examples by the industry of burdensome

safety regulations relate to indirect restrictions on

their choice of suppliers. Although not specifically

prohibited, less expensive foreign components may

not be accepted when USCG does not recognize

affidavits from foreign manufacturers. Compliance

with USCG regulations has been shown to add approximately 3 to 4 percent to the construction cost

of a new vessel. 13

The cost impact associated with USCG regulations on the conversion of a foreign-flag vessel to

U.S. flag appears to be even greater. Typical industry claims are that some expenses are required

solely to comply with USCG regulations and not

because of the quality or suitability of the existing

vessel. Examples of reflagging requirements are the

replacement of all joiner work with approved materials (to meet stringent fire-protection standards);

the replacement of lifeboats and lifesaving gear; and

the replacement of electrical wiring. In many cases,

new drawings requiring a lengthy approval process

must be prepared to obtain USCG approval. Shipbuilders have estimated that USCG requirements

can add approximately 4 to 5 percent to the cost

of conversion of a relatively new foreign-flag vessel

to U.S. flag.

In recent years, USCG has responded to concerns that their vessel-safety requirements are too

burdensome compared with other major maritime

nations. For example, USCG now accepts the

American Bureau of Shipping (ABS) and other international classification societies’ plan review,

material certificates, and onsite inspections for both

new and reflagged ships. 14

USCG believes that the commercial vessel-safety

requirements for U.S. ships are coming more in

line with international standards, such as those of

the International Maritime Organization (IMO).

IMO, formerly known as the Inter-Governmental

Maritime Consultative Organization (IMCO), was

established in 1958 through the United Nations to

coordinate international maritime safety requirements. USCG has actively participated in IMO

since its existence and believes that its efforts in the

international arena have resulted in bringing the

safety requirements of most other major maritime

nations up to those imposed by USCG. The Coast

Guard notes that some safety requirements in the

past resulted in overregulating, but those have been

replaced and, in some instances, other shipping na-

—— -— —

IJE, K, pentimonti, American President Lines, Ltd. , personal COrnmunication, Mar. 21, 1983.

I +Nat iona] Advisory Committee on Oceans and Atmosphere

(NACOA), Marine Transportation in the United States, January 1983,
152 An Assessment of Maritime Trade and Technology

tions (i. e., Norway) now have more stringent requirements than the United States.

A 1979 study for MarAd entitled “Cost Impact

of U.S. Government Regulations on U.S.-Flag

Ocean Carriers, found USCG requirement costs

to be smaller than generally perceived. In fact, the

annual operating costs shown due to Coast Guard

regulations were a small fraction of the vessels’ total

operating costs. The report analyzed the increased

costs of two different types of vessels and found the

increase to be less than 0.5 percent of the total cost.

Since the analysis was written in 1979, IMO has

imposed additional safety standards that may minimize the cost differences further.

It appears that what was once perceived as a major competitive detriment for U.S.-flag carriers is

being resolved. However, most of the safety requirements imposed by the U.S. Coast Guard are

based on statutory law, and if any changes to the

existing requirements are needed, they must be

made through legislation.

SUBSIDY POLICY

The Merchant Marine Act of 1936 has been the

base on which the succeeding 45 years of U.S. Government maritime subsidy policy was built. Section 101 of the 1936 Act contains the following declaration of national policy:

It is necessary for the national defense and development of its foreign and domestic commerce

that the United States shall have a merchant marine

(a) sufficient to carry its domestic waterborne commerce and a substantial portion of the waterborne

export and import foreign commerce of the United

States and to provide shipping service essential for

maintaining the flow of such domestic and foreign

waterborne commerce at all times, (b) capable of

serving as a naval and military auxiliary in time

of war or national emergency, (c) owned and operated under the U.S.-flag by citizens of the United

States insofar as maybe 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

shipbuilding and ship repair.

To implement this policy, direct construction and

operating subsidy programs, based on U.S./foreign

cost differentials, were established through the CDS

and ODS programs. Direct cash payments from

the Federal Government were to be provided to

qualified applicants to defray the higher costs of

shipbuilding and operation in the United States.

The law required that subsidized vessels be manned

100 percent by U.S. citizens, while on nonsubsidized vessels the licensed crew had to be 100 percent U.S. citizens, and the nonlicensed crew 75 percent U.S. citizens.

An integral part of the ODS program was the

concept of essential trade routes. Subsidy was provided only for vessels operating on assigned routes

and observing assigned minimum and maximum

sailings in services determined to be essential to the

promotion of U.S. foreign commerce, regardless

of whether these routes were profitable to the lines.

The 1936 Act also included a variety of other eligibility, monitoring, and reporting requirements

as a condition for receiving subsidy. These consisted

mainly of requirements of corporate financial disclosure, as well as domestic trading activities,

foreign shipownership, and other facts relevant to

subsidy eligibility. Another provision precluded

payment of subsidy in support of any service in

competition with another U.S. carrier except in

cases where service inadequacy could be demonstrated.

In addition to the direct subsidy aids provided

under the CDS and ODS programs, the act also

included two indirect assistance programs. First,

earnings placed in Capital Reserve Funds (annual

contributions were required) for new vessel construction were relieved of income tax liability and

could therefore be used to reduce taxation. Second,

the Government’s lending program for ship construction, which had previously existed, was reactivated. Today, the mechanism used is not direct

Government lending but Government guarantee
Ch. 6—U.S. Maritime Policies ● 153

of commercially placed loans. This authority, contained in title XI, was added in 1938.

A variety of defense and security provisions also

were incorporated. Subsidized vessel designs were

to be submitted to the U.S. Navy. Any noncommercial design features recommended by the U.S.

Navy were to be paid for by the U.S. Government.

Subsidized ships were subject to Government repurchase, and provision was made for Government

requisition of privately owned merchant ships under

emergency conditions. Finally, MarAd was required to undertake an annual survey of U.S. shipbuilding capacity with the U.S. Navy to assure the

adequacy of the shipbuilding mobilization base.

In the late 1960’s, a comprehensive overhaul of

the Merchant Marine Act was planned, and on October 21, 1970, the President signed into law

amendments to the 1936 Act, known as the Merchant Marine Act of 1970. In general, it was a reaffirmation of the national policy of Federal support

for the merchant marine. The fundamental policies

remained the same, although several program adjustments were made in the interest of increasing

effectiveness of the program. A specific pledge of

Government support for a 10-year, 300-ship construction program was made.

Authorization was made for payment of CDS

directly to yards, rather than to ship purchasers

only. 15 This was intended to encourage greater shipyard participation in vessel design. It was hoped

that this would lead to greater shipyard productivity.

Negotiated contracts between shipyard and purchaser were allowed for the first time. Previously,

competitive bidding was required. It was hoped that

shipbuilding costs would be reduced by eliminating

expenses associated with bid preparation and that

yards would be encouraged to develop standard

market designs.

Declining CDS rates (i. e., subsidy as a percentage of total cost) were imposed as objectives for all

CDS awards. The goals were a 45-percent CDS

rate in fiscal year 1971 with a reduction in the ceiling of 2 percentage points a year until a level of

35 percent was reached in fiscal year 1976. These

Is u s, Ocem PO1lCY in the 1970 ‘s: Status and Zssues (Washiww

D.C. :“ U.S. Department of Commerce, October 1978), p. V-38.

rates were required for negotiated contracts, while

the Secretary of Commerce could waive them in

competitively bid contracts.

A major innovation was the attempt to encourage

the construction and operation of bulk carriers. Although CDS construction of bulkships had been

authorized since 1952, no bulk vessels had been

built with subsidy as of 1970. The major change

was that bulkships could be granted ODS. Also,

subsidy-eligibility restrictions pertaining to U.S.

owners who also owned foreign-flag vessels were

liberalized to allow bulk operators to replace foreign

tonnage with new U.S. ships within a specified period. Also, restrictions on foreign-to-foreign trading

were liberalized for subsidized bulkships because

of the differences between liner and bulk operations.

The 1970 Act also revised the wage-subsidy provision of the 1936 Act to minimize operating subsidy and encourage collective bargaining. A wage

index was developed, and wage increases in excess

of those allowed by the index were not subsidizable.

The 1970 Act extended eligibility to establish taxdeferred Capital Construction Funds (CCF) to most

U.S. operators, including nonsubsidized carriers.

Previously, only ODS recipients had been eligible.

Although operators could make use of CCFs, taxdeferred funds could be withdrawn only for construction or reconstruction of vessels in U.S. shipyards for deployment in U.S. foreign commerce,

the Great Lakes trades, noncontiguous domestic

trades, or fisheries.

The only other major provision was raising the

title XI guarantee ceiling from $1 billion to $3

billion. Subsequently, it has been raised several

times, most recently to $12 billion.

The 1970 Act was not successful in achieving fleet

growth. Rather than 300 ships built under the CDS

program as envisioned in 1970, 80 were built, with

another 56 converted or reconstructed with CDS

funding.

CDS and ODS were intended to close the gap

between U.S. and foreign costs. In the recent past,

they have not been able to accomplish this. After

a propitious start in the early 1970’s, when CDS

rates on average did fall to the 35 percent goal, rates

began to rise again (reflecting both the U.S. inflation rate and the depressed state of the industry

25-417 0 - 83 - 11 QL 3
154 ● An Assessment of Maritime Trade and Technology

worldwide). As pointed out previously, even a 50-

percent rate—the highest level allowed by law—is

insufficient to close the current differential. (A rate

closer to 65 to 70 percent would be required based

on some recently quoted foreign construction

prices.)

On the operating cost side, the wage index system, implemented by the 1970 Act in an effort to

reduce costs and encourage efficiency, has meant

that wage differentials are not covered totally. Further, maintenance and repairs have not been routinely included in recent ODS contracts. Finally,

fuel cost, which increased dramatically in the late

1970’s to the point where it is a large percentage

of total operating cost, is not a subsidizable expense.

Thus, despite substantial expenditures, CDS and

ODS have not made the U.S. foreign-trade fleet

competitive. Table 40 shows outlays for the two

programs over time.

Shortly after the present administration took office, an interagency task force was set up to examine

current maritime policies and to make specific recommendations for changes. The first major step

was the curtailment initially and then the cutoff of

CDS funding. For fiscal year 1982, no CDS funds

were requested ($49.5 million in carryover funds

were made available), compared with an average

annual request of $132 million in the previous 4

years. It was announced that this was intended as

a phasing out of the CDS program and that in the

future no funding would be made available. Temporary authority (for 1 year) was granted for the

building of subsidized vessels abroad.

On May 20, 1982, Secretary of Transportation

Drew Lewis announced the initial elements of a new

program. He stated the administration’s intent to

honor existing ODS contracts, and other matters

(see app. A). At this time he also announced that

the administration would seek support of an extension of temporary authority for subsidized U. S.-

flag operators to construct or acquire vessels outside the United States and still receive ODS.

In August 1982, the Secretary of Transportation

again stated that the Government would honor existing ODS contracts, but that no new contracts

Table 40.–Maritime Subsidy Outlays–1936-60

Fiscal year CDS Reconstruction subsidy Total ODS Total ODS and CDS

1936-55 . . . . . . . . . . . . . . . . . . . $ 248,320,942a

195W0 . . . . . . . . . . . . . . . . . . . 129,806,005

1961 . . . . . . . . . . . . . . . . . . . . . 100,145,654

1962 . . . . . . . . . . . . . . . . . . . . . 134,552,647

1963 . . . . . . . . . . . . . . . . . . . . . 89,235,895

1964 . . . . . . . . . . . . . . . . . . . . . 76,608,323

1965 . . . . . . . . . . . . . . . . . . . . . 86,096,872

1966 . . . . . . . . . . . . . . . . . . . . . 69,446,510

1967 . . . . . . . . . . . . . . . . . . . . . 80,155,452

1968 . . . . . . . . . . . . . . . . . . . . . 95,989,586

1969 . . . . . . . . . . . . . . . . . . . . . 93,952,649

1970 . . . . . . . . . . . . . . . . . . . . . 73,528,904

1971 . . . . . . . . . . . . . . . . . . . . . 107,637,353

1972 . . . . . . . . . . . . . . . . . . . . . 111,950,403

1973 . . . . . . . . . . . . . . . . . . . . . 168,183,937

1974 . . . . . . . . . . . . . . . . . . . . . 185,060,501

1975 . . . . . . . . . . . . . . . . . . . . . 237,895,092

1976b 

. . . . . . . . . . . . . . . . . . . . 233,826,424

1977 . . . . . . . . . . . . . . . . . . . . . 203,479,571

1978 . . . . . . . . . . . . . . . . . . . . . 148,690,842

1979 . . . . . . . . . . . . . . . . . . . . . 198,518,437

1980 . . . . . . . . . . . . . . . . . . . . . 262,727,122

Total ... ... ... ... ... ... .$3,135,809,321

$ 3,286,688

34,881,409

1,215,432

4,160,591

4,181,314

1,665,087

38,138

2,571,566

932,114

96,707

57,329

21,723,343

27,450,968

29,748,076

17,384,604

13,844,951

1,900,571

9,886,024

15,052,072

7,318,705

2,258,492

2,352,744

$202,007,125

$ 251,607,830

164,687,414

101,361,086

138,713,238

93,417,209

78,273,410

86,135,010

72,018,076

81,087,566

96,086,293

94,010,178

95,252,247

135,088,321

141,698,479

185,568,541

198,905,452

239,795,663

243,712,448

218,531,643

156,009,547

200,776,929

265,079,866

$3,337,816,446 C

$ 341,109,987

644,115,146

150,142,575

181,918,756

220,676,665

203,036,844

213,334,409

186,628,357

175,631,860

200,129,670

194,702,569

205,731,711

268,021,097

235,666,821

226,710,926

257,919,080

243,152,340

386,433,994

343,875,521

303,193,575

300,521,683

341,368,236

$5,824,021,842

$ 592,717,817

808,802,560

251,503,661

320,631,994

314,093,894

281,310,254

299,469,419

258,646,433

256,719,426

296,215,963

288,712,747

300,983,958

403,109,418

377,365,300

412,279,467

456,814,532

482,948,003

630,146,442

562,407,164

459,203,122

501,298,612

606.448,102

$9,161 ;838;288

%cludes $131.5 mllllon CDS adjustments covering the Wortd War II period, $105.8 million equivalent to CDS allowances which were made in connection with the Mariner

Ship Construction Program, and $10.8 million for CDS in fiscal years 19!M and 1955.

blncludeg totals for fl~al year 1978 and the transition qua~er ending SePt. 30, 1976.

clnclude~ approximately $~ Miilion in CDS outlays repaid to the Federal Government as of Sept. 30, 1980. Nearly $25.3 million of this total rePresents subsidy 9rant~

In tha construction of the tanker Stuyvesarrt.

SOURCE: U.S. &f8rWrne Adrn/n/stratlon 7960 Annual f?epoti (Washington, D. C.: Maritime Administration, U.S. Department of Commerce, July 1961), p. 61.
Ch. 6—U.S. Maritime Policies ● 155

would be signed, and that the fiscal year 1982-83

moratorium on new CDS contracts would be continued.

Maritime subsidy policy clearly has been changed

drastically through budgetary reductions and temporary legislative authority over the past 2 years.

Strong industry opposition, especially by the shipbuilders, has occurred while U.S. liner operators,

who could benefit from build-foreign provisions,

have applauded the changes. Legislation has been

introduced to restore construction subsidy funds for

support of the U.S. shipbuilding industry, and the

debate undoubtedly will continue.

In 1982, one subsidized operator, U.S. Lines,

and the U.S. Government negotiated the termination of an ODS contract on some ships in return

for a short-term ODS contract on other ships. Since

then, other ODS operators have expressed interest

in so-called ‘‘subsidy buy-outs’ or the termination

of their ODS contracts in return for a lump sum

payment. One application was filed but later rejected by MarAd in early 1983. While the present

administration has considered such a buy-out program as one method to use to phase out operational

subsidies, and DOT has considered the development of guidelines, no policy on this subject had

been announced as of September 1983.

It appears that after 45 years, the U.S. maritime

subsidy program will soon end. Many argue that

new policies are needed to take its place, but none

that has been proposed has broad support. Prospects for shipbuilders and ship operators who have

depended on the subsidy program are unclear,

Most industry spokesmen would like to see future

maritime policies include some new forms of industry support, such as indirect incentives designed

to promote U.S.-flag shipping and U.S. shipbuilding. Unsubsidized U.S. competition with the rest

of the world in a free and open market system is

a worthy goal but does not appear feasible for our

maritime industries under any likely future scenario, particularly in light of both direct and indirect

subsidies provided foreign builders and operators

by their governments.

Ship Financing Guarantees

The Federal Ship Financing Guarantee program

was established in 1938 pursuant to title XI of the

Merchant Marine Act of 1936. It provides for a

full faith and credit loan guarantee by the U.S.

Government. Prior to the 1970’s, the program grew

only moderately, and at the end of fiscal year 1970

there were only $1 billion in contracts in force.

The program was overhauled in 1972 and is now

a financing guarantee program (rather than a mortgage insurance program) under which the Government guarantees shipbuilding obligations sold to

investors. Such guarantees may be provided by the

Federal Government covering up to 75 percent of

the construction cost of vessels built with CDS

assistance, and 87.5 percent of the construction cost

of nonsubsidized vessels. Vessels to be used in both

the foreign and domestic trades are eligible for title

XI aid. They must be U.S.-flag and built in U.S.

shipyards. Cargo, passenger, and cornbkation

ships, tankers, tugs, towboats, barges, dredges, fishing vessels, floating drydocks, and oceanographic

research and pollution-abatement vessels are all

eligible. In addition, mobile offshore drilling rigs

have been interpreted by MarAd as eligible, although recently the administration has sought to

curb use of the authority for rigs.

The importance of the program can be seen by

the amount of commercial shipbuilding using the

program (see table 41). The percentage of commercial shipbuilding and conversion work financed

through title XI increased from 16 percent in 1970

to 63 percent in 1981.

Table 41 .—U.S. Shipyard Orders, 1970-81, Financed

Under Title Xl Program

Title Xl orders

Year Amount ($ millions) Percent of total private

1970 . . . . . . $ 193 16.1

1971 . . . . . . 358 29.5

1972 . . . . . . 849 55.1

1973 . . . . . . 1,241 35.7

1974 . . . . . . 1,539 34.3

1975 . . . . . . 971 19.3

1976 . . . . . . 1,045 25.4

1977 . . . . . . 1,198 31.9

1978 . . . . . . 552 18.8

1979 . . . . . . 1,087 37.0

1980a . . . . . 1,338 42.9

1981a . . . . . 1,350 62.8

Totals . . $11,721 32.6

aEstimated.

SOURCE Compiled by the U S. Maritime Administration, Office of Policy and

Plans, from MarAd Title Xl data and the Shipbuilders Council of

America, Artnua/ ffeporl, 1981
156 An Assessment of Maritime Trade and Technology

Substantial growth in the program has occurred

during the past decade. From 1938 to 1970, $1

billion in guarantees was issued, while between

1970 and 1982, $10 billion was issued. Among the

factors that influenced this expansion were the Merchant Marine Act of 1970, which stimulated tanker

and liquefied natural gas (LNG) tanker construction; Alaskan oil trade, which also stimulated tanker

construction; and 1972 amendments to title XI,

which stimulated inland tug-barge construction.

As of July 1983 the following guarantees were

outstanding:

Oceangoing merchant ships . . . . . . . . . . . . . . . . $4.8 billion

Offshore oil rigs . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 billion

Inland river vessels . . . . . . . . . . . . . . . . . . . . . . . 1.6 billion

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 billion

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8.0 billion

For most of its history, title XI has been noncontroversial. It has been self-supporting through

fees paid by participants. These fees are placed in

the Federal Ship Financing Fund, from which all

MarAd operating costs associated with the administration of the. program and guarantees, in the

event of default, are honored. The program has experienced only 17 defaults since its inception, resulting in a combined pay-out from the fund of

$248.2 million. Of this amount, $50 million was

associated with the 1978 bankruptcy of a subsidized

liner operator. Of the $248.2 million, it is anticipated that $155 million ultimately will be recovered

by the Government.

Recently, the pace of defaults has increased.

Thus far, five companies have defaulted in fiscal

year 1983, resulting in Fund losses of $55.7 million.

Advances of $31 million also have been made to

17 companies. As of July 1983, the Ship Financing Fund had assets of $190 million. It is anticipated

that there could be another $60 million in defaults

this year (before any recovery by the Government,

which would reduce the exposure substantially).

Overall, the risk to the Government could total

$500 million to $600 million ultimately if all companies currently in shaky financial position were

to default.

These facts have caused concern within the administration, and all advances from the Fund must

be approved by the Office of Management and

Budget.

One current legislative initiative that would reform the title XI program is H.R. 3399 recently

introduced by Congressman Biaggi. Under the bill,

an Industrial Redevelopment Bank would be established. The Bank would handle financing, cofinancing, or refinancing of vessel construction or

reconstruction. It would subsume the title XI loan

guarantee program but would have considerably

broader authority than now exists. The Bank could

either invest directly in the form of equity participation or guaranteed loans, or indirectly through longterm guarantees of obligations secured by ship

mortgages, leases, or stock pledges.

In addition to financing vessel acquisition, the

Bank would have authority to contract directly for

the construction or reconstruction of vessels in U.S.

yards. This authority is pursuant to the provisions

of Title VII of the Merchant Marine Act—the

‘ ‘build and charter’ authority.

Provisions of the bill would encourage construction of generic vessels in series production and increased shipyard efficiency. A primary element of

the Bank’s responsibility would be to allow for the

domestic production of replacement vessels in the

U.S. liner fleet that would be suitable for national

defense support. Some provision would be available for foreign construction of subsidized vessels,

but such permission would be restricted in order

to protect the shipyard mobilization base. The Bank

would have authority to set up R&D consortia with

private sector participants who would be eligible

for substantial tax benefits.

The Bank would be provided with a $2-billion

line of credit ($1 billion in direct guaranteed loans

and $1 billion in revolving authority in the form

of interim construction financing); it also would

have $2 billion in investment guarantee authority

through the restructuring of existing credit programs.

Eventually, the responsibilities of the Bank would

be turned over to the private sector. Initially, Federal seed money would be provided. A sunset provision in the bill would, after 10 years, either

dissolve the Bank or sell it to financial institutions,

export trading companies, or union pension funds.

This proposal probably will be debated in the coming months as a promising alternative to direct subsidy programs.
Ch. 6—U.S. Maritime Policies ● 157

- — . —

MARITIME REGULATORY POLICY

It may be possible to enhance competition in certain segments of the industry if the”U. S. Government focuses attention on enabling the U.S. shipping industry to operate in a regulatory framework

similar to that of foreign operators. Along those

lines, a bill to amend the Shipping Act of 1916

(regulating liner operations) has been passed by the

Senate and was pending in the House as of September 1983. As passed by the Senate and introduced in the House, this bill contains almost the

same provisions as similar proposed legislation

which has been debated in Congress for at least 4

years. 16 The bill’s passage is also supported by the

administration.

FMC is the Government agency charged with

oversight of U.S. shipping regulations. The basis

for U.S. regulatory policy on shipping is the Shipping Act of 1916 as amended. The act imposes strict

requirements on the competitive practices of all

ocean common carriers in both foreign and domestic commerce while permitting approved antitrust

immunities to shipping conferences. Prior Government acquiescence is required for all anticompetitive conference agreements, such as rate-setting,

pooling agreements, or interconference agreements.

Conferences in U.S. trades are required to be open

to any carrier that wishes to join.

A number of practices are prohibited. One concerns the giving of deferred rebates, a practice

whereby ship operators agree to return a portion

of the total freight paid for services in an earlier

period to a “loyal’ shipper who has shipped all of

his cargoes with the carrier or conference in question. This practice is common in foreign conferences. A second prohibited practice is the use of

‘‘fighting ships, whereby a carrier or conference

sets one or more ships, operating at extremely low

or predatory rates, in head-to-head competition

with a competitor in order to drive the competitor

out of the trade. Losses on the operation of fighting

ships are shared by all members of the conference.

A third practice outlawed is discrimination against

shippers as punishment for nonpatronage. Section

14 of the Shipping Act included a more general pro-

‘GSee ‘ ‘The Difficulty of Introducing Meaningful U.S. Maritime

Legislation, by Paul Richardson, October 1980.

hibition against unjust or unfair discrimination

among shippers. All common carriers must offer

their services on equal terms to all shippers.

The Shipping Act was revised substantially in

1961 with the passage of Public Law 87-346. Section 14 was amended to allow approved loyalty

agreements in the form of dual-rate contracts, with

the following limitations: penalties that could be imposed on shippers for contract violation were limited

to single damages, and the maximum exclusive patronage discount was set at 15 percent.

Section 15 also was amended to restrict the conferences’ ability to control membership. Previously, any conference agreement could be disapproved

if it was considered unjustly discriminatory or unfair among carriers. Public Law 87-346 specified

that agreements could be approved only if they

allowed open access to all carriers which could and

would provide regular liner service on a given trade.

Carrier agreements also could be disapproved if

found to be “contrary to the public interest. ” Subsequent case law, affirmed by the courts, required

carriers to “bring forth such facts as would demonstrate’ that the agreement was required by a

serious transportation need, necessary to secure important public benefits, or in furtherance of a valid

regulatory purpose of the Shipping Act. The principle, known as the Svenska test, after the FMC

case of that name, is considered by carriers as a

major impediment to conference approval, primarily because it is difficult to define the concept of

“public interest”-therefore, application (i. e., approval of agreements by FMC) is uneven and unpredictable. Pending legislation (the Shipping Act

of 1983) would eliminate this ‘‘public interest’

standard in most versions, but the House Judiciary

Committee has favored retaining the standard.

Conferences in the U.S. trades are substantially weaker than their foreign counterparts. Members

must receive FMC approval to organize pools, rationalize service, and limit sailings. They cannot

limit membership, and they cannot encourage shipper loyalty through such mechanisms as deferred

rebates. Independent operators can easily enter

U.S. liner trades. A conference’s inability to control access to the trades, whether within or outside
158 . An Assessment of Maritime Trade and Technology

. —

the conference structure, means that attempts to

rationalize service—even if approved by FMC—

are likely to be unsuccessful. The U.S. trades suffer from chronic overcapacity. Rate wars have occurred in both the North Atlantic and Pacific trades

recently. These are devastating to the weaker, highcost conference members (which tend to be U.S.

flag).

U.S. carriers also face a more significant problem than do foreign carriers in the same trades

because, while theoretically all of the restrictions

apply equally to all conference members, it is easier

for FMC and the Department of Justice to monitor

the actions of U. S. carriers, whose financial statements and business practices are open to close scrutiny.

The open conference system, as it exists in U.S.

trades, is an anomaly in world shipping. The industry is constrained by Government regulation

which forces on it some, but not all, aspects of competition. Conferences set rates and schedule services. But any joint planning must be approved by

FMC, and direct negotiation with shippers’ groups

does not have antitrust immunity. Overtonnaging

has detrimental effects, such as an increase in unit

costs resulting in higher rates.

There are two economic alternatives to the current situation. Debate on the merits of each has continued for years, both inside and outside the Federal

Government. One is price competition. Under ideal

conditions, price competition would reduce prices,

remove excess capacity, and create a healthier business climate for firms remaining in the industry.

Each firm would determine its profit-maximizing

level of output and produce accordingly. Because

demand would not be sufficient to support all carriers currently operating, carriers would have to

reduce prices and operate at higher capacity levels

to minimize or eliminate short-run losses. Inefficient and financially weak firms would be forced

out of the industry.

A study by the Department of Justice in 197717

concluded that the Nation would benefit from a

more competitive environment in ocean-liner shipping markets and recommended repeal of, or

‘7’ ‘The Regulated Ocean Shipping Industry, ” a report of the U.S.

Department of Justice, January 1977.

amendment to, the 1916 Shipping Act to increase

competition. This philosophy also has been espoused by some opponents to the present proposed

legislation who claim that the 1983 Shipping Act

Amendments are inconsistent with the trend toward

deregulation. 

It is not clear that shipping competition could

be achieved easily. Significant barriers do exist and

would continue. These include the major capital

requirement to enter shipping, high fixed costs,

worldwide cargo-reservation schemes, and product

differentiation. On a practical level, achievement

of such competition could result in decimation of

the U.S.-flag fleet because many foreign carriers

continue to receive direct and indirect subsidies as

well as antitrust immunities which could carry over

into their U.S. operations.

At the other regulatory policy extreme is the

closed conference system combined with the elimination of independent carriers, thus effectively closing the trades. The economic argument for permitting closed conferences is that they could rationalize

trade, reducing the misallocation of resources and

ending costly service competition. Excess tonnage

would be reduced. The result, however, likely

would be higher freight rates. The degree to which

a conference would face outside competition would

determine how much control it would have over

rates. Given a choice between reducing costs to increase profits and raising rates to accomplish the

same goal, there might not be sufficient incentive

to do the former. Shippers, and ultimately consumers, would be the probable victims under such a

system. A survey of shippers taken by the General

Accounting Office (GAO) indicated that shippers

believe the highest liner rates and greatest decline

in service quality would result under a closed conference system (the other choices were open competition, restricted conference, and “other’ ’).

Changes in U.S. regulation of ocean-liner operations in the U.S. foreign trades are being considered

in the proposed Shipping Act of 1983, which would

laTestimony on S. 47 by Allen Ferguson, Chairman of the National

Institute of Economics and Law, before the Senate Commerce Committee, 1983.

lgchages jn Feder~ Maritime Regulation &n Increase Eficien -

cy and Reduce Costs in the Ocean Liner Shipping Industry, Report—

GAO/PAD-82-l 1 (Washington, D. C.: U.S. Government Accounting

OfXce, July 1982), pp. 20-21.
Ch. 6—U.S. Maritime Policies 159

replace the existing regulatory framework under the

Shipping Act of 1916. The proposed legislation retains the open conference system for U.S. trades

but clarifies and strengthens the carriers’ immunity

from U.S. domestic antitrust laws.

U.S. liner operators in international trades contend they have been at a disadvantage relative to

their foreign competitors due to U.S. regulation of

the industry. While in theory all operators in the

U.S. foreign trades are subject to regulation under

the Shipping Act 1916, foreign operators in many

instances are, in effect, beyond the reach of U.S.

regulatory and judicial control. The intent of the

proposed Shipping Act of 1983 is to provide a more

equitable regulatory environment for the U.S. operators by limiting their exposure to U.S. antitrust

laws.

The legislation now being considered in Congress

is based on a compromise achieved during the 97th

Congress between the interests of ocean carriers and

shippers. Under the compromise, carriers would

be assured that agreements to form conferences,

set rates, and rationalize service within the conference framework, which were effective under the

new act, would be immune from U.S. domestic

antitrust laws. To balance the strengthened conferences that would result, provisions were included

to stimulate competition, such as the mandatory

right of conference members to set rates independently under certain conditions and the authorization of loyalty and service contracts which could

provide lower rates and improved service for certain shippers. While the proposed legislation explicitly expands the scope of agreements that may

be formed only by including intermodal activities,

the removal of the threat of penalty under antitrust

laws would, in effect, give the carriers freedom to

form stronger agreements,

In the compromise package, the greater certainty

of antitrust immunity was to be provided primarily through two major regulatory changes. The first

would be the removal of general competitive standards of review historically used by FMC in approving liner conference agreements. Instead, prohibited acts would be clearly specified. Potential violations of the act would be limited to those listed prohibitions, and agreements would not be exposed

to subjective interpretations of broad ‘ ‘public interest criteria.

As of September 1983, amendments to the proposed legislation by the House Judiciary Committee would weaken the antitrust immunity envisioned in the original compromise proposal by retaining a general standard of review to be used by

FMC in addition to the specified prohibited actions.

The second element of certainty would be the

consolidation of jurisdiction over ocean-liner shipping activities in FMC, subject solely to the Shipping Act. Agreements that become effective under

the act would not be subject to review or penalties

by other Government agencies, notably the Department of Justice, Similarly, agreements or conduct

which were found to be in violation of the act would

be subject to suspension, modification, or penalties

only by order of FMC.

Additional substantive changes made by the

House Judiciary Committee include the expiration

of the antitrust immunity conferred by the bill 2

years after the study commission (on Deregulation

of International Ocean Shipping, to be established

by the bill) files its report, or December 31, 1988,

whichever is earlier, and the elimination of filing

and FMC enforcement of tariffs. Most carriers,

shippers, and FMC have supported the existing

tariff filing requirements, claiming that they enhanced stability and facilitated enforcement of antirebating laws. However, others, including the present administration, some large shippers, and the

Federal Trade Commission (FTC) oppose tariff filing and enforcement on the grounds that it is unnecessary Government intervention in the marketplace and hampers competitive flexibility in setting

rates. Under the Judiciary Committee amendment,

carriers still would be required to publish their

tariffs in a manner easily accessible to shippers and

other interested persons.

The final passage of the Shipping Act of 1983,

with or without recent House Judiciary amendments, is not certain. It appears, however, that an

acceptable compromise is close.
160. An Assessment of Maritime Trade and Technology

U.S. SHIPPING TAXATION POLICIES

An important aspect of U.S. shipping competitiveness versus foreign-flag fleets is this Nation’s

taxation policies. The following discussion will address the tax rules that apply to the taxation of the

shipping income of U.S. domestic and U.S.-owned

foreign corporations. The United States generally

subjects to tax the worldwide income of a U.S. domestic shipping company even if the income is substantially foreign source income (determined under

complex sourcing rules based on property and time

spent inside and outside the United States). In most

cases, the United States will allow a credit against

U.S. tax liability for foreign taxes paid on foreign

source shipping income. In general, shipping is

treated similarly to other industries, although a few

tax benefits are unique to the shipping industry.

These tax benefits allow U.S. citizens owning or

leasing eligible vessels that are U.S. built to obtain

tax benefits through the maintenance of CCF and

Construction Reserve Funds (CRF) to be used to

construct qualified vessels. These tax-deferral provisions, authorized by the Merchant Marine Act

of 1936 as amended are considered by many to be

the most important provisions of the act.20

If the goal of the U.S. maritime policy is to promote U.S.-flag shipping and to assure fairness for

the Nation’s shipping industry, then tax policies

must be designed to ensure tax parity with other

nations. If direct Government subsidies to U. S.-

flag ship operators are discontinued, as the present

administration proposes, then tax parity with foreign operators takes on added significance. A major reason for the existence of huge fleets owned

by U.S. interests and registered in countries such

as Liberia and Panama is that those countries offer an exemption of shipping income from taxation.2

1 Similarly, other major maritime countries

such as Greece and Japan, which are not considered

flags of convenience, offer significant tax advantages to shipping when compared to their domestic

industries. In fact, many nations consider their in-

*“James Gallagher, “Maritime Tax: The Capital Construction Fund

of the Merchant Marine Act of 1970, Journal of Maritime Laws

and Commerce, p. 105.

*lThe council of American-Flag Ship Operators, ‘‘Analysis of proposal to Impose Tax on CCF, ” March 1982.

ternational shipping as offshore enterprises and provide special tax concessions.

In 1962, Congress specifically exempted U. S.-

controlled shipping income when it enacted the socalled ‘‘subpart F’ provisions amending the Internal Revenue Code. These provisions required

that certain types of tax-haven income of foreign

subsidiaries of U.S. companies be taxed currently, rather than when the income is distributed to

the U.S. parent. The shipping income exclusion

from ‘‘subpart F’ was primarily for national

defense reasons. It was believed by Congress that

the shipping exclusion would encourage a U. S.-

owned (controlled) maritime fleet.

In 1975, to achieve some parity in the taxation

of shipping income of U.S. domestic and U. S.-

owned foreign corporations, Congress generally

ended the ‘‘subpart F’ exclusion for shipping income except to the extent the shipping income of

the foreign subsidiary was timely reinvested into

the shipping business. Congress believed that the

reinvestment rule was appropriate because of the

competitive nature of foreign-flag shipping operations and in order to continue to encourage a significant U.S.-owned (controlled) maritime fleet.

In May 1983, the Internal Revenue Service

(IRS) issued final regulations for American

stockholders of foreign-based companies that generate shipping income. These regulations amend

the Income Tax Regulations and implement the

1975 Tax Reduction Act and 1976 Tax Reform

Act. These regulations were first proposed in August 1976. The new regulations state that if less than

90 percent of the earned income is classified as

‘‘subpart F’ income, all of it is subject to taxation .22

The previous regulation stated that if more than

70 percent of the income was ‘‘subpart F, all of

it was considered exempt.

Thus, today, U.S.-owned foreign shipping corporations, such as those “U.S. effective-controlled”

fleets under Liberian or Panamanian flag, have

available to them a vehicle for deferring taxes

on income but only if it is reinvested in shipping

**See Feder~ Register, May 19, 1983, P. 22512.
and only if at least 90 percent of the corporation’s

income is from shipping. Some bulk operators of

such foreign-flag fleets have claimed that the intent of the 1975 Act—to encourage investment in

U.S.-owned ships—has not been realized because

investment decisions are based not on deferred taxes

but on much more significant market and price factors. Other operators—particularly in the liner

trades—believe that such tax benefits are important to the future viability of the industry. These

arguments require careful analysis if the overall subjects of tax parity and tax incentives for the shipoperating industry are addressed by Congress.

Certain forms of tax deferrals also have been put

into effect as a means of encouraging investment

in the U.S.-owned, U.S.-flag fleet. In 1970, Congress adopted a tax measure for the U.S.-flag fleet

which instituted the CCF program. This program

generally allows U.S. shipping companies to enter

into agreements with MarAd to establish CCFS for

the replacement or addition of vessels for use in the

U.S.-flag merchant marine. U.S. owners or charterers of U.S.-constructed U.S.-flag vessels operated in the U.S. foreign or domestic commerce can

defer taxation of the net earnings derived from such

vessels by depositing the earnings into the CCF to

provide for replacement or additional vessels to be

operated in the U.S. foreign, Great Lakes, or noncontiguous domestic trade. Vessels operated in

coastwise or intercostal trade are not qualified.

Federal income tax on such earnings (as well as investment income of the CCF) is deferred until the

funds are withdrawn from the CCF for a purpose

not permitted under the agreement with MarAd.

Deposits of tax depreciation of vessels and net proceeds from the sale of vessels also may be made.

Theoretically, the tax deferral can continue on income deposited in the CCF as long as the fundholder continues to acquire, construct, or recon-
162 ● An Assessment of Maritime Trade and Technology

—.—. —

struct qualified vessels. The tax basis (cost) of a

vessel generally is reduced to the extent the vessel

is purchased by a qualified withdrawal from a CCF.

The CCF program is authorized by section 607

of the Merchant Marine Act, as amended in 1970.

Prior to the 1970 amendment, only subsidized ship

operators were eligible for tax-deferred funds, referred to as Capital Reserve Funds and Special Reserve Funds. Today, both subsidized and nonsubsidized operators are eligible for the CCF program,

and the old Capital Reserve Fund has been phased

out. The CCF program is believed by U.S.-flag

operators to be the key element that could place

U.S.-flag ships on a tax parity with that of U. S.-

owned, foreign-flag ships under ‘‘subpart F’ of the

Internal Revenue Code and foreign-flag, foreignowned competitors.23 presently, however, U.S.-

flag, foreign-built ships are neither “qualified” for

CCF withdrawals nor “eligible” to make CCF deposits.

The CRF is another tax benefit to U.S. shipowners. The CRF is authorized under section 511

of the Merchant Marine Act as amended and allows

U.S. shipowners operating vessels in foreign or

domestic commerce of the United States to defer

the gain attributable to the sale or insurance proceeds from the loss of a vessel. The moneys deposited in the fund must be used to construct, reconstruct, or acquire vessels of U.S. registry built in

the United States. Although any gains on these

transactions are not recognized for income tax purposes if the deposits are properly expended for a

vessel, the basis for determining depreciation of the

vessel is reduced by the amount of any such gains.

The ability to defer gain on certain transactions

through deposits to the CRF applies only to vessel

owners.

A comparison of other nations’ shipping tax policies is also relevant to gaining an understanding

of U.S. shipping tax parity. In Greece, for instance,

no tax is levied on shipping income, only a tonnage tax similar to those imposed by Liberia and

Panama. In Britain, shipowners are able to shelter

current income from taxes by the use of free depreciation (1 year), or by registering in a British

colony such as Bermuda or Hong Kong. In Norway, the tax on current income is reduced substantially by a combination of accelerated depreciation

and the use of tax-deferred replacement and repair

funds. In France, tax deferral results from a combination of accelerated depreciation and the absence

of any tax on operations carried on outside the

country. Worldwide, most countries impose very

little tax, if any, on shipping income.24

Recently, DOT outlined proposed changes to the

Merchant Marine Act of 1936, necessary to implement a number of the administration’s maritime

policy initiatives. One major change proposes that

existing and newly deposited tax-deferred moneys

in the CCF program could be used to acquire, construct, or reconstruct U.S.-flag, foreign-built vessels. This proposal was also proposed and rejected

by the 97th Congress in the conference report on

the Maritime Administration authorization bill of

1982. This recent proposal will now be considered

by Congress in the form of a legislative package.

Another recent proposal also supported by DOT

and a similar proposal submitted as H.R. 2381 by

Congressman Gene Snyder calls for a repeal of the

50-percent ad valorem duty on foreign parts and

repairs made to U.S.-flag vessels abroad. H.R.

2381 differs from the DOT proposal by requiring

the 50-percent duty be deleted only for ships that

remain away from U.S. ports for 2 or more years.

This proposal, as well as the use of CCF moneys

to construct or acquire foreign vessels is, as expected, being opposed by U.S. shipbuilders. In a

statement on behalf of the Shipbuilders Council of

America, President Lee Rice explained, “the efficacy of maritime programs to provide military

capability required by this Nation is being eroded

by the programs put forth by the administration

to allow tax-deferred CCF moneys to be used for

foreign building and by the elimination of the Ad

Valorem Tariff on foreign repairs. ” However, for

the U.S.-flag vessel operator, these proposals are

warmly welcomed, especially in light of the absence

of future CDS funds.

Other tax issues affecting the U.S. merchant

marine are taxation of vessel lease and lease/purchase and purchase/lease-back agreements. These

agreements have become more common as the capZgMarjtjme subsidies (Washington, D. C.: U.S. Department of

Transportation, Maritime Administration, February 1983), p, 158. Z4The Journ~ of Commerce, Aug. 10, 1979, p. 1.
Ch. 6—U.S. Maritime Policies ● 163

———— —— . .

ital requirements involved in ship purchasing have

soared. Essentially, a financial institution or other

organization with ample capital reserves and significant income needing tax shelter becomes the owner

of record for a new ship. The vessel is then bareboat chartered to the company or person who actually wants the ship. The operator makes lease

payments to the financial institution, which takes

advantage of all the tax benefits available, such as

interest deductions, and depreciation.

Recently, the U.S. Navy, through MSC, has inaugurated a program to acquire merchant vessels

through leasing. These ships, 13 special-purpose

RO/ROs under the T-AKX program and 5 product carriers under the T-5 program, will be timechartered to MSC for a 5-year period with an option for renewal, to a total of 20 to 25 years. The

vessel owner of record receives tax benefits through

the accelerated cost recovery (ACRS) and investment tax credits (ITC) provisions, while the U.S.

Navy receives a favorable long-term lease of the

vessels. The issue of whether the Government,

through leasing programs such as the U.S. Navy’s,

is actually losing revenue through less taxes has not

been resolved.

More recently, a bill, H.R. 3110, was introduced

to revise these tax benefits. The bill, titled the

“Governmental Leasing Tax of 1983, ” would deny

certain tax benefits for property used by governments and other tax-exempt entities. Under the bill,

the ITC would be denied (as is generally the rule

under present law) and ACRS depreciation also

would be denied for property used by tax-exempt

entities. Therefore, the legislation extends to

agreements by foreign governments and corporations to lease American capital goods. This aspect

is of concern to the U.S.-flag operators who have

often built and charted vessels to foreign governments and corporations, utilizing these tax benefits.

In the past, these tax benefits have been of great

importance to the U.S. bulk fleet, and certain industry spokesmen have urged that the tax concepts

in the bill be analyzed further.

Another issue is taxation of offshore wages of

crew and staff. In many countries (e. g., Norway),

these are treated as personal income derived under

a foreign jurisdiction and are not taxed. The resulting savings in crew and staff wage costs (as well

as fringe benefits, which are usually a proportion

of gross wages) can be as much as 50 percent.

Accelerated depreciation of ships and equipment,

and particularly containers, is also an important

tax concession granted by many countries. U.S.

tax policies for depreciation of ships are based on

a 14,5- to 21.5-year depreciation rate for U.S.-flag

ships that entered service prior to 1981, and a 5-year

depreciation rate for U.S.-flag ships entering service in 1981 and after. Also, the 10-percent ITC is

generally permitted with respect to the cost basis

of a new investment in a U.S.-flag vessel operated

in the U.S. domestic or foreign commerce. In the

case of a vessel purchased with CCF funds, Congress has specifically authorized that one-half of the

ITC be allowed (notwithstanding the CCF costbasis reduction rule mentioned earlier). Availability

of the other half is subject to dispute by the IRS,

which has won and, more often, lost court cases

on the issue.

In summary, the major tax provision that provides tax parity to U.S.-flag ship operators is the

use of the CCF. Due to the absence of a shipyard

CDS program in the United States, it is unlikely

that the CCF will be useful in the future unless

amended to permit construction of U.S.-flag ships

in shipyards abroad. Further study in innovative

tax policies is clearly needed to ensure that the

existing tax parity of U.S.-flag ship operators with

other competitive shipping nations is not eroded.

CABOTAGE POLICIES

The Merchant Marine Act of 1920, and more ferred to as the “Jones Act. ” Basically, section 27

specifically section 27 of the Act, is commonly re- requires that all U.S. domestic trade be carried on
164 ● An Assessment of Maritime Trade and Technology

vessels that are under U.S. registry, built in the

United States, and manned by U.S. citizens. Specifically, section 27 states:

No merchandise shall be transported by water,

or by land and water, . . . between points in the

Us. . . . in any other vessel than a vessel built in

and documented under the laws of the U.S. and

owned by . , . citizens of the U.S. . . .

Cargo reservation for American domestic shipping was first outlined in 1817 by the First Continental Congress. The First Continental Congress

approved the Cabotage Law of 1817 to prevent foreign-flag carriers from entering the American domestic market. This policy has continued unbroken

to the present. Over the years, many suggestions

to change this policy have been proposed, but they

have been largely unsuccessful .25

The preamble of the Merchant Marine Act of

1920 states the intent of Congress at that time:

It is necessary for the national defense and for

the proper growth of its foreign and domestic commerce that the United States shall have a merchant

marine of the best equipped and most suitable types

of vessels sufficient to carry the greater portion of

its commerce and serve as a naval or military auxiliary in time of war or national emergency, ultimately to be owned and operated privately by citizens of the United States; and it is to be the policy

of the United States to do whatever may be necessary to develop and encourage the maintenance of

such a merchant marine . . . .

The Jones Act “Fleet”

The Jones Act “fleet,” as it has come to be

known, consists of those vessels eligible to engage

in domestic trade, whether it be inland waters,

coastwise, noncontiguous, or intercostal. Eligible

vessels are those built in the United States under

American ownership, registered in the United

States, and receiving no CDS or ODS from

MarAd.

Currently, Jones Act vessels account for slightly under 50 percent of the total number of vessels

in the U.S.-flag fleet and approximately 60 percent

of the total U.S. deadweight tonnage. As detailed

in chapter 3, 94 percent of the tonnage in the acZSNACOA, op. cit., p. 35.

tive Jones Act fleet is in tankers. Tankers used in

the transport of Alaskan oil alone constitute almost

30 percent of the active domestic fleet and nearly

one-half of the total domestic fleet’s deadweight

tonnage.

There is no conference system operating in the

domestic trade; operations are either independent

or on ships owned by corporations for their own

business use. The domestic fleet provides liner as

well as tramp service and includes bulk

tankers, conventional and containerships,

barge systems.2G

Advent of Alaskan Oil

Shifting trade patterns and a new area

carriers,

and tugfor shipping investments followed the production of large

oilfields on the North Slope of Alaska in the

mid-1970’s. As detailed in chapter 3, by 1978 production from the North Slope reached 1.1 million

barrels of oil per day and exceeded the west coast’s

demand for it. Substantial new tanker tonnage was

needed to move the oil to the gulf and east coast

markets. During the 1970’s, 19 newJones Act tankers with deadweights in excess of 100,000 tons were

built to serve the Alaskan trade. Today, Alaskan

oil production has reached 1.6 million barrels per

day with projections that production will peak by

1988 and decline through 2000.

It is generally accepted that without future U.S.

oil and gas discoveries, a substantial surplus of

tankers will exist by 1995. Lease sales followed by

exploration drilling in promising Alaska and California areas are scheduled for the next few years

and should determine potential production levels.

If new oil discoveries in these areas are made, the

large market for domestic tankers would improve.

Exceptions, Waivers, and Suspensions

Allowed Under the Jones Act

Over the years, circumstances have resulted in

exceptions and waivers to the Jones Act. Trade with

the U.S. island possessions of Guam, Tutuila,

Wake, Midway, and Kingman Reef may be carried on foreign-built, U.S.-flag vessels. The U.S.

Virgin Islands are exempt from all Jones Act requirements as amended in the Merchant Marine

zbIbid.
Ch. 6—U.S. Maritime Policies ● 165

Act of 1936. This has been an especially important

exemption for the Virgin Islands since the discovery

of Alaskan oil. Alaskan crude oil is now shipped

to refineries in the Virgin Islands on foreign-flag

ships and then to the U.S. mainland, again mostly on foreign-flag vessels, even though U.S.-flag

tug-barge units are also employed moving refined

products to the U.S. mainland.

Other important exceptions to the act specifically

apply to Alaska. These exceptions, currently receiving wide attention, are the third and fourth provisos to section 27. They are discussed in greater

detail later in this chapter.

Individual waivers to the Jones Act also have

been provided through private bills passed by Congress. In 1978 and 1981, Congress passed bills that

permitted two passenger ships built in the United

States, the Independence and the Constitution, to

reflag as American ships and reenter the domestic

market after having served for awhile under foreign

flag.

Suspensions allowed under the Jones Act, although not common, do exist. One suspension, section 506 of the 1936 Act, gives the Secretary of

Transportation the power to suspend the Jones Act

to allow subsidized U.S.-flag ships, intended for

foreign trade, to enter the domestic market for up

to 6 months in any 12-month period. In 1980, seven

subsidized U.S.-flag tankers received waivers to

enter the Alaskan oil trade for up to 6 months. The

operators were required to pay back a prorated

share of their CDS based on the amount of time

spent in the Alaskan trade. Another suspension

allows the Secretary of the Treasury to grant a

statutory or discretionary waiver for foreign-flag

vessels on the basis of national defense needs. The

1936 Act also permits liner vessels receiving ODS

to carry domestic cargoes in the Hawaii, Guam,

and Puerto Rico trades with very modest payback

of the subsidy.

Construction Differential Subsidy Payback

A very controversial provision of the Merchant

Marine Act of 1936 allows MarAd to permit subsidized vessels built for foreign trades to enter

domestic trades permanently, in exchange for the

repayment of a vessel’s CDS plus accumulated interest. A 1977 MarAd decision permitted the Seatrain Shipbuilding Corp. to repay the CDS on a

new tanker, the Stuyvesant, and to enter the

domestic oil trade permanently. At the time, the

worldwide tanker market had collapsed and there

was a need for domestic tankers to transport

Alaskan oil. Faced with a possible default by Seatrain on loans with title XI guarantees (amounting

to about $120 million)27 on two new supertankers,

and no likely foreign market for the vessels, MarAd

agreed to allow the CDS repayment on one of them,

the Stuyvesant.

The tanker operators already in service in Alaska

sued to prevent this transfer. Under a 1980 Supreme Court ruling (Seatrain Shipbuilding Corp.,

et al. v. Shell Oil Co., et al.), MarAd’s decision

was upheld. The Court held that the broad authority of the act gave the Secretary the power to further the general goals of the act, making such transfers legal.

The Justice Department’s antitrust division, in

a review of the case, recently urged Transportation Secretary Dole to adopt changes in maritime

subsidy rules and allow the total payback of construction subsidies so that a large group of these

vessels could enter domestic trades.

Although a decision by DOT on whether to implement the rule to allow subsidy paybacks is not

expected until late 1983, the controversy between

both sides grows larger every day. The issues of

the controversy have been debated not only among

industry groups but within DOT itself. The issues

debated include: projections of future Alaskan oil

production; levels of risk to the Government from

possible title XI loan defaults; levels of direct and

indirect subsidies to different sectors; levels of actual shipping costs, as well as hypothetical charter

rates; and effects of surplus capacity in various

trades.

At present, according to MarAd, there is growing overtonnaging in the domestic tanker fleet. Of

40 Jones Act tankers presently laid up, 28 are expected to be scrapped, and 26 of those employed

now are likely scrap candidates because of new

tanker-safety requirements. When this occurs, the

remaining Jones Act fleet in the Alaskan trade will

ZTSee Fe&r~ Register, Jan. 31, 1983, ‘ ‘DOT, CDS Repayment

Notice of Proposed Rulemaking.
166 ● An Assessment of Maritime Trade and Technology

. — —

consist of a smaller number of larger and newer

ships than is evident from today’s data.28 Therefore,

allowing subsidized vessels to enter the domestic

trade will have the greatest impact on the remaining portion of the Jones Act fleet, which is independently owned and consists of comparatively

large, newer vessels. New tankers could be required

in the domestic fleet beyond 1990 if substantial

future Alaskan oil prospects are proven. On the

other hand, an administration-backed proposal to

allow Alaska to export oil would substantially lower

even that demand for new Jones Act tankers.

Current Jones Act tanker operators claim they

have made huge ship investments on the basis of

Jones Act guarantees which would be negated if

foreign-trade-subsidized owners were permitted to

enter domestic trades. If the larger subsidized

tankers are permitted to enter the Alaskan trade,

serious overtonnaging would continue at least

through the decade. Current Jones Act operators

have estimated that one-quarter of the domestic

independent tanker fleet is now surplus and that

if CDS paybacks are allowed, the entire independent fleet in the Alaskan trade would become surplus.

Some subsidized operators, however, claim that

their new, more efficient, tankers would decrease

the cost of shipping Alaskan oil to U.S. refineries.

They believe that by leaving their subsidized tankers in an idle market the Government may face substantial defaults of federally guaranteed loans. 29 It

was because of a pending default on the Stuyvesant’s mortgage in 1977 that MarAd allowed that

tanker to enter the domestic trade. Current Jones

Act tanker operators claim, however, that the Government would face even greater prospects of title

XI loan defaults if the subsidized tankers enter the

trade.

Such a suspension of the Jones Act for subsidized

tankers could bring about a short-term lowering of

shipping rates. However, overcapacity would be inevitable and would result in a loss of business to

owners who built more costly ships for the domestic

trade because Federal policies required that ap28U. S, Mari[ime Administration comments on ‘ ‘Draft Regulatory

Impact Analysis for CDS Repayment Regulation, ” June 10, 1983.

Zgcomments submitted by Apex Marine Corp. to the Department

of Transportation on proposed rulemaking for CDS repayment, May

2, 1983.

preach. This would result in fewer U.S.-flag ships

being operated.

Other Proposed Changes to the Jones Act

The advent of Alaskan oil and the passage of a

Federal law barring the sale of Alaskan oil in foreign

markets are significant factors concerning the status

of the U.S. domestic fleet. Many recent proposals

to amend the act apply specifically to Alaska. The

State of Alaska has a great deal at stake if certain

amendments to the act are adopted.

As mentioned earlier, two exceptions to the act,

the third and fourth provisos, applying specifically to Alaska, are currently receiving attention. The

third proviso was adopted 60 years ago to facilitate

the movement of U.S. freight around the Great

Lakes area. This provision permits the use of a

foreign-flag vessel during a domestic movement if

somewhere along the route a Canadian railroad is

used. The proviso has been rarely used, and two

recent attempts to do so were unsuccessful.

The Alaska Navigation Co. had proposed to take

advantage of the third proviso rule. They had hoped

to operate two West German-flag ships manned by

West German crews between Vancouver, British

Columbia, and Seward, Alaska. This application

was later withdrawn. The Fairbanks Trucking

Service also filed an application which was later rejected by ICC because of deregulation of part of the

domestic route. A bill, H.R. 1076, repealing the

provision, passed the House in June 1983. Such

a repeal would protect U.S.-flag liner operators in

the Alaskan trade from foreign-flag competition.

The fourth proviso states that section 27 shall not

become effective on the Yukon River until the

Alaska Railroad is completed and the Shipping

Board finds that proper facilities are provided for

transportation by U.S. citizens. In 1977, the Treasury determined that the railroad was completed,

but it is up to the Secretary of Transportation to

make the finding that would make the proviso inoperative. As of September 1983, the Secretary of

Transportation had not made that finding; therefore, in theory, the fourth proviso still exists.

Future proposals to modify the Jones Act will depend on many factors and will be debated widely.

In view of strong support for policies inherent in
Ch. 6—U.S. Maritime Policies 167

the act, efforts to have it rescinded in the near future

may be difficult. In the long run, however, debates

about costs and benefits of very restrictive provisions in the Jones Act could serve to clarify the national interest. One change that has been discussed

but has not reached any legislative proposal is that

of reducing or rescinding ‘ ‘buy America’ requirements. Some in the shipping industry believe that

if owners were allowed to build or purchase their

domestic trade ships from foreign sources, enough

savings could be realized to either reduce freight

rates or permit substantial gains for U.S. operators

in new markets. U.S. shipyards have strongly opposed such views, but if current policies support

unrealistically high capital costs, as claimed, they

should be carefully evaluated.

‘ ‘Buy America” provisions in several U.S. maritime laws and regulations are shown in table 42.

It can be seen that the existing requirements for

title XI-built vessels (where foreign-built machinery

is prohibited) are somewhat more restrictive than

for Jones Act ships built without title XI. However,

also as shown, MarAd has proposed changes to

some of the title XI prohibitions.

Alternative suggestions to modify Jones Act “buy

America” provisions have taken a number of approaches. It would be necessary to accommodate

conflicting goals of supporting a U.S. shipyard base

while lowering ship capital costs closer to world

market levels. It may be possible to do this by providing some level of construction subsidy in combination with incentives for shipyards to improve

productivity and freedom to purchase equipment

and components from lowest price suppliers worldwide without duty. Some have also proposed applying CCF to Jones Act construction .30 Another

consideration in any proposed changes to Jones Act

gos~c c, H i]tzheimer, statement before House Merchant Marine

Subcommittee, hearings on H.R. 3156, July 21, 1983.

Table 42.—” Buy America” Comparisons

Integral

components of the Other machinery

hull and outfit, etc. Percent of vessel

superstructure (permitted to be cost to be Definition of

(steel, etc.) Main machinery foreign) domestic vessel cost Waiver provisions

MarAd Titie IF

Foreign prohibited Foreignd None

prohibited

MarAd Titie XP

Foreign prohibited Foreign None

prohibited

USCG (Jones Act vessels~

Unimproved foreign Foreign

steel plates or

shapes permitted

MarAd Titie Xi (proposed)

Foreign prohibited Foreign

permitted Up to 50°/0 of the

cost of foreign

items other than

integral

components of

the hull and

superstructure

permitted Up to 50°/0 of

vessel component

material cost

100 ”/0

loo ”/oe

Subject to other

limitations

Subject to other

limitations

Material, labor,

overhead

Material, labor,

overhead

Direct material

only. No labor

or overhead

Direct material

only. No labor

or overhead

Yes, except for

steel and integral

components of

hull and

superstructure

Yes

1) nonavailability

2) unreasonable

delivery

None

None

ag 5135 of the Merchant Marine Act, 45 U.S.C. g 1155 (construction differential subsidies).

bhot required by statute, but imposed by regulation (46 CFR 298.11)

c~ 27 of the Merchant Marine Act, 1920, 46 US C. 863, and Vessel Documentation Act 46 CFR 67.09.

dA Padial waiver has been granted for slow. speed diesels built under license in the United States which incorporate a significant number Of fOreign Components

evessels covered by title X1 financing may incorporate foreign components and materials, However, the value of these components and materialS will nOt be included

in the determination of actual-cost title Xl financing guarantees.

SOURCE J Hotaling, Division of Engineering, Maritime Administration, personal communication, August 1963,
168 . An Assessment of Maritime Trade and Technology

provisions is that existing ship operators have made

investment decisions based on assurances that current policy would continue. Modification of those

policies could unfairly affect their ability to continue a viable business. However, if changes were

made gradually over some reasonable period of

time, the industry may be able to plan and adjust

without undue hardship. This consideration argues

for selective changes such as allowing a limited

number of U.S.-subsidized ships or foreign-purchased or foreign-built ships to enter certain trades

over set intervals-particularly where demand for

shipping is rising.

One trade where Jones Act restrictions have been

claimed to be economically detrimental is the

Alaskan trade. In a 1982 study for the Alaska

Statehood Commission, effects on the Alaskan

—

Slsimat, Hel]ieson, k Eichner, Inc., ‘‘The Jones Act and Its Impact on the State of Alaska, Vol. II: Final Report, ” prepared for the

Alaska Statehood Commission, July 1982.

economy of using foreign-flag v. U.S.-flag ships in

the Alaskan trade were analyzed. The report estimated that differentials for U.S.-flag v. foreign-flag

total shipping costs would range from about 10 percent (in the liner trade with the west coast) to 40

percent (in oil product shipments from west coast

refineries). While the study did not analyze possible savings from using foreign-built or purchased

U.S.-flag ships v. U.S.-built, U.S.-flag ships, the

figures indicate a much lower range of savings for

this case (roughly 2 to 10 percent). Whatever the

savings, the net effect on the national economy and

the maritime industries is much more difficult to

evaluate but must be considered when Jones Act

modifications are considered.

SUMMARY

Four key

are subject

elements of U.S. maritime policy which

to current debate have been analyzed

above. These are:

. subsidy policy,

● regulatory policy!

● taxation policy, and

● domestic trade restrictions (Jones Act).

In addition, this chapter presented an overall

discussion of how present U.S. policies developed

over the years, what changes are currently proposed

and how future policies should respond to changing future conditions.

Direct-subsidy policies of the past (the CDS and

ODS programs) have been aimed at industry promotion and made the assumption that different sectors of the industry (i. e., shipbuilding, liner operators, bulk operators) could be helped by the same

medicine. This has not proved to be the case, and

the current administration appears to be directing

its attention toward support of the liner operators

without concurrent attention to shipbuilders or

other segments of the industry. Promotion of certain U.S. liner interests is possible with indirect incentives, and this type of approach appears to be

consistent with other administration policies.

Indirect subsidies such as loan guarantees to U.S.

operators (the title XI program) appear to have

been more successful in promoting investment in

modern vessel technologies, produced at competitive prices and covering broad sectors of the maritime industry. Future policies concerning industry

support, if in the national interest, should therefore

include consideration of which maritime sectors can

benefit from each type of promotional effort and

how Federal support can encourage high productivity and efficiency.

The resolution of the regulatory policy debate

appears to be near with congressional consideration of the Shipping Act of 1983. Passage of some

form of regulatory changes are clearly in the interest of the major U.S. liner operators, Proper consideration of U.S. shipper interests and the broader

goals of enhancing U.S. trade in the future are

equally important, U.S. participation in world mar-
Ch. 6—U.S. Maritime Policies ● 169 —

itime trade and shipping likely will depend on how

well our regulatory policy both protects the national

interests and allows for effective competition internationally.

Taxation policies for U.S. shipping interests also

are based on sometimes conflicting goals of providing equivalent advantages to industries that must

compete in the international market and of assuring fairness and equity among U, S. businesses. Past

taxation policies (e. g., the CCF) have sought to encourage investments in new ships and to strengthen

the U.S. merchant marine’s competitive position.

Future taxation policies require careful analysis of

the many approaches available and in use to ensure that targeted industry sectors will receive the

benefits.

In the future, certain domestic shipping (Jones

Act) policies undoubtedly will be challenged by

those who consider that present costs of U.S. domestic shipping should be reduced to the benefit

of consumers. Whatever changes are proposed (i. e.,

allowing foreign construction of. Jones Act ships),

certain industry sectors will be affected adversely.

Policy makers will need to weigh costs and benefits

carefully over the long range, clearly including the

national interest involved with maintaining certain

parts of the industrial base, such as the shipbuilding

base.

Finally, future policy formulation needs a more

comprehensive approach. Industry incentives may

be possible to devise for most maritime segments

without tying subsidies for one to subsidies for

another, as in the past. For example, certain taxation incentives and foreign purchase allowances

could be devised to apply to shipbuilders and ship

operators without necessarily making one dependent on another. Also, incentives probably should

be tied to support for the most productive elements

of the industry and to the elimination of inefficiencies. Also, the incentives discussed in this chapter

shouid be integrated with other policies, including

international trade and cargo policies discussed in

chapter 7.

25-417 0 - 83 - 12 QL 3
Photo credit: U.S. Department of Agriculture
Contents

Page

Overview . . . . . . . . . . . . . . . . . . . . . . . . ., . . . . . . . . . . . . . . . . . + . . . . . . . . . . . . . 173

Trade Policies. . . . . . . . . . . . . . . . . . . . ● **** *,. **. .*. .*. *.*. .*. *.e **e**. 174

International Trade Policy, 1945-75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174

Present International Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

U.S. Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176

The Enforcement of Fair Trade Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181

Maritime Cargo Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Cargo Preference in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Bilateral Cargo-Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185

UNCTAD Liner Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193

Other UNCTAD Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195

Inclusion of Service Industries Within GATT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

Financing International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....6.... . . . . . . . . . . . . . . . . . . 200

TABLES

Table No. Page

43. Cargo-Preference Policies of 15 Largest U.S. Trading Partners . . . . . . . . . . . . 185

44. U.S. Waterborne Foreign Trade Liner Service, Origin/Destination

Country, Calendar Year 1981 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

45. Potential U.S. Liner Trade Gain Under Bilateral Agreement . . . . . . . . . . . . . . 189
Chapter 7

International Trade and Cargo Policies

OVERVIEW

Trade and cargo policies related to international

shipping are often considered separately, both within U.S. Federal agencies and among international

organizations. However, general trade rules affect

the level and nature of world trade which in turn

influences the prospects for the shipping industry.

This chapter discusses the status and trends of those

policies that may have an impact on future international trade and the participation of the U.S.

shipping industry in that trade.

Common perceptions often overlook the fact that

shipping is a derived demand and an integral component of international trade. When the volume

of world commerce goes up, the demand for shipping services increases and the need for efficient,

high-volume shipping increases. Unfortunately,

many people in the industry regard shipping as an

end in itself rather than a means to an end.

International shipping financiers Paul Slater

(Chairman, Pelican Finance Corp. ) and John

Clarke (Citibank N. A.) are quoted, respectively,

in the March 1983 Seatrade. Paul Slater observed:

The shipping industry has lost sight of the realities of its own existence—it exists to serve world

trade. . . . In the future, owners would have to

look at trades, not just ships.

John Clarke of Citibank echoed this:

The key to success is cargoes, rather than ships.

There must be more emphasis on putting deals together with shippers, and the packages must be

more creative.

It is, therefore, highly relevant to examine maritime

issues within the framework of trade and cargo policies in both the national and international forums.

The international organization most concerned

with trade policies among major trading countries

is known as the General Agreements on Trade and

Tariffs (GATT). The United States was one of the

world leaders in the development of GATT through

the endorsement of free and open trade principles.

The U.S. Congress has, at the same time, introduced trade laws that are intended to guard against

unfair trading practices of other nations. The status

of GATT and the U.S. policies toward GATT are

discussed in this chapter.

The principal organization that has concerned

itself with multilateral agreements on maritime

cargo policies is the United Nations Conference on

Trade and Development (UNCTAD). In response

to initiatives of the developing countries, UNCTAD

promulgated a multilateral “Code of Conduct for

Liner Conferences” which is a cargo-sharing agreement. This code has been ratified by the requisite

number of countries to enable it to go into effect

in October 1983. The United States has, however,

refused to ratify the UNCTAD Code. Like many

other nations, the United States does have cargo

reservation policies encompassing Governmentfinanced and Government-impelled cargoes. It also

has several bilateral cargo treaties in force—specifically with the Peoples Republic of China

(P. R.C.), Brazil, and Argentina—which were negotiated following unilateral actions by the other

nations.

The current debate between those advocating

completely free trade or free access to cargoes and

those advocating degrees of government intervention to protect domestic industries undoubtedly will

continue. For example, the national value of a domestic industry can sometimes convince governments to provide certain levels of protection. Even

though industries and governments publicly state

their opposition toward protectionism, they often

do not apply those principles to themselves. In addition, reaction to other governments’ policies often

will bring restrictions on trade. The growing involvement of governments and international organizations in trade and shipping policies and growing protectionism worldwide requires the United

States to develop clear trade policies that serve the

national interest and can remain consistent over the

long term (10 years or more) that many international issues require for resolution.

173
174 An Assessment of Maritime Trade and Technology

TRADE POLICIES

International Trade Policy, 1945-75

The importance of international trade for the

U.S. economy has increased markedly in the past

two decades. Although the U.S. ratio of exports to

gross national product (GNP) is still below that of

other industrial countries,l it stood in 1980 at 8.5

percent, almost double that of 1970. Imports also

doubled between 1970 and 1980, rising to 9.5 percent of GNP.

The increased interdependence of the U.S. economy with the international economy is graphically

reflected in the fact that over 5 million workers are

dependent on foreign trade for their livelihood, and

that 80 percent of all new manufacturing jobs

created in the late-1970’s were linked to exports.

In addition, 1 out of every 3 acres planted by American farmers produces crops for exports. 2 This interdependence is expected to continue to grow, with

some estimates putting U.S. exports at 15 percent

of GNP in 1990.

For the industrialized countries of the Organization for Economic Cooperation and Development

(OECD) as a whole, exports accounted for 16 percent of GNP in 1980, up from 9 percent in 1962.

The developing countries, especially the newly industrializing countries ,

S also increased their participation in international trade in the past 10 years,

with their share of the value of free world exports

increasing from 20 to 30 percent between 1970 and

1980. South Korea, for example, increased its exports of goods and services from 3 percent of GNP

in 1960 to 34 percent in 1977, while Taiwan went

from 11 to 59 percent in the same period.4

I In 1980, for example, Japan exported 12.2 percent of its GNP,

while West Germany’s export share was 21.8 percent. U.S. Trade

Representative, Twenty-Sixth Annuaf Report of the President of the

United States on the Trade Agreements Program, 1981-82 (Washington, D. C.: Office of U.S. Trade Representative, 1983), p. 2.

‘Ibid., p. 1.

‘In 1979, OECD included Brazil, Greece, Hong Kong, South

Korea, Mexico, Portugal, Singapore, Spain, Taiwan, and Yugoslavia

in its seminal analysis on the subject. The Impact of the Newly Industrializing Countries on Production and Trade in Manufactures:

Report by the Secretary General (Paris: Of!ice of U.S. Trade Representative, 1979).

4Figures cited in U.S. Trade Representative, Twenty-Sixth Report,

op. cit., pp. 2-3.

Much of the economic growth in the postwar period has been the result of international trade. Recent studies have demonstrated that when economies of OECD countries grow by more than 1.5

to 2 percent per year—the situation during the postwar period until recently —nonoil imports tended

to grow three times as fast.5 The same studies show

a similar negative relationship, with zero growth

in OECD economic activity resulting in a 5 percent drop in nonoil imports. G

The present constriction of economic activity and

international trade is especially significant because

it may very well represent a watershed for the international trading system. The commitment of the

industrialized countries, and especially the United

States, to free and open trade, is being brought into

question as economic activity stagnates and unemployment continues at historically high rates. This

is a departure from the 25-year period between 1950

and 19.75 during which the industrialized countries

experienced historically high average economic

growth rates of over 4 percent and average annual

growth rates of over 8 percent in merchandise trade.

Much of the post-World War 11 growth rate has

been attributed to the progressive reduction of trade

barriers in successive rounds of trade negotiations

since 1948 under GATT’. The first five rounds were

concerned solely with tariff reductions, while the

last two have sought to reduce both tariff and nontariff barriers to trade. After the seventh and latest

round of Multilateral Trade Negotiations (MTN),

the Tokyo Round (1974-79), average tariff rates

are only 4.4 percent in the United States, 4.7 percent in the European Economic Community (EEC)

and 2.8 percent in Japan.7 The Tokyo Round also

resulted in the establishment of codes of behavior

for such nontariff barriers as customs valuation and

subsidies.

5C. Fred Bergsten and William R. Cline, Trade Policy in the 1980’s

(Washington, D. C.: Institute for International Economics, 1983),

p. 14.

bIbid.

7The Tokyo Round of Multi faterd Trade Negotiations: 11 Supplementary Repofi (Geneva: General Agreements on Trade and Tariffs, 1980), p. 33, cited in Bergsten and Cline, Trade Policy in the

~980’s, op. cit., p. 15.
Ch. 7—Infernational Trade and Cargo Policies ● 175

Although the United States was the main force

behind these trade liberalization efforts, in 1946 the

U.S. Congress refused to agree to the establishment

of a much stronger multilateral body, the International Trade Organization (ITO). ITO, which was

armed with strong enforcement powers and slated

by some to become the economic arm of the United

Nations, had an ambitious charter that was intended to prevent trade wars similar to those of the

1930’s, which many believe worsened the depression and created the economic conditions that

helped bring about World War II. ITO was considered to be overly ambitious and tco ‘ ‘entangling” by Congress. The industrialized countries,

however, agreed to the establishment of GATT,

which provides rules of conduct for international

trade and relies on negotiation and international

cooperation, rather than supranational enforcement, to effect the reciprocal reduction of trade barriers, and ensure respect for international trade

rules with respect to trade in goods.

GATT is thus a loosely structured international

organization which serves as the principal forum

in which countries can discuss trade problems and

cooperate to reduce trade barriers. * Its body of rules

is based on the most-favored-nation principle that

governs U.S. conduct in international trade.

Throughout the 1950’s and 1960’s, one political

objective of U.S. foreign policy was the economic

reconstruction of Europe and Japan. The benefits

of Marshall Plan assistance were accelerated

through the progressive dismantling of international

trade barriers and capital controls. By the late

1960’s and early 1970’s, the economic reconstruc-

“As of September 1982, GATT consisted of 87 member countries

(“Contracting Parties”) and 30 other countries, to whose territories

GATT had been applied and which, as independent states, maintain

a de facto application of GATT rules. These countries represent fourfifths of the world’s trade. Of the Eastern bloc countries, only

Czechoslovakia, Poland, Romania, and Yugoslavia belong. In addition to being the forum for periodic multilateral trade negotiations,

GATT has, as part of its normal business, annual sessions of the Contracting Parties to establish overall objectives and guidelines for the

organization’s work program, and periodic meetings of the Council,

to which all Contracting Parties belong, to discuss and try to settle

trade concerns and disputes. The GATT Secretariat, which is headquartered in Geneva, Switzerland, consists of 200 personnel headed

by a Director General and prepares documentation requested by the

members. International Trade, 1981/82 (Geneva: General Agreements

on Trade and Tariffs, 1982) and U.S. Senate Committee on Finance,

Report to Accompany H.R. 4537, Trade Agreements Act of 1979,

Report No. 96-249, 96th Cong. 1st sess., 1979, p. 2.

tion of Europe and Japan was completed, and these

countries were in position to begin to share with

the United States responsibility for the management

of the international economic system. Tensions

arose in part, however, over the unwillingness of

Japan and Europe to assume fully the shared responsibility that their new economic strength warranted. Persistent requests by succeeding American

administrations to lower trade barriers further and

improve capital flows went unheeded. To improve

the political climate and economic coordination

among the seven leading industrial countries (the

United States, West Germany, France, the United

Kingdom, Italy, Canada, and Japan) annual economic summits at the heads of state level were instituted in 1975. The major factors that have led

to a changed attitude toward free trade that carries through to today were the economic events of

the mid- 1970’s—resulting principally from the oil

price increases of 1973-74.

Present International Trade Policy

Some analysts call the present phenomenon

“New Protectionism, while others call it ‘ ‘managed trade. With tariffs no longer providing any

effective protection, countries have begun to influence the direction and volume of their trade through

the use of voluntary export restraints and orderly

marketing agreements to limit exports, and through

the subsidization of exports and other forms of governmental intervention designed to capture export

markets unfairly. While the initial trade response

to the inflation of 1973 was trade liberalization, exemplified by the elimination of U. S. quotas on steel,

oil, meat, and sugar imports, by 1977 protectionism

was once again on the rise.

Although each successive year has brought new

protectionist measures in all the industrialized countries, these measures have not resulted in any further reduction in world trade beyond that which

most attribute to the world economic recession.

These protectionist tendencies, which have sought

to avoid the painful restructuring of uncompetitive

industry or agriculture by insulating the domestic

aBergsten and Cline, Trade Policy in the 1980 ‘s, op. cit. , p. 15.

“’The Drift to Managed Trade, ” Financial Times, Feb. 15, 1983,

p. 12.
176 ● An Assessment of Madtime Trade and Technology

economy from international competition, generally

have been balanced by counter pressures, such as

inflationary concerns, the growing importance of

exports to all countries, and the need to mute trade

disputes for foreign policy reasons, all of which

favor free trade.

The United States and its major trading partners, faced with the same economic conditions of

high unemployment, economic slowdown, and

growing export dependency, are caught up in

similar balancing acts between these protectionist

and liberalizing tendencies. Recently, for example,

the trade officials of Japan, Europe, the United

States, and Canada reiterated, upon completing the

third quadrilateral meeting of high-level trade officials, their determination to fight jointly against

rising protectionism. 10 At the same time, each of

these countries has continued to (

‘ m

a

nage’ its

trade. For example, the Europeans recently forced

the Japanese to agree to limit their exports of videotape recorders to Europe in 1983, after the French

required that all such recorders pass customs in the

small town of Poitiers. Europe’s Common Agricultural Policy, aimed at protecting the politically

important farmers, has set domestic prices on the

basis of the costs of the least efllcient producer, and

the resultant excess production is exported with subsidies. As a result, although EEC had been a net

importer of grains, sugar, dairy products, and beef

in the early 1970’s, it is now a net exporter.

The opening of Japan’s domestic market to foreign agricultural products such as citrus and beef,

and high-technology items such as computers,

automobiles, and telecommunications equipment,

which Japan exports, has been the main agenda

item for U.S. and European trade negotiators. Japan has a network of nontariff barriers such as administrative guidance and burdensome customs

evaluation procedures (which the French sought to

emulate at Poitiers). Trade liberalization in Japan

has evolved so slowly that only the January 1983

visit of the Japanese Prime Minister to the United

States persuaded U.S. policymakers to delay any

new import restraints. One analyst, however, argues that the current undervaluation of the Japanese yen resulting from exchange rate misaline1O’’IndustriaJ Powers Agree to Fight Protectionism, ” Jourmf of

Commerce, Feb. 14, 1983.

ments ‘‘is a more potent cause of trade friction than

overt and covert protection in Japan. ’11

The United States is not immune from criticism

about its protectionist measures. Steel, automobiles,

and textiles all enter the United States under some

form of voluntary restraint arrangement. On the

whole, however, these arrangements are not as

restrictive as the European program, although one

observer wryly noted that it was the United States

that, in fact, originated many of the restrictive practices it finds fault with in its trading partners. It

was the United States that first insisted on a GATT’

waiver for protection of certain agricultural products—which set a precedent for similar European

requests—and it was the United States which

pushed in the early 1960’s for the first international

textile arrangement. The developing countries have

also implemented protectionist policies. Many of

these nations, as they attempted to improve their

international trading posture, found it difficult to

break into markets that historically had been dominated by developed countries. Their inability to

be competitive has lead to a number of direct and

indirect protectionist schemes.

U.S. Trade Policy

Since 1976, the merchandise trade balance has

been in deficit, and the economic rebound in the

United States is expected to lead to a record 1983

trade deficit. Although the current account, which

includes trade in services and investment remittances as well as trade in goods, may be a better

measure of U.S. competitiveness, the trade deficits—due to a large degree to imports of autos, steel,

and textiles—have provided the fuel for inwardlooking trade policies. Nevertheless, the United

States continues to exert strong leadership within

and without GATT in favor of free trade. It continues to use GATT as its principal forum for the

resolution of trade disputes. GATT, as a body, does

not have any enforcement mechanism, and major

trading countries have ignored unfavorable rulings

of GATT panels of experts. GATT’s utility in the

resolution of trade disputes is therefore dependent

1 IG~V R . saxonhouse} “The Micro and Macroeconomics of Foreign Sales to Japan, cited in Bergsten and Cline, Trade Po~icy in

the 1980’s, op. cit., p. 28.
Ch. 7—international Trade and Cargo Policies ● 177

on either the willingness of its members to acquiesce

to its jurisdiction, or on political deals made outside the institution.

The rise in the number of interest groups seeking import protection is attributable to the increased

interdependence between the U.S. and world economies, and to the inability of certain industries to

compete favorably with foreign industries. The resultant high unemployment in labor-intensive industries such as autos, textiles, and steel, together

with a growing frustration with what appears to be

the slow pace of trade liberalization in Europe and

Japan, have punched large holes in the broad postwar consensus in support of free trade. This breakdown is particularly manifested in the recent introduction of new legislative proposals addressing

trade policies. These proposals share certain common characteristics: they are designed to increase

employment in the United States either by placing restrictions on foreign imports or by improving the ability of U. S. exports to compete in foreign

markets. They all involve some form of governmental intervention, which would result in increased

budgetary costs and market inefficiencies.

During the 97th Congress, several bills calling

for trade reciprocity were introduced. These bills

sought to give the President retaliatory powers to

deny access to the U.S. market of products from

countries that did not grant similar U.S. products

‘‘substantially equivalent’ access to their markets.

Although the conventional usage in trade policy of

the term ‘‘reciprocity’ has connoted for the last

60 years unconditional most-favored-nation treatment, the present usage implies a willingness to

discriminate among suppliers by providing import

protection against a single country. Furthermore,

while ‘ ‘reciprocity’ traditionally involved a balancing of benefits and access across the total trade spectrum, with the direction of trade based on the laws

of comparative advantage, the new usage would

judge whether trade in individual product sectors

was balanced.

Other proposals have sought to increase U.S.

employment by curbing imports and would require

foreign automobile manufacturers to incorporate

prescribed amounts of U.S. labor and U.S.-manufactured components into cars sold in the United

States. The “local content” bill had its most recent origin in 1980 as layoffs in the auto industry

started to mount in the face of increased Japanese

automobile imports.

President Reagan opposed this bill, saying that

it would destroy more jobs than it would save and

that it would invite retaliation. He did not mention that such ‘‘local content’ regulations are one

of the main nontariff barriers that U.S. exporters

face in other countries, especially in the developing countries. As a possible reaction to congressional concerns, the Japanese recently have agreed to

continue for another year their ‘ ‘voluntary export

curbs, which limit their auto exports to the United

States and thus enable U.S. automakers to increase

their market share.

Improving the competitiveness of U.S. exports

is the rationale behind certain proposals before Congress this year to renew the charter of the ExportImport Bank. The Eximbank, as it is known, aids

in financing exports of U.S. goods and services

through the provision of direct loans, loan guarantees, and insurance. While the Bank must base

its rate structure on its average cost of money, it

also must meet the policy mandate that its financing be provided at rates and on terms that are competitive with financing provided by the United

States’ principal foreign competition. In recent

years, however, high interest rates and the increasing tendency of foreign governments to subsidize

export financing heavily have placed U.S. exporters

at a competitive disadvantage. This has put pressure on Eximbank to provide subsidized financing

to counter the export financing subsidies of the

other countries.

While the administration would prefer to have

Congress renew Eximbank’s charter without any

changes, Senator John Heinz is sponsoring a bill

to establish a special fund, ‘‘a war chest, that

would give Eximbank increased authority to provide subsidized loans to U.S. exporters to counter

‘ ‘predatory’ export credit practices of other nations. However, the recent drop in interest rates

may remove the need for heavily subsidized export

credits12 and thus make the debate over a ‘ ‘war

ches t academic.

IZone Obsewer dates the first subsidized Eximbank Ioa to as recently as June 1979, when Eximbank’s funding costs moved above the

average interest rate charged on its loans. Patricia E. Barrett, ‘‘Eximbank Must Be Seen in Global Perspective, ‘Journal of Commerce,

Jan. 26, 1983.
178 ● An Assessment of Maritime Trade and Technology

Export Trading Companies

As world trade has become more important to

the American economy, both business and government have looked for ways to boost U.S. exports.

One frequently noted fact is that only a very small

percentage of all U.S. companies are even involved

in foreign trade. Studies by the Department of

Commerce and others estimate that more than

20,000 small- to medium-sized U.S. firms make

products that would be highly competitive overseas. 13 But their small size, low amounts of capital,

and lack of foreign experience have left them either

unable or unwilling to take on the risks and costs

involved in operating abroad. The Export Trading

Company Act of 1982 (ETCA) is designed to help

deal with this problem.

Trading companies have long existed in the

United States and elsewhere. But prior to the new

law, most American trading companies fell into two

categories— companies set up by major corporations for the purpose of handling their own export

trade or narrowly focused companies engaged primarily in arranging export services. 14

But the 1982 law envisions something more—

knowledgeable and well-financed companies that

can provide a wide range of services to U.S. firms.

This model, as in so many other cases, has been

the Japanese. Their very successful trading companies—the Sogoshoshas— link goods to foreign

markets. Possessing both a large overseas commercial network and special financing by banks that

belong to the same Kiretsu, or business combine,

as the trading company itself, this type of organization can provide a wide range of services to a company that wants to export. These services include

the development of foreign markets, market intelligence and research, financing, transportation services, and generally handling a variety of the uncertainties and risks associated with exporting.

ETCA was passed to encourage the formation

of this kind of broad, multiservice company. It does

so by changing the law in two areas: banking and

antitrust.

lssee for instance, Senate Report 92-27, May 18, 1981, PP. 2-3.

I+ Betty JO Christian, “Export Trading Companies: New Vehicle

for Growth for American Business, ” Flow to Use Export Trading

Companies to Penetrate Foreign Markets, a symposium presented by

the Baruch College of the City University of New York, Dec. 9, 1982,

p. 8.

The act allows banks, within certain limitations,

to buy into existing trading companies or to establish their own trading company subsidiaries. It is

believed that this new provision will help create the

kind of unique relationship that exists between Japanese banks and trading companies and will, in particular, bring in the capital needed to finance exports. Banks are also seen as having the necessary

knowledge, expertise, and overseas network to provide comprehensive export services.

Another provision of the new legislation clarified

the Webb-Pomerence Act of 1918. That law exempts U.S. exporters, under certain conditions,

from U.S. antitrust laws. The 1982 act does not,

in fact, change any U.S. antitrust law. Instead, it

establishes a ‘ ‘certification system’ by which firms

seeking to form an export trading company can get

a formal Government opinion on whether their action does or does not violate existing antitrust

policy. The system thus provides preclearance and

a guarantee against possible antitrust actions by the

Government. Given that present uncertainties

about antitrust policy seem to deter many American

businessmen, the act’s authors hope that the certification process will lead to more cooperation

among firms.

Under the new act, just about anybody can form

an export trading company, Banks can, as noted

above. Large corporations that already have experience overseas can offer their services to other

American firms, Transportation companies and

even port authorities and State development boards

can start them.

Ship operators in particular may want to consider forming export trading subsidiaries. Given

their great experience in foreign trade and their extensive overseas networks, many ship operators are

in an ideal position to offer expanded services to

U.S. exporters. Some observers also hope that the

1982 law will provide more antitrust immunity than

the 1916 Shipping Act, although changes in the

1916 law might further the process. In particular,

allowing service contracts between a shipper and

an ocean common carrier or conference might help

create longer term, more flexible cargo arrangements. 15

“William J. Coffey, “Export Trading Companies and Ocean Carriers, ” How to (Jse Export Trading Companies, symposium, Dec.

9, 1982, p. 31.
Ch. 7—international Trade and Cargo Policies 179

Since ETCA is so new, it is too early to assess

its impact. Much will depend on how Federal antitrust officials implement the new legislation, and

in particular how broadly and quickly they grant

antitrust certificates. Much also depends on the attitudes of American banks; they historically have

been very risk-averse and may not wish to get into

the export trading business. Yet in any event, the

1982 law is a major change in American public policy towards exports and the role of American companies, including American shipping companies,

in the export business.

Reorganization of Federal Trade Agencies

In addition to substantive legislation, there has

been continuing interest in reorganizing the various

Federal trade agencies. Proposals range from establishing a Department of Trade, which would

bring together the Off Ice of U.S. Trade Representative (OUSTR), Eximbank, and other agencies

under a new Cabinet-level department, to more

modest proposals that would fold either OUSTR

into the Commerce Department or merge the International Trade Administration (ITA) of Commerce into OUSTR. Although these sweeping proposals deal with the management of trade policy,

they are principally motivated by concern for the

continued deterioration of the U.S. trade position,

the loss of both American and foreign markets to

foreign competition, and the perceived unwillingness of our trading partners to open their

markets to our exports. As Senator Roth recently

said in support of his reorganization bill, ‘‘[1] would

assign the new Secretary of Trade the responsibility

of retaliating against ‘illegal’ quotas or other unfair practices used by trading partners. “16

At the end of April 1983, the Reagan administration presented a trade reorganization plan of its

own— a proposal to create a new Department of

International Trade and Industry (DITI). The current administration, like others, claims that trade

responsibilities within the Government should be

met by one voice

issue.

Is’ ‘Trade Bill Praised

merce, Feb. 2, 1983.

on this increasingly important

by Commerce Official, ” JournaJ of Com -

It is true that Federal trade programs are spread

out over a wide range of departments and agencies. They include:

●

●

●

●

●

●

●

●

●

U.S. Trade Representative (USTR), a Cabinet-level official in the White House who represents the United States in both GATT and

bilateral trade negotiations;

Department of State, which has fewer trade

responsibilities than it once did but which still

is involved in trade negotiations;

Department of Commerce, which administers

export controls and assists American exporters

through its Foreign Commercial Service and

other programs;

International Trade Commission (ITC), an

independent Federal agency that investigates

charges that other governments have engaged

in such unfair trade practices as dumping and

improper subsidies;

Department of Agriculture (USDA), which

maintains the Foreign Agricultural Service

(FAS) and has the main responsibility for agricultural trade policy;

Department of the Treasury, which helps set

international economic and monetary policy;

National Security Council (NSC) and Department of Defense (DOD), both of which play

an active role in export control policies;

Maritime Administration (MarAd) and Federal Maritime Commission (FMC), both of

which are concerned with the international role

of the U.S. shipping and shipbuilding industries; and

other agencies that provide assistance to exporters: including the Eximbank, the Small

Business Administration (SBA), the Overseas

Private Investment Corporation (OPIC), and

USDA’s Commodity Credit Corporation

(ccc).

The DITI proposal would combine some but not

all of these programs into the new department.

Under the proposal, the Department of Commerce

would be abolished. Many of its present parts would

be included in the new department—ITA; the eco17For detai]s see Raymond Ahearn and David Driscoll, Executive

Branch Organization to Formulate and Zmplement U.S. Foreign Trade

and Investment Policy, Congressional Research Service Report No.

81-143 E, Aug. 25, 1981.
180 ● An Assessment of Maritime Trade and Technology

nomic affairs programs (Bureau of Economic Analysis, Bureau of Industrial Economics, and technology policy, but not the Census Bureau); the Patent and Trademark Office; the Travel and Tourism Administration; and the National Telecommunications and Information Administration.

Other parts of Commerce would either be made

independent or integrated into other agencies. 18

Also included in DITI would be OUSTR, the

Eximbank, and OPIC. A new Cabinet-level council, headed by the President, would be established

in the White House to coordinate overall Government trade policy. The council would have a small

White House staff and be similar to NSC.19

The main argument for the new department is

that the executive branch too often simply reacts

to events—either in Congress or abroad—and fails

to plan ahead or speak with one voice. In particular,

the administration says, the separation of OUSTR

and the Commerce Department splits policymaking from policy implementation and confuses everyone; no one knows whether the Trade Representative or the Secretary of Commerce speaks for the

United States. In the words of the administration,

DITI would ‘ ‘bring together the analysis, negotiation, regulation, and implementation aspects of

trade policy. ‘’20 Commerce Secretary Baldrige, the

plan’s main proponent, says that such consolidation is important as trade becomes increasingly

necessary to the U.S. economy.

The DITI proposal does not lack critics, however. The Senate Finance Committee and House

Ways and Means Committee are worried about losing jurisdiction over OUSTR. Other critics specify

three main objectives. First, this proposal will not

actually solve the fragmentation problem. It will

combine OUSTR and Commerce, but USDA will

still handle agricultural trade, and State and Defense will continue their roles. If fragmentation is

the problem, DITI is not a full solution. Second,

DITI may in fact add to fragmentation. Today,

OUSTR serves not only as our negotiator but also

Ie~ {statement by the President, June 1, 1983. See also: ‘‘Department of International Trade and Industry: Joint Statement by Ambassador Brock, Secretary Baldrige, and Senator Roth, ” and “Department of International Trade and Industry: Factsheet.

‘

g

Ibid.

‘“Ibid.

as interagency coordinator. However, DITI, like

the present Commerce Department, is likely to be

more an advocate of U.S. business interests than

an impartial balancer of competing trade views.

Thus, the interagency function will fall to the new

White House trade council, a group likely to lack

the expertise and stature of OUSTR. In fact, an

earlier trade reorganization debate in 1979 led to

strengthening OUSTR, because of problems of interagency coordination, and a perceived need to

improve our competence in negotiations. Third,

critics ask what is the ‘ ‘real’ purpose of the reorganization. They are afraid that the new reorganization will weaken the efficiency and independence of OUSTR and shift policymaking power to

the more protectionist-minded Commerce Department. Secretary Baldrige disagrees, saying that the

new DITI could be pro-free trade or pro-protection,

depending on who is put in charge. But the critics

note that the Commerce Department’s main constituency are the very businesses that now seek relief

from imports.21

As with other reorganization plans, political power is a factor. Questions arise as to who will benefit

and lose politically if the reorganization proposal

is adopted. In the case of DITI, business interests

that seek further protection probably would gain

in policymaking influence. Consumers who benefit

from the free importation of low-price foreign goods

might lose. Service industries, like shipping, might

not be affected because the Commerce Department

has always been more oriented toward manufacturers than service industries.

President Reagan would like to see Congress

adopt the DITI proposal this year. At the present,

its prospects are unclear. In the final analysis,

though, the debate over DITI is best seen as part

of the larger U.S. debate over trade policy in general. With many American industries facing increasingly stiff foreign competition, the United

States now faces two key questions. First, what is

our goal-genuinely freer trade, including more

open foreign markets; more protection for ailing

U.S. industries; or freer trade plus some concerted

U.S. industrial policy to make American companies

more competitive? And, second, if our goal is freer

zlFor a Sumlmav of the criticisms of the administration proposal

see “Trade,” The Economist, Apr. 30-May 6, 1983, pp. 28-33.
Ch. 7–international Trade and Cargo Policies ● 181

trade, what tactics should we use in seeking it—continued patience in negotiations or retaliation against

those whose markets are more closed than ours?

Until we know what kind of trade policy we advocate, debates over trade organization are likely to

remain intense and frequent.

These reorganization proposals are not new; the

same arguments were used in 1979-80 when a similar debate culminated in a compromise reorganization of the trade agencies and functions. The compromise gave OUSTR, who is the President’s trade

adviser and chief international negotiator, wider

trade policy leadership, while the Commerce Department was given the day-to-day operational

responsibility for the Government trade functions.

However, this reorganization did little to improve

the weak trade promotion activities of the U.S.

Government, which involve a host of other considerations.

The Enforcement of Fair Trade Laws

While changes in U.S. trade laws may provide

a long-run approach to improving the enforcement

of U.S. trade rights, the administration also enforces its rights by permitting aggrieved U.S. parties to seek relief on a case-by-case basis under the

U.S. Fair Trade Laws. The Countervailing and

Anti-Dumping Statutes protect U.S. manufacturers

from foreign subsidies and sales at less-than-fairvalue in the U.S. market. Cases involving items

such as steel, bicycles, metal castings, certain

chemicals, and textile products have been processed

in 1982 by the Commerce Department; and the

United States has concluded an agreement with

EEC within the past year in response to findings

of export subsidies under the U.S. countervailing

duty law, setting limits on exports Of major Steel

products to the U.S. market.

The United States also has decided to use U.S.

export subsidies as a trade weapon for the first time.

As a challenge to EEC agricultural policies that

have turned Europe from a net wheat importer,

through heavy subsidization, to a net exporter,

USDA has subsidized the sale of 1 million metric

tons (tonnes) of wheat flour to Egypt, which previously had been supplied principally by the

French. There are also indications that U.S. exports of butter and poultry products maybe similarly subsidized.

The most sweeping powers to retaliate against

the unfair trade practices of foreign governments

are found in section 301 of the Trade Act of 1974,

as amended. Under section 301, the President can

take ‘‘all appropriate and feasible action’ within

his power—including quotas, or any other trade

restrictions—to obtain the elimination of any acts,

policies, or practices deemed to be unjustifiable,

unreasonable, or discriminatory and which burden

or restrict U.S. commerce. This provision of law,

although on the books since 1974, was hardly used

during the Tokyo Round of Trade Negotiations

and only since its completion has OUSTR undertaken a significant number of investigations. During fiscal year 1982, OUSTR initiated 10 section

301 investigations, which constituted nearly onethird of the total investigations initiated under the

provisions of the section since 1975.22

Four section 301 cases concern European agricultural subsidies, one concerns Argentina’s export

restrictions on cattlehides, and five concern domestic subsidy practices of five countries producing specialty steel. In this context, OUSTR has

been actively utilizing the international dispute settlement procedures of GATT and the Subsidies

Code. U.S. Government officials have expressed

some disappointment, however, at the fact that with

deadlines missed and one consultation request even

refused, these procedures have not always worked

to U.S. satisfaction. Nevertheless, OUSTR is continuing this approach and has not yet sought other

forms of retaliatory relief.23 The U.S. Government

subsidization of the wheat sale to Egypt has escalated tensions with EEC and may have actually

overshadowed the significance of the 301 proceedings in GATT. Nevertheless, since EEC has also

brought the U.S. subsidy case to GATT, some resolution within the terms of the Subsidies Code is

expected to occur, a fact which, in its own right,

has precedential significance for GATT.

220~ce ofu.s.Trade Representative, Report of the OUSTR to

the Congress on the Status of Section 301 Cases, unpublished, July

29, 1982.

231 bid., p. 2.
182 ● An Assessment of Maritime Trade and Technology

The present administration appears to be following the approach of exhausting the international

dispute settlement procedures before considering

any retaliation. This is a very delicate maneuver.

The international settlement approach has not yet

served to eliminate any foreign unfair trade practices and will not be continued ad infinitum without

some successful resolution of cases. The complaining industries and Congress are closely watching

the administration’s enforcement of these section

301 cases. The administration will need to receive

concessions from U.S. trading partners to avoid the

necessity of actually retaliating under section 301.

There is already some question in Congress about

the need for changes in section 301 “to expand the

scope of this law, authorize the use of a broader

range of retaliatory devices, such as countersubsidy programs or regulatory action, and revise administrative procedures, including time limits. ’24

Z4L ‘The Honorab]e Sam M. Gibbons (D-Fla. ), Chairman, SubCOrnmittee on Trade, Committee on Ways and Means, U.S. House of

Representatives, Announces Hearings on Trade Remedy Laws, ”

House Ways and Means Subcommittee on Trade, Feb. 15, 1983, p. 2.

MARITIME CARGO POLICY

Introduction

Shipping policies tend to mirror trade policies.

As might be expected, increasing protectionism in

trade has spawned a variety of restrictive and protectionist policies in the maritime area—unilateral,

bilateral, and multilateral.

Historically, all maritime nations have protected

their national maritime interests through the implementation of some forms of cargo policy, generally by reserving some or all of the carriage of

certain commodities for their own national carriers.

In the case of established maritime countries, this

is sometimes achieved through closed conferences,

which are able to assure national lines of full or

“fair” participation in their trade. In the case of

lesser developed countries, more overt government

intervention is usually involved.

The practice of cargo preference can be direct

or indirect. In some cases, a country mandates that

a certain percentage of its imports or exports must

be carried on its national-flag vessels. Provision may

be made for bilateral or multilateral cargo-sharing,

often on a 50/50 or 40/40/20 basis, with the larger

shares reserved for the national flag lines of the

trading partners. (These agreements will be discussed later in this paper. ) Indirect cargo preference

can be accomplished by a government mandate requiring imports to be purchased on an f.o b.-basis

and exports on a c. if. -basis. In addition, various

tax deductions and other fiscal incentives are frequently granted to importers and exporters that utilize their national-flag carriers.

Cargo Preference in the United States

The United States has enacted several cargo

preference laws which concern the movement of

Government-impelled and Government-financed

cargoes. These are the Cargo Preference Act of

1954, Public Resolution (Public Res. ) 17 and the

Military Transport Act of 1904. An economically

significant U.S. cargo policy is cabotage, which is

provided for in the Merchant Marine Act of 1920,

commonly called the Jones Act. Although not usually categorized as cargo preference, this act requires that all domestic waterborne trade be carried on U.S.-built, U.S.-flag vessels. Chapter 6

explores the Jones Act and its impacts.

The Cargo Preference Act of 1954 mandates that

at least 50 percent of any U.S. Governmentimpelled cargoes must be carried on privately

owned U.S.-flag vessels. It applies to Government

cargoes shipped for U.S. Government account

(e.g., military support cargoes) and to any cargoes

shipped under Government grant or subsidized

loan such as cargoes shipped by the U.S. Agency

for International Development (AID).

Public Res. 17 requires that 100 percent of any

cargoes financed by loans made by the U.S. Government to foster exports must be carried on U. S.-

flag ships. This primarily concerns commodities

backed by Eximbank loans. There is provision for

waiver of the law by MarAd so that up to 50 percent of such shipments may be carried on the flag

vessels of the recipient nation.
Ch. 7—international Trade and Cargo Policies ● 183

The Military Transport Act of 1904 requires that

all supplies shipped for use of the U.S. Armed

Forces must move on U.S.-flag ships, This law interacts with the Cargo Preference Act with the result

that one-half of all such military shipments must

move on privately owned U.S. vessels. This means

that the Military Sealift Command (MSC), the primary vessel charterer for the military, can ship only

50 percent or less of its cargoes on Governmentowned or controlled vessels.

Currently, only Government-impelled cargoes

are covered by cargo preference laws. A bill, H.R.

2692, introduced by Congressman Walter B. Jones

in April 1983, seeks to clarify and consolidate the

existing U.S. cargo preference laws. Over the past

decade, a number of other bills have been introduced in Congress proposing extension of cargo

reservation to certain commercial cargoes, notably

bulk commodities. Among such legislative initiatives were measures that called for cargo preference

on 50 percent of all U.S. oil imports (1972), 30 percent of U.S. oil imports (1974), 9.5 percent of U.S.

oil imports (1977), 40 percent of dry-bulk imports

(1981, 1982), and 20 percent of dry-bulk exports

and imports (1982, 1983). Only one—the 1977 oil

cargo preference bill—passed both Houses of Congress. It was pocket-vetoed by President Ford. A

bill calling for 20 percent of dry-bulk exports and

imports to be carried on U.S.-built, U.S.-flag

vessels by 1998, was introduced by Congresswoman

Lindy Boggs in February 1983 and is pending. Related bills have been introduced in the Senate. The

reason for these attempts is not difficult to discern.

As discussed in chapter 3, the U.S.-flag foreign

trade liquid- and dry-bulk fleets are very small. Less

than 3 percent of U.S. oil imports is carried on

U.S.-flag ships, and less than 1 percent of U.S. drybulk trade.

There also have been attempts to limit or reduce

the impact of current cargo preference legislation.

A bill was introduced in the 97th Congress that

would have exempted dry-bulk cargoes from the

provisions of the Cargo Preference Act of 1954 and

Public Res. 17; another bill called for preference

cargoes to be shipped only on vessels delivering

cargo at the lowest landed cost; a third bill dealing

with interest rate “buy downs’ on loans for agricultural purchases by foreigners stated that the

cargo preference laws would not apply. In the current Congress, Senator Boshwitz has introduced

legislation that would exempt from cargo preference

agricultural commodities shipped under the blended

credit program. Congresswoman Virginia Smith

introduced another bill in the current session that

would exempt shipments of agricultural products

from the cargo preference laws.

The debate about cargo preference has continued

over the past decade. Opponents argue that significant economic cost and inefficiency result from

cargo preference requirements. In general, U. S.-

flag ships—especially bulk ships—cost substantially

more to build and operate than equivalent foreignflag ships (see ch. 3). In addition, since the U. S.-

flag bulk fleet is small and has limited capabilities,

a number of preference cargoes (especially under

the Food for Peace Program) must move on U.S.

liner ships which are even more expensive than

foreign-flag bulk carriers. Since agricultural commodities are sold on the basis of landed cost, usually

at world spot prices, higher transportation costs

would either reduce income to the U.S. farmers or,

where AID pays the bill, reduce the amount of the

product that is exported. Thus, in effect, income

is diverted from the U.S. agricultural sector to the

shipping industry. 7.5 Other criticisms of cargo preference are that overtonnaging in a given trade can

result, and that direct cost to the Government occurs when an agency must pay higher U.S. rates.

Less export cargo can then be shipped for a given

budgetary allotment.

Proponents of cargo preference hold that while

U.S.-flag bulk rates are higher than foreign rates,

this is not true in the liner industry, where rates

are set by conferences and are the same for all flag

carriers. Of course, agreed upon rates don’t apply

when rates are ‘‘open’ as may often be the case

for agricultural commodities. Virtually all Eximbank cargoes are liner shipments moving at conference rates. The primary and compelling argument for cargo preference is that it is one of the

prices paid to assure that the United States has a

national-flag merchant fleet. The fleet is needed for

strategic military reasons and must be supported

either directly or indirectly by the Government

25 See ‘ ‘Cargo Preference Requirements Add to Costs of Title 11

Food For Peace Programs, GAO Report-GAO/PAD-82-3 1, August

1982,
184 . An Assessment of Maritime Trade and Technology

because it is unable to compete on a purely commercial basis. Proponents further argue that one

should not calculate the cost of cargo preference

itself, only that cost as compared to the cost of other

promotional schemes that would have to be instituted in its absence. They also claim that cargo

preference requires no direct Government outlays.

(This is not entirely true, however, in cases where

Federal agencies’ budgets must bear the cost of

U.S.-flag shipping.)

The importance of cargo preference to the U.S.

maritime industry is significant. In 1980, revenue

from the carriage of preference cargoes totaled $1.1

billion for all U.S. operators. Liner operators

received 16 percent of all revenues under the programs. However, the overall figures do not reflect

the impact of preference carriage on individual

operators. For some liner operators, it amounts to

30 to 40 percent of total revenue. About $536 million in revenue was generated from shipments of

bulk preference cargoes in 1980, about 10 percent

of total revenue. The U.S. dry-bulk fleet-though

very small—is particularly dependent on preference

carriage and might cease to exist in foreign trades

without it. However, preference laws to date have

not resulted in improvements in the quality or size

of this fleet, largely because of the uncertainty

associated with cargo preference trades. U.S. ship

operators will not make long-term investments in

modern, efficient vessels without a more consistent

and coordinated approach toward cargo preference

policies by all Federal agencies involved.

A number of studies have been conducted to

measure the costs of various cargo preference

measures. A recent analysis of the cost of existing

cargo preference laws was prepared by MarAd on

April 11, 1983. MarAd used cost estimates generated by AID, (Because Eximbank cargoes are 95

to 98 percent liner and move at conference rates,

no differential for these cargoes was calculated. ) For

AID cargoes, the total 1982 differential was $138

million. The program which consistently had significant volumes of cargo moving at differential

rates was the Food for Peace (Public Law 480, Title

I) program. U.S.-flag vessels had a 50. l-percent

share of carriage at a rate differential per ton

averaging $52.57, The total cost of moving these

cargoes on U.S.-flag ships instead of on foreignflag ships was $97.7 million.

Various estimates of the costs of cargo preference

proposals have been generated during debate on

the proposals. However, it is difficult to measure

the potential impact of the proposals because the

cost estimates vary widely, depending on the

source. For example, estimates of the cost of

preference under the 1977 oil preference legislation,

which called for 9.5 percent of U.S. imports to be

carried on U.S.-flag, ranged from O. 1 cent per

gallon at the pump to 1 cent. General Accounting

Office (GAO) estimates were 0.15 cent to 0.23

cent, 2G or from 3.7 to 6.2 percent in the landed price

of Saudi oil.27 Critics claimed that the impact was

understated because GAO assumed only a 10 percent rate premium for U.S.-flag carriage.

In congressional testimony on H.R. 4627 (drybulk preference bill), a proponent of the legislation

claimed that 20 percent U.S.-flag carriage of U.S.

coal exports would raise its cost by only 40 cents

per ton or 0.6 percent. An opponent testified that

40 percent carriage of U.S. dry-bulk trade would

cost $28 to $45 per ton more (depending on the

commodity), an increase of 70 percent over foreign

carriage.

In the final analysis, there really is no argument

about whether the present U.S.-flag bulk service

costs are higher than foreign-flag or that, without

subsidies, many of the U.S.-flag liner operators

have higher costs compared with their foreign

counterparts. The question is whether national

priorities require the existence of a merchant fleet

which cannot compete in a free market under present conditions. * If so, it must be determined

whether cargo preference is the most desirable way

to provide a needed subsidy.

While most maritime nations practice cargo

preference, the terms of their laws and regulations

vary widely. In some cases, only government

impelled cargoes are covered—as is the case with

2G’’Costs of Cargo Preference, ” GAO, Report of the Comptroller

General of the United States, Sept. 9, 1977.

zTReu&n Kyle III ad ~urence Phillips, ‘‘Maritime protectionism:

A New Call for Cargo Preference, Department of Transportation,

undated.

● See chapter 6 for a discussion of possible approaches to making

the U.S. fleet competitive. The approaches include allowing foreign

purchase of ships, utilizing tax incentives more freely, reducing crew

size, allowing foreign nationals in crews, and other practices to equalize

U. S.- v. foreign-flag rules of conduct.
Ch. 7—lnternationa/ Trade and Cargo Policies 185

the United States. In others, 100 percent of all cargoes are included. However, such stringent reservation is usually practiced only in theory. A number

of countries have in place bilateral maritime agreements with trading partners. These are usually directed toward the liner trades only. These typically

divide cargo on a 50/50 or 40/40/20 basis, and the

United States is a party to several bilateral cargosharing agreements (most notably with Brazil and

Argentina).

Appendix B summarizes the cargo preference

practices of many foreign nations. The list was compiled by MarAd in early 1982, and revised by OTA

in early 1983. Table 43 summarizes some cargo

preference practices of the leading U.S. trading

partners. It can be seen from both table 43 and appendix B that those countries that trade most actively with the United States have a wide range of

cargo-reservation approaches. Some are comparatively unrestrictive in reserving cargo for their national fleets while others are most restrictive. It

should be noted that most of these nations are either

signatories of the UNCTAD Liner Code or have

indicated that they intend to sign it in the near

future. The variety of international trade philosophies thus represented requires careful analysis and

a flexible response from U.S. policy makers.

Bilateral Cargo-Sharing

A number of bilateral cargo-sharing agreements

have been negotiated between countries that are

substantial world traders. These countries regard

such agreements as a mechanism to achieve greater

participation in the carriage of their own trade. For

example, in 1981, developing countries accounted

for 12.5 percent of world shipping tonnage, while

they generated over 40 percent of waterborne cargoes traded (exports and imports together). In

trades between less developed countries (LDCS) and

the United States, the United States currently carries about a 30-percent share on average (although

in some trades the total is over 40 percent), while

the LDCS’ average share is 21 percent. It should

be noted that while the primary impetus for negotiation of bilateral agreements has come from developing countries, the developed countries of the West

have found this mechanism useful in regulating

their trades with Communist countries. Communist

nations frequently use their merchant fleets as

Table 43.—Cargo-Preference Policies of 15 Largest U.S. Trading Partners

Signatories of

Bilateral with Members UNCTAD Code

United States of GATT (April 1983) National cargo preference laws

Japan . . . . . . . . . . . . . . . . No Yes No Government/industry cooperation in all

shipping

United Kingdom . . . . . . . No Yes No Minimal—except military cargo

Saudi Arabia . . . . . . . . . . No No No 5 percent oil exports reserved for

Saudi flag; other preferences in

effect

West Germany . . . . . . . . No Yes Yes Minimal—except for bilateral

France . . . . . . . . . . . . . . . No Yes No Substantial cargo reservation for

energy imports and bilateral

Venezuela . . . . . . . . . . . . No No Yes Legislation for 50-percent reservation

to Venezuela flag

Nigeria . . . . . . . . . . . . . . . No Yes Yes Bilateral under negotiation

Netherlands . . . . . . . . . . No Yes Yes Minimal

Italy . . . . . . . . . . . . . . . . . No Yes No Minimal—some bilateral

South Korea . . . . . . . . . . No Yes Yes Substantial reservation laws

Brazil . . . . . . . . . . . . . . . . Yes Yes No Substantial reservation laws

Hong Kong . . . . . . . . . . . No — — (U.K. Territo~)

Belguim . . . . . . . . . . . . . . No Yes No Minimal

Australia . . . . . . . . . . . . . No Yes No Minimal

Indonesia. . . . . . . . . . . . . No Yes Yes Substantial Government rules favoring

Indonesian flag

NOTE Countries are listed in order of the value of their trade (from 1982 International Monetary Fund Yearbook) with the United States. Canada and Mexico are excluded

because their trade is mostly nonmaritime. See app. B for country detail.

SOURCE Off Ice of Technology Assessment

25-417 0 - 83 - 13 QL 3
186 . An Assessment of Maritime Trade and Technology

political tools rather than as commercial entities,

making it difficult or impossible for private operators to compete with them on a commercial basis.

Thus, a bilateral agreement maybe the best or only

way a Western country can protect its privately

owned fleet in trading with an Eastern bloc country.

Table 44 shows the U.S. share of bilateral liner

cargoes carried by country. To date, the U.S. policy

on bilateral cargo agreements has been to negotiate

only where necessary to protect our interests (e. g.,

where a country has already taken unilateral action to reserve cargoes for its own ships, and U. S.-

flag ships could be excluded from the trade if no

action were taken). The agreements now existing

between the United States and other countries were

negotiated on a government-to-government basis.

In some cases the carriers in the trade have been

empowered to negotiate specific pooling arrangements following general conditions in the government agreements.

Currently, the United States has bilateral agreements with three of its trading partners: the P. R. C.,

Argentina, and Brazil. A bilateral agreement with

the U.S.S.R. expired in 1981 and has not been

renewed.

Both the expired LT. S.-U. S.S. R. agreement

(signed in 1975) and the accord with the P.R.C.

(signed in 1980) gave each country’s merchant ships

access to the other’s major ports and the opportuniTable 44.–U.S. Waterborne Foreign Trade Liner Service, Origin/Destination Country, Calendar Year 1981

Total U, S.-flag share

$ value –

$ value

Country Tonnage (million) Tonnage Percent (million) Percent

Japan . . . . . . . . . . . . . . . . . . . . . .................8,321,052

Taiwan . . . . . . . . . . . . . . . . . . . . . ................3,605,829

West Germany. . . . . . . . . . . . . . . . . . . . . . .........3,258,880

South Korea. . . . . . . . . . . . . . . . . . . . . . ...........2,655,178

United Kingdom . . . . . . . . . . . . . . . . . . . . . ........2,337,773

Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,142,515

Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,936,655

Netherlands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,807,944

France. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,764,379

Australia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,737,599

Hong Kong. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,568,489

Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,476,931

Belgium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,234,514

Venezuela. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,214,544

South Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193,400

Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,161,050

India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,003,018

Nigeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,001,449

Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 944,816

Spain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923,238

Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830,145

People’ sRepublic of China . . . . . . . . . . . . . . . . . . . 814,835

Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,740

Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 668,411

Ecuador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 586,823

Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571,663

Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 557,563

Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 555,060

Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534,354

Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,778

New Zealand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501,914

Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,979

Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,163

Guatemala . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,778

Canada (Total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 392,953

(Translates) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,941

Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . 351,213

Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 337,929

$28,804

10,255

9,088

6,725

6,881

4,035

4,220

3,293

5,188

4,464

5,938

4,289

3,182

3,056

2,276

1,666

1,323

966

1,744

1,884

882

1,940

2,618

1,630

798

1,239

1,053

1,154

902

1,830

1,140

1,063

1,099

551

347

124

524

820

1,803,050

869,257

742,466

681,646

826,127

562,374

884,833

496,243

549,673

464,665

508,447

108,870

350,170

344,185

224,246

446,045

616,410

34,759

276,141

328,746

450,770

182,473

154,427

298,814

175,067

157,808

196,843

124,703

253,010

95,941

134,383

145,960

167,573

71,733

120,400

72,391

126,093

63,987

22

24

23

26

35

26

46

27

31

27

32

7

28

28

19

38

62

4

29

36

54

22

23

45

30

28

35

22

48

18

27

29

34

18

31

39

36

19

$7,376

3,544

1,916

2,161

1,970

1,172

1,864

1,077

1,408

1,041

3,212

337

1,020

880

512

485

800

87

556

811

452

513

528

694

301

333

417

198

368

245

272

242

361

165

75

49

193

199

26

34

21

32

29

29

44

33

27

23

54

8

32

29

22

29

60

9

32

43

51

26

20

42

38

27

40

17

41

13

24

23

33

30

22

39

37

24
Ch. 7—international Trade and Cargo Policies ● 187

Table 44.—U.S. Waterborne Foreign Trade Liner Service, Origin/Destination Country,

Calendar Year 1981 (Continued)

Total U.S.-flag share

$ value

Country

$ value

Tonnage (million) Tonnage Percent (million) Percent

Poland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 330,337 ---

Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yugoslavia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Panama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Surinam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pakistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Portugal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jamaica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ivory Coast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S.S.R . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United Arab Emirates . . . . . . . . . . . . . . . . . . . . . . . . .

Trinidad/Tobago . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Costa Rica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Netherland Antilles . . . . . . . . . . . . . . . . . . . . . . . . . . .

Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Greece . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Romania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ireland. ...,... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bahamas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sri Lanka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Labia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Sudan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Haiti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Austria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Iceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Zaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bolivia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nicaragua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Algeria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Rhodesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Somalia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cameroon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Virgin Islands (British) . . . . . . . . . . . . . . . . . . . . . . . .

Bermuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Uruguay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

East Germany . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Uganda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liberia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

French Pacific Islands . . . . . . . . . . . . . . . . . . . . . . . .

Tunisia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bahrain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Jordan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

309,315

294,775

292,404

286,603

272,417

256,154

234,987

234,263

229,419

227,933

213,419

211,727

206,249

204,335

202,193

195,835

172,597

170,271

169,653

164,859

154,255

149,794

146,091

144,091

136,305

128,847

118,930

118,367

115,913

108,901

103,540

102,140

96,861

96,843

92,025

91,231

86,467

79,826

79,540

77,703

73,421

72,362

71,650

67,899

67,466

66,339

65,420

62,278

60,936

59,268

58,836

54,247

54,996

53,367

426

1,414

509

483

361

598

128

555

315

351

768

309

371

551

164

771

351

281

144

351

638

382

140

260

283

523

574

615

166

620

188

236

321

216

193

102

269

156

134

263

119

159

83

29

103

101

116

144

53

104

95

69

79

129

150

142

38,145

82,436

52,246

17,057

32,635

115,246

267

49,806

105,956

49,602

21,511

76,391

66,787

44,624

24,628

20,286

7,045

69,158

68,669

6,658

3,802

56,850

75,247

42,563

108,465

48,518

20,543

546

95,705

2,226

89,635

46,127

12,635

74

35,180

79,419

25,054

11,018

34,147

16,747

21,697

1,361

9,846

68,330

16,740

10,275

1,118

32,860

3,742

45,846

36,753

6,297

5,554

597

13,243

11.370

12

27

18

6

11

; ;

45

22

9

36

32

22

12

10

4

40

40

4

2

37

50

29

75

36

16

1

81

2

82

45

; ;

36

86

28

13

43

21

28

2

; :

25

15

2

50

6

86

62

11

10

1

25

Hungary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,153 21

aL~~~ than O.s L)’Srcent.

93

402

136

65

64

380

1

105

198

94

49

135

132

115

47

80

16

134

61

18

18

114

49

54

222

158

76

1

139

4

123

96

; ?

79

78

66

17

38

40

24

3

18

24

21

14

1

86

8

78

46

4

16

2

65

34

22

28

27

13

18

64

1

19

63

27

6

44

36

21

29

10

4

48

42

5

3

30

35

21

78

30

; ;

84

1

65

41

; ;

41

76

24

11

28

15

20

2

22

83

6

14

1

60

15

75

48

6

20

2

43

—24

b

Less than $500.

NOTE: &additional countries have trade with the United Statesof less than 50,000 tonnes each.

SOURCE: U.S. Maritime Administration, Officeof Policy and Plans.
188 . An Assessment of Maritime Trade and Technology

ty to carry at least a third of the bilateral ocean trade

between the two nations. Although generally similar, the two agreements differ on several points.

In the agreement with the U. S. S. R., certain ports

(40 U.S. and 20 U. S. S. R.) of each are open on a

4-day advance notice basis. Access to other ports

requires 14 days notice. Implementation of the

cargo-sharing agreement was spelled out in great

detail because it was felt that the Soviet ability to

control its own cargoes required specific commitments on their part to guarantee U.S.-flag vessel

participation in the trade.

In the U. S.-P. R.C. pact, the United States has

allowed 55 U.S. ports to be open to P. R. C.-flag

ships on 4 days notice, while the Chinese have

opened 20 of their ports to U.S. ships on a 7-day

notification. The United States retains the right to

close any port for national security reasons. The

agreement is generally more flexible than the

Soviet’s agreement was. This agreement also specifically recognizes the right of either party to implement legislation to regulate the activities of crosstraders in their own foreign trades. The Chinese

agreement expires in September 1983, and its renewal is currently under negotiation. It appears

from the U.S. standpoint that more specific terms

(similar to the expired U.S.S.R. agreement) would

be preferable in any future U. S.-P. R.C. pact and

U.S. negotiators are making efforts toward that

end.

The U.S. bilateral agreements with the governments of Argentina and Brazil are also similar in

that they set very general terms for cargo-sharing

and then specify that the two sets of national-flag

carriers implement the pact and negotiate specific

shares of total cargo which lines serving the trades

are entitled to carry.

The 1978 agreement with Argentina consists

merely of an exchange of letters implementing a

memorandum of understanding between the governments. It provides that the national-flag carriers

of each country carry a 40-percent share of the

bilateral trade with the balance of 20 percent available to cross traders. Actual shares are to be arrived at by commercial negotiations among all the

lines serving the trade, with arrangements subject

to approval by the two governments. In implementing such agreements, the governments have agreed

to grant equal access to carriers of the other party

to government-impelled cargoes. In effect, the specifics of the agreement are contained in pooling

arrangements among the carriers of United States

and Argentina. They are up for renewal at the end

of 1983.

The 1970 agreement with Brazil (a memorandum of consultation between the governments and

subsequent exchange of letters since) provides that

through the mechanism of commercially negotiated

revenue pools, the national-flag carriers of each of

the parties are granted equal access to the government-controlled cargoes of the other. The United

States has agreed to a blanket waiver to the requirements of Public Res. 17. This waiver permits

Brazilian-flag carriers to carry up to 50 percent of

all export-import cargo moving in the trade. Brazilian-flag carriers are also entitled, under the agreement, to participate in the carriage of reserved liner

cargo moving under the Cargo Preference Act of

1954.

The Brazilian Government has granted a blanket

waiver in favor of U. S. -flag carriers for participation in the carriage of all Brazilian Governmentcontrolled cargo. The result is that the carriers of

each country are entitled to carry up to 50 percent

of the government-controlled cargo of the other.

Equal access to government-controlled cargo is

granted only where pooling agreements exist. Nongovernment controlled cargoes are not covered by

the agreement, but are subject to allocation by commercial negotiation, subject to the approval of government authorities. The Brazilian agreement is

also up for renewal at the end of 1983.

One result of both the Brazil and Argentina cargo-allocation practices (i.e., a 40/40/20 split in cargo

shares) is that Brazilian and Argentinean carriers

have insisted in specifying the carriers who are

allocated the 20 percent “cross-trades’ share. In

effect, half of that 20 percent has thus been allocated

to Brazil for Argentina trades and to Argentina for

Brazil trades. This has worked toward the disadvantage of U.S. carriers, In addition, many U.S.

shippers claim that poor service and high rates are

prevalent in these trades and are a result of the inefficiencies promoted by the pooling agreements.

Up to 25 countries have indicated interest in negotiating bilateral agreements with the United
Ch. 7—/nternational Trade and Cargo Policies . 189

States—including South Korea, Bangladesh, Guatemala, Ecuador, Dominican Republic, Algeria,

Mexico, Philippines, Ivory Coast, Nigeria, Ghana,

Taiwan, India, Pakistan, Indonesia, Sri Lanka,

Turkey, Spain, Australia, New Zealand, Venezuela, Colombia, Peru, Chile, and South Africa.

Table 45 shows the potential gain or loss in carriage that U.S. liner operators would incur under

bilateral agreements with the above countries, assuming cargo allocation on a 40/40/20 basis (based

on 1981 trade data).

The State Department stated that as of July 1983

the Philippines and Venezuela are most actively

urging the United States to negotiate bilateral.

Discussions between the United States and Venezuela were held in 1983, and the U.S. Government made a proposal similar to that offered to the

Philippines. These talks were suspended in mid1983 and, because of Venezuela’s economic problems, there does not appear to be much urgency

to resume negotiations.

A Philippine Government order in July 1982

mandated that a pooling agreement be negotiated

by Philippine- and U.S.-flag carriers within 30

days, Without such agreement, the Philippine

decree stated that Philippine carriers are entitled

to carry 40 percent of the cargoes in the PhilippineU.S. trades, while the vessels of all other nations,

including the United States, may compete for the

other 60 percent. In August 1982, the Philippine

Government agreed to delay implementation. The

U.S. Government has begun negotiations with the

Philippines and has made a counter offer of a limited cargo-sharing agreement covering government

cargoes. As of mid- 1983, the direction or outcome

of these negotiations was unclear.

The Government of Indonesia, through a decree—Presidential Instruction 18-82, April 12,

1982—reserves all export and import governmentowned cargoes for national-flag vessels. The decree

affects over 60 percent of Indonesia’s foreign trade,

including 40 percent of westbound and 50 percent

of eastbound U.S.-Indonesia trade.

A second decree provides that the shipment of

nonoil and nongas exports will be primarily through

four Indonesian ports and that the freight rates for

international shipping must be equal to or lower

than the rates prevailing for the nearest foreign port

(i.e., Singapore, whose rates are very low), Its purTable 45.—Potential U.S. Liner Trade Gain Under Bilateral Agreement (based on 1981 trade data)

Total trade U.S. share Current U.S.-flag share Gain (loss) at 40°/0 share

Country (tonnes) (tonnes) (“/0) (tonnes)

Korea . . . . . . . . . . . . . . . . . .

Taiwan . . . . . . . . . . . . . . . . .

Philippines. . . . . . . . . . . . . .

Indonesia . . . . . . . . . . . . . . .

Australia. . . . . . . . . . . . . . . .

New Zealand . . . . . . . . . . . .

Bangladesh , . . . . . . . . . . . .

India . . . . . . . . . . . . . . . . . . .

Pakistan . . . . . . . . . . . . . . . .

Sri Lanka . . . . . . . . . . . . . . .

Mexico . . . . . . . . . . . . . . . . .

Guatemala . . . . . . . . . . . . . .

Ecuador . . . . . . . . . . . . . . . .

Dominican Republic. . . . . .

Venezuela . . . . . . . . . . . . . .

Colombia . . . . . . . . . . . . . . .

Chile . . . . . . . . . . . . . . . . . . .

Peru . . . . . . . . . . . . . . . . . . .

South Africa . . . . . . . . . . . .

Ivory Coast . . . . . . . . . . . . .

Nigeria . . . . . . . . . . . . . . . . .

Ghana. . . . . . . . . . . . . . . . . .

Algeria ., . . . . . . . . . . . . . . .

Turkey . . . . . . . . . . . . . . . . .

SDain . . . . . . . . . . . . . . . . . .

2,655,178

3,605,829

944,816

1,161,050

1,737,599

501,914

170,271

1,003,018

234,263

118,367

227,933

395,778

586,823

351,213

1,214,544

496,163

571,663

557,563

1,193,400

211,727

1,001,449

77,703

79,540

294,775

923,238

681,646

869,257

276,141

446,045

464,665

134,383

68,669

616,410

105,956

95,705

21,511

71,733

175,067

126,093

344,185

167,573

157,808

196,843

224,246

66,787

34,759

21,697

16,747

52,246

328.746

25.7

24.1

29,2

38.4

26.7

26.8

40.3

61.5

45.2

80.9

9.4

18.1

29.8

35.9

28.3

33.8

27.6

35.3

18.8

31.5

3.5

27.9

21.1

17.7

35.6

380,425

573,075

101,785

18,375

230,375

66,383

(561)

(215,203)

(12,251)

(48,358)

69,662

86,578

59,662

14,392

141,633

30,892

70,857

26,182

253,114

17,904

365,821

9,384

15,069

65,664

40,549

SOURCE: Office of Technology Assessment
190 ● An Assessment of Maritime Trade and Technology

pose is to facilitate the export of Indonesian products. These decrees have not been fully implemented, but the Indonesian Government has indicated its intent that they will be. At issue currently is a shipment of U.S. products financed with

Eximbank loans. MarAd is currently weighing

whether to grant a waiver to Public Res. 17. Such

a waiver is opposed by the Eximbank on the

grounds that Indonesian shipping practices are discriminatory. Actual negotiations for a bilateral

agreement have not taken place, but the State Department believes that Indonesia wants a 40/40/20

cargo split in its U.S. trades.

South Korea has in the past tried to negotiate

a bilateral agreement with the United States. In

1979, South Korea unilaterally declared that Korean-flag vessels would have the first right of refusal

for all cargoes in their trade except where a foreign

carrier obtained a special waiver. The waiver provision involves two steps—first, an application is

made to the Korean Shipping Association and second, to the government. This unilateral cargo-reservation scheme raised protests, especially from the

U.S. State Department, and was later modified so

that all countries (including the United States) with

most-favored-nation status could obtain automatic

waivers. Many believe these moves on the part of

South Korea are a preamble to more pressure for

a U.S. bilateral agreement. South Korea has signed

an UNCTAD-Code-type of cargo-sharing agreement with Taiwan and has pressured some European countries to sign similar cargo-sharing agreements.

In addition, some U.S. carriers reportedly have

not been permitted to bid for carriage of some bulk

cargoes —notably rice—purchased by the Government. An increasingly protectionist posture by

South Korea is causing concern both in the United

States and in Europe that their vessels will be largely

excluded from the South Korean trades.

Nigeria was one of the first countries to sign the

UNCTAD Liner Code and has indicated its desire

that all shipping lines trading with Nigeria enter

into bilateral 40/40/20 cargo-sharing agreements.

Nigeria has presented this point of view to the

governments of France, Germany, Austria, Denmark, Canada, and the United States. To date, no

action with any of the countries listed has taken

place.

Recent statements by U.S. Government spokesmen indicate that the present administration will

continue to disapprove bilateral treaties in general.

Ambassador Brock recently reiterated the administration’s policy of free trade unfettered by protectionism. There are instances, however, where

this policy has been modified to accommodate

certain industries. Federal Maritime Commission

(FMC) Chairman Alan Green has said:

No matter what laudable social and political objectives are pursued in establishing an arrangement

that reduces competition in a trade, the bottom line

is that U.S. foreign commerce can be harmed. Put

simply, these situations can reduce U.S. foreign

trade. . . . Furthermore, by sheltering the trade

from the constructive forces of competition, we risk

promoting inefficiency and unresponsiveness in the

face of a dynamic and evolving trade environment.

The Bilateral Debate

Bilateral shipping agreements have been claimed

by some as preferable alternatives to such multilateral arrangements as the UNCTAD Liner Code,

particularly in the case where the U.S. Government

has the opportunity to negotiate with another government on equal terms and with an equal voice.

Whether some kind of bilateral can be beneficial

and to whom has been the subject of considerable

international debate. The United States has clearly stated its opposition to the UNCTAD Code, but

has not established conditions under which bilateral

agreements would be acceptable or unacceptable.

Several studies have attempted to evaluate the

net effects of existing bilateral agreements between

the United States and some trading partners. A

1977 study by Manalytics, Inc. for MarAd investigated the impacts of the 1970 U.S.-Brazil bilateral

(through analyses and a shipper survey) and drew

conclusions about ‘ ‘bilateralism ‘‘ in general from

this case analysis. The conclusions were that bilateral agreements had not adversely affected trade

flow, costs, or service, but had benefited U.S. carriers and would be a viable option for the United

States in the future. Z8

Critics of this view (including shippers in the

trade) have claimed that the trades reviewed have

2

* Manalytics, Inc. , ‘‘The Impact of Bilateral Shipping Agreements

in the U.S. Liner Trades, prepared for the Maritime Administration, U.S. Department of Commerce, May 1979.
Ch. 7—international Trade and Cargo Policies ● 191

suffered from lack of competition and, in fact, are

characterized by high prices and poor service. A

1983 study by Kearney Management Consultants

for an association of Danish, British, Norwegian,

and Swedish shipowners compared U.S.-Brazil

trades with conventional conference trades and, not

surprisingly, concluded the reverse of the 1977

Manalytics study, citing that shipping rates were

often much higher in the U.S.-Brazil trade than

in other U.S. trades and that shippers surveyed considered the service to be worse than other trades.2g

One problem with analyses of the U.S.-Brazil

trades is that this one case may or may not be typical of future bilateral arrangements. The question

of bilateral has been raised by other OECD

countries who have acceded to the multilateral

UNCTAD Code but with reservations that are intended to keep a portion of the cargo flow open to

international shipping competition. The claim

against Brazil-type bilateral is that they would

allow no outside access (thus competition) to cargoes covered; however, an opposing view is that

bilateral could specifically include cross-carriage,

encourage independents, and provide mechanisms

to reward improved service.

The United States can attempt to influence many

of these international decisions about cargo reservation but probably cannot stop the trend toward

more intergovernmental agreements by countries

concerned with how their trading operates. With

so many countries (including South Korea, the

Philippines, and Venezuela) seeking bilateral cargosharing agreements with the United States, it would

seem advisable for the United States to establish

very specific guidelines for negotiating bilateral

treaties, including a minimum degree of competitive access to cargo in the trade, limits on government intervention, cross-trader access, standards

of service and price, and reciprocity whenever foreign shipping practices put U.S. operators or shippers under unfair conditions.

Countertrade

‘‘Countertrade, also known as barter, has recently developed into a common practice which

ZgK~~~~ey Management Consultants, ‘ ‘The Impact of Bilateral

Shipping Agreements: An Analysis of Service, Rates and Shipper

Responses, ” January 1983.

sometimes could be considered a form of bilateral

trade arrangement. Countertrade includes a range

of commercial and financial practices in which the

exporter is required to buy some product in return

from the purchaser. It is an increasingly used practice and one that does restrict U.S. access to world

markets. 30 31

While countertrade occasionally occurs just between companies, almost all of it involves governments. For instance, the importing country’s government may require a product manufacturer to

buy certain goods or commodities in return. Even

more common are state-to-state agreements, in

which the governments arrange a direct exchange

of goods between them. Communist countries almost always use this approach, and increasingly so

do other countries, especially LDCS. LDCS have

sought to improve their economies through rapid

industrialization planned and implemented by the

central government. Since many of the developing

sectors need imports, central governments have

become very involved in international trade. Moreover, Communist and LDC governments also use

countertrade arrangements for a financial reason:

often capital-poor, countertrade permits these countries to trade without using scarce capital. Goods

are simply exchanged for other goods.

The two most common forms of countertrade are

compensation arrangements and counterpurchase

arrangements. The former-the most rapidly growing type of countertrade—requires exporters of

high-technology machinery, industrial facilities, and

technical know-how to accept payment in the form

of the goods produced with their equipment or technical expertise. Such arrangements are also known

as buy-back agreements, or industrial cooperation

agreements. (The latter term is used to describe

trade deals between Communist and Western countries. ) Compensation agreements are most common

among nonmarket economies and are of growing

importance in trade with Communist countries .32

30U. S. Intemation~ Trade Commission, Analysis of Recent Trends

in U.S. Countertrade (Washington, D. C.: USITC, March 1982), p. 1.

SIR. Michael Gadbaw, The Implications of Countertrade Under

the General Agreement on Tariffs and Trade, unpublished paper

prepared for the Interface IV Conference, Philadelphia, Pa., oct.

15-16, 1982, p. 3.

3ZU. S. Department of Labor, OffIce of Foreign Economic Research,

Report of the President on U.S. Competitiveness, September 1980,

pp. v-43 to v-45.
192 ● An Assessment of Maritime Trade and Technology

One of the biggest compensation arrangements is

Occidental Petroleum Corp. $20 billion countertrade package with the U.S.S.R. Under one contract, Occidental is buying Soviet ammonia from

plants it helped to set up in that country. Under

a parallel agreement, it is shipping phosphate fertilizers to the Soviets from the United States .33

An older form of countertrade is the counterpurchase agreement. This requires exporters of machinery, expertise, and advanced manufactures to

accept payment in unrelated products. While counterpurchases are nominally cash transactions, the

two parties in effect exchange goods of equivalent

value. CounterPurchase agreements are also known

as countersales, offset trading, parallel trading,

reciprocal trading, or counterdeliveries. 34 Recently, an Italian shipyard has become involved in this

form of countertrade. Iraq is buying frigates worth

$1.5 billion from Italy’s state-owned Italcantieri.

In payment, Italy’s state oil company is taking Iraqi

crude. 35

Economic conditions over the past 10 years have

given strong impetus to the growth of countertrade.

The sharp rise of oil prices after 1973 came at a

time when many developing countries were in the

midst of ambitious economic development plans,

and the price rise worsened the already tight foreign

exchange requirements involved in purchasing

Western technology and manufactured products.

Furthermore, these Western products became more

expensive as inflation in the industrialized countries increased significantly during the latter half

of the 1970’s. The external debt of these countries,

based on the loans that had financed many of these

purchases, also contributed to a “cash crunch’ in

the developing countries. The external debt of the

LDCS more than tripled between 1974 and 1980—

from $142 billion to an estimated $416 billion.3G

All of these factors led “cash-short” developing

countries to resort more and more to countertrade

as a way to finance new purchases. In fact, there

$~Busjness Week, July 19, 1982, P. 118.

S+U.S. Depafiment of Labor, OfIice of Foreign Economic Research,

Report of the President on U.S. Competitiveness, September 1980,

pp. v-43 to v-45.

sJBusjness Week, July 19, 1982, pp. 118-123.

S6U S, ]ntemation~ Tra& Commission, Analysis of Recent Trends

in U.S. Countertrade (Washington, D. C.: USITC, March 1982),

pp. 13-14.

is some evidence that they were pushed in that direction by Western banks, which began to advise

their clients to use countertrade as a way of increasing the prospects for the eventual repayment of

some loans.

While there is much anecdotal information about

countertrade, there is relatively little hard data on

the actual value of trade affected by countertrade.

One Commerce official believes that it may equal

20 percent of world trade.37 38 In its recent study,

the International Trade Commission (ITC) estimated that total U.S. imports resulting from countertrading arrangements were approximately $279

million in 1980, which represented more than a

threefold increase over the 1974 estimate of $98

million. (It should be noted, however, that most

of these imports were the product of trade with

Communist countries. ) Because many respondents

to the ITC survey viewed such information as proprietary information, ITC believes that the above

trade data understates the full dollar importance

of U.S. countertrade. Despite this increase, it appears that, among the developed nations, the

United States has the smallest percentage of countertrade, almost all of which involves private companies that find countertrade the only way to do

business in certain places.

Although precise data are not available on the

use of countertrade by other countries, it is used

extensively. Western Europe has increased its countertrade with the LDCS, and even some 10 percent

of trade among Western countries is thought to be

countertrade. Moreover, roughly one-half of all

Eastern European trade with developing countries

is now through countertrade .39

While it assures supplies of scarce goods, market

access to producers, and generally provides predictability to those involved, countertrade discriminates

against outside actors. Exporters unwilling or

unable to enter into countertrade may be excluded

from some markets. Countertrade is, in effect, a

‘‘closed deal’ between two parties—third parties

371bid.

SeThis Wou]d put the value of Countertrade at about $400 billion.

John W. Dizard, “The Explosion of International Barter, ” Fortune,

Feb. 7, 1983, p. 89.

ggDepa~ment of Labor, op. cit., p. V-44. Also see ‘‘Bartering,

Industry Week, Mar. 28, 1977.
Ch. 7—international Trade and Cargo Policies ● 19.3

are excluded from these markets. As a result of

countertrading arrangements, many American

companies do not even have a chance to bid for

projects and open new markets for their goods or

services.

Aside from being often economically inefficient,

countertrade poses major problems for an American

Government that still wants to adhere to open trade.

It also directly affects large segments of U.S. industry, including ship operators who compete internationally. However, no direct analyses have

been done on how the growing use of countertrade

affects the U.S. shipbuilding and operating industries. The effect on shipbuilding is probably small

since the United States does not export major merchant ships. It may, however, affect yards that build

offshore oil equipment, tugs, supply boats, and

small warships where some export market exists or

may exist in the future. Countertrade may eventually have a significant impact on U.S. ship

operators to the extent that countertrade deals include shipping provisions and therefore further close

access to foreign trade cargo. Again though, no

quantitative estimates of these effects are presently available. Future policy development would benefit from more data and analysis on countertrade

trends and effects.

UNCTAD Liner Code

Not only is cargo reservation a unilateral and increasingly a bilateral phenomenon, but, by October

1983, it became a multilateral phenomenon when

the UNCTAD Code of Conduct for Liner Operations came into force.

UNCTAD was established as a permanent organ

of the U. N. General Assembly on December 30,

1964. One of its principal purposes is to promote

international trade, particularly with a view to

speeding the economic development of developing

nations. It includes all members of the U.N. as well

as eight other countries. UNCTAD is comprised

of six main committees which deal with specific

areas of trade and development. Included is a Committee on Shipping.

In 1974, UNCTAD voted to accept a liner code

as the standard for conference liner shipping

worldwide. The adoption of the code was the result

of several years of efforts on the part of LDCs—

originally known as the Group of 77—to exert control over significant shares of their own nation’s

maritime cargo. The major complaints against the

existing liner conference system were the refusal

by conferences to admit shipping lines from LDCS

as members, the inability of governments and shippers from LDCS to obtain information on the process of freight rate determination or to participate

in this process, inequitable levels and changes in

rates, inadequacy of service and a lack of a generally

accepted dispute settlement mechanism.

The need for reform was first considered within

the Committee on Shipping. At its third session in

1972, UNCTAD requested the General Assembly

to convene a conference of plenipotentiaries to

adopt a code of conduct for liner conferences. The

code was adopted in Geneva in April 1974. The

code would not come into force, however, until

ratified by at least 24 nations controlling 25 percent of the world’s tonnage. This was accomplished

in early 1983. * The code, therefore, came into force

in October 1983.

The code calls for closed conferences open to and

controlled by the carriers of trading partners (with

third-party carriers admitted to the conferences only

with trading-partner member consent), formation

of shippers’ councils, mandatory time intervals between general rate increases, and prescribed dispute

settlement arrangements to resolve differences between shippers’ councils, conferences, and carriers.

One of its most significant provisions is its cargo

allocation principle, which ,guarantees any national

shipping line the right to participate in any conference that serves its country and that reserves an

equal share of the total trade between two signatories to the national-flag lines of each trading partner with ‘‘a significant share, say 20 percent’ made

available to third-flag vessels, agreed to by the national shipping lines. Therefore, while the code regulates only conference behavior, in effect, all LDC

liner trades would likely be covered.

The reaction of the major shipping nations was

originally opposition to the code. The liner trades

among these countries are established and member-

● By April 1983, 58 countries representing 28.6 percent of the world’s

liner tonnage (measured in 1973) had accepted the UNCTAD Code.
194 . An Assessment of Maritime Trade and Technology

ship in conferences (except in U.S. trades) is closed.

In addition, vessels of some of the major shipping

nations operate extensively as cross-traders (notably

the Scandinavian, British, Dutch, and Greek fleets),

whose business could be adversely affected under

the UNCTAD scheme.

The U.S. Government has opposed the code

since it was proposed, and the present administration boycotted the recent UNCTAD meetings (late

1982) concerning a bulk code. Many U.S.-flag liner

operators and U.S. owners of the ‘‘effective controlled fleet” have strongly supported the administration in its opposition to the UNCTAD

Liner Code. These operators believe that when the

code is adopted, it will effectively restrict U.S. access to liner cargoes. They also claim that it will

promote shipping inefficiencies due to extensive

government intervention, as appears to be the case

with some bilateral agreements now in effect. It is

urged, however, that the United States must actively pursue an alternative shipping policy framework

with our major trading partners to keep liner shipping markets open and competitive.40

Some of the opponents who have studied the

UNCTAD Liner Code have argued that its adoption will lead to much more ominous consequences

than a quick reading of the intent and major pro41 For example, the code was visions would indicate.

first proposed partly because developing nations felt

that the closed European and Japanese conferences

victimized them with unreasonable rates. However,

the code supports provisions such as closed conferences and anticompetitive activities which lead

to similar results of unreasonably high rates and

poor service. The UNCTAD Code is vague, which

could lead to ambiguous definitions and applications of its provisions. Many believe that conferences operating under the code will evolve into

closed trades without the benefit of independent carriers (which are not given any status) to competitively force efficiency. In addition, the code provision to allow cross-traders ‘‘if any’ to carry a share

of ‘say 20 percent’ appears to be designed to eliminate cross-traders whenever possible. Finally, the

code is criticized for not having any provisions or

rewards for carrier efficiency, and if closed trade

with revenue pooling is practiced as indicated, inefficiency will produce the greatest reward to carriers.

Some have argued that U.S. accession to the

UNCTAD Liner Code may be—on balance-beneficial to U.S. interests. At a December 1982 Seatrade Seminar, it was suggested that ‘‘traditional

competition in our maritime liner trades no longer

exists’ and that ‘‘our (liner) cargoes are being carried increasingly by foreign-flag vessels of stateowned, Soviet-bloc fleets. ’42 It was further concluded that a combination of passage of Shipping

Act amendments, U.S. access to cargo through the

liner code, and the use of U.S. financial incentives

could lead to encouraging foreign (and U. S.) investment in liner shipping. The Seafarers International Union (SIU) also has voiced strong support

for U.S. participation in the UNCTAD Code. The

union’s support is based on a conviction that the

cargo allocation schemes in the code will come into

effect among all other major trading countries while

the United States continues to lose access to cargo,

and, at the same time, a viable shipping industry .43

The EEC Council eventually responded by authorizing its members to ratify the code with reservation. This response appears to be an attempt to

limit the potential damage of the code while coming to grips with the need to recognize the legitimacy of the rights of their LDC trading partners.

The EEC reservation (or Brussels package), as it

is called, exempts from the provisions of the code

all intra-OECD trade. It also opens to all members

of OECD that portion of the bilateral trade of a

member and an LDC other than the LDC share

under the code. (In other words, 60 percent of any

liner trade between an OECD country and an LDC

is available to all OECD nations. ) The effect of the

reservation would be to substantially reduce the impact of the code on world trade. It also would eliminate the cargo-reservation benefits that some proponents of the code seek. In 1979, the value of all

40 See Proceedings, ‘ ‘The UNCTAD Code of Conduct for Liner

Conferences, U.S. Maritime Resource Center, May 1982.

41See: Leslie Kanuk, “The UNCTAD Code: Impending Disaster

for World Commerce, proceedings of a seminar, ‘ ‘The UNCTAD

Code of Conduct for Liner Conferences, U.S. Maritime Resource

Center, Kings Point, N. Y., May 5, 1982, pp. 14-18.

.

42H, Clayton Cook, “Seatrade Seminar Financing Ships in a Difficult Market, ” Foreign Owemship Under the U.S. Hag, Dec. 1, 1982.

‘gSee !jIU-Dee, 1982 Press Release—’ ‘Drozak and SIU go 100Yo

for 40/40/20. ”
Ch. 7—international Trade and Cargo Policies 195

international trade between developing countries

accounted for 6.1 percent of total trade worldwide.

Thus, the EEC reservation, if all developed countries accepted it, would exempt a large portion of

world liner trade from the code.

The United States has held a number of discussions with European and Japanese trading partners

in 1982 and 1983 regarding implementation of the

UNCTAD Liner Code. Some U.S. experts believe

that the EEC reservation to the code could have

the effect of forcing U.S. carriers out of some trades.

Based on this concern, U.S. negotiators, in a December 1982 meeting, stated that unless there is

genuine reciprocity between the United States and

its European allies in the form of legally binding

commitments to keep European liner trades open

to U.S.-flag carriers as cross-traders, the United

States could not keep U.S. liner trades open to European cross-traders.

During March 1983, additional meetings on

UNCTAD matters were held among Europe, the

United States, and Japan. At that time, Japan announced its intention to ratify the code without the

EEC reservations. If it does so, the EEC reservation fails to address U.S. participation in the trade

between OECD nations when both the Europeans

and the Japanese are code signatories. The final

outcome of all these negotiations is not clear.

Unfortunately, while it appears that the United

States and its major trading allies of Europe and

Japan share similar goals in the area of shipping

policy, no mutually acceptable strategy has been

developed. The U.S. response to the UNCTAD

Liner Code has been to deal on a bilateral basis

with those countries that threaten to close their

trades to the United States without such agreements. U.S. carriers also have indicated a fear that

Europe will shut them out of their trades with

LDCS. This seems to be based on their belief that

other governments, including those of our trading

partners, are more supportive of their carriers than

is the United States. Because of this, some carriers

fear that even though 60 percent of the trades may

be theoretically open to lines from all OECD nations, in fact U.S. operators would not be allowed

to participate. interestingly, our trading partners

have expressed similar fears with regard to U.S.

policies in regard to bilateral. In actual effect, some

bilateral agreements the United States has nego

tiated are generally more restrictive than the

UNCTAD Code would be with the EEC reservation. Bilateral can cover all trade, not just liner

conference trades. 1t should be noted, however, that

UNCTAD has begun discussions on the adoption

of a code for bulk trades,

The potential loss of cross-trading opportunities

by U.S.-flag carriers under the code is a major

threat to some carriers. Sea-Land Service, Inc.,

Delta Lines, American President Lines, and U.S.

Lines receive significant percentages of their revenues from cross-trading on itineraries involving the

carriage of U.S. foreign commerce. These U. S.-

flag carriers would incur almost all of the costs they

now incur even if they did not carry foreign-to-foreign cargoes. The result would be either increased

rates or reductions in the profits of the U.S.-carriers.

Other UNCTAD Initiatives

The nonliner trades have grown faster than the

liner trades since World War 11. Much of the

growth has been in basic commodities such as oil,

grain, coal, and ores. Some of the growth, however,

has come at the expense of the liner trades in such

‘‘neobulk’ commodities as forest products, steel,

and vehicles.

The distinction between liner and nor-diner operations is becoming blurred more quickly in the nonU.S. than in the U.S. trades. The major difference

between the two types of service relates almost entirely to the common carrier nature of the liner service: a willingness to carry any cargo offered by any

shipper between stated berths on a scheduled service with published rates. The same ship can offer

liner and nonliner capacity on the same voyage.

That is happening already in the U.S. trade (e. g.,

Blue Star Line, Ltd. carries nonliner forest products outbound and containerized products inbound,

and ABC Containerline N,V. carries nonliner ore

and containerized products inbound on the same

leg of its round-the-world service).

Bulk Cargo Shipping Code

The UNCTAD Shipping Secretariat is investigating a bulk cargo-sharing code structured along
196 ● An Assessment of Maritime Trade and Technology
Ch. 7—lnternat/onal Trade and Cargo Policies 197

the lines of the liner code. The initial focus has been

on iron ore, bauxite, alumina, and phosphates;

other ores and grains probably will follow. However, with united OECD opposition and with the

Secretariat structuring what it considers an extreme

position for the LDCS, it is unlikely that a document embodying such a position will be available

for ratification in the near future.

In 1980, UNCTAD requested a group of experts

to study any problems faced by developing countries in the carriage of bulk cargoes. In 1981, that

group conducted a survey of major importers and

exporters of iron ore, phosphate, bauxite, and

alumina. The survey did not uncover any obviously

discriminatory or unfair practices which would prevent developing countries from putting their national fleets into those trades. Forces of competition, experience, and economics seemed to be governing. 44

In addition, there is a critical difference between

the organization of the liner and the nonliner trades.

The liner trades, except for the U.S. trades, are

organized into strong, and often closed, conferences, access to which has been extremely difficult

for the LDC carriers. There was also a feeling

among LDCS that substantial profits were being

earned by the conference carriers. The liner code

reflected the LDCS’ desires to overcome these noneconomic barriers to entry and a sense of ‘fairness’

has been a major factor underlying developed country support of the liner code. In the nonliner trades,

however, no such noneconomic entry barriers seem

to exist, and there is no presumption of high profit

margins; consequently, there is practically no arWment on “fairness” to support a bulk code. 1n addition, the export of nonliner commodities is critical

to LDCS economic survival, and the movement of

these commodities is very sensitive to changes in

freight rates. Increases in shipping rates could have

serious economic consequences for individual

LDCS.

Open Registry

1n November 1982, UNCTAD held the Second

Intergovernmental Preparatory Group (IPG)

44 See “Shipping Practices of Major Importers and Exporters in the

Bulk Trades, prepared by Arthur D. Little, Inc., November 1981

for Mr. Charles Kiskaddon, President, Alcoa S. S. Co.

meeting on ship registration. The delegates failed

to agree on the UNCTAD Shipping Secretariat’s

plan to phase out open registry. The United States

had attempted to persuade the other OECD countries not to attend the first IPG meeting in April

1982 on the grounds that the ‘‘recovery” of open

registry ships is a domestic, not international issue.

While the United States received some support for

its principle, it received no support for its boycott.

Only Liberia and Panama joined in declining to

participate in the IPG.

Even though there were sharp divisions at both

meetings— and an almost complete lack of consensus on any of the critical issues—the second meeting

ended with a recommendation that a Conference

of Plenipotentiaries be convened to consider the

8-page draft of a set of basic principles proposed

by the IPG. The draft attempts to link the nationality of crews, equity owners, and ship managers

to the registries of merchant ships.

There is some support for the draft proposal

among developed countries as well as LDCS, despite different views on what would happen to the

open registry ships after open registry is phased out.

Some developed countries believe that the ships

would be recaptured to the national flags of the

beneficial owners (largely themselves); the LDCS

(and the Secretariat) believe that the ships would

(or should) largely be captured by the LDCS. There

is broader support for the wider application of the

safety, social, and environmental standards that are

now embodied in the international Maritime Organization’s (IMO) and the International Labor

Organization’s (ILO) conventions. The widely differing views in the proposed draft on how to achieve

those goals were evident after the second IPG meeting. Despite the basic differences, it is likely that

there will be a Plenipotentiary Conference within

2 or 3 years and a document on file for ratification

approximately 3 or 4 years thereafter. How quickly

it will be ratified will depend on how far the convention goes beyond the questions of ship operation and into the questions of forced re-flagging.

Since the LDCS have powerful weapons (e. g., sanctions barring open registry ships from their ports),

and since the major international maritime unions

support some restraint on open registration, an

open registry convention is possible sometime in

the future. However, there is no consensus at pres-
198 ● An Assessment of Maritime Trade and Technology

ent for the strong solution contained in the Secretariat’s draft for what many consider a mild problem.

Convention on Multimodal Transport

The Multimodal Convention, adopted by

UNCTAD in May 1980, would regulate the carriage of goods between countries when more than

one mode of transport is used. Once in force, it

would be mandated if either an origin or a destination country had ratified.

The convention calls for the creation of Multimodal Transport Operators (MTOS), which would

be licensed and regulated by contracting governments under the provisions of the convention. They

would act as shippers’ agents and would handle all

phases of a multimodal cargo movement. The convention would regulate documentation, liability,

claims, and certain customs matters.

The convention was opposed by the United

States, which has indicated its unwillingness to

ratify. Strong support has been voiced by the developing countries, the Soviet Union, and other

Eastern bloc countries as well as Scandinavia. However, as of January 1983, only six countries had

signed the convention, and just two had ratified.

It does not appear that the convention is likely to

come into force in the near future.

The Sixth General Conference of UNCTAD was

held in June 1983. Its shipping activities agenda

included further consideration and implementation

of past initiatives. The main objectives of the LDCS

included entry into force of the Code of Conduct

on Liner Conferences, further research into the role

of transnational corporations in shipping, efforts

to abolish flags of convenience, and studies of investment and support policies. The background paper for this conference prepared by the UNCTAD

Secretariat included a listing of six areas of current

concern and review of recent activities as follows:

Major Areas of Concern

● Orderly development of liner and multimodal

transport service.

● An equitable basis for participation by developing countries in bulk cargo transport.

●

●

●

●

A regime to facilitate funding of shipbuilding and

buying by developing countries.

An equitable compilation of maritime laws.

Adequate port facilities.

Fostering management and technological expertise in shipping and port development in developing countries.

Review of UNCTAD Shipping

Activities Since 1964

To demonstrate what it calls “the change in the

pattern of the forces that manipulate market and

operational structures, UNCTAD cites the following actions that have been taken under its auspices:

. in t he liner trades, adoption of the Code of

Conduct for Liner Conferences;

. in multimod~ transport, adoption of the Multimodal Convention;

● in the revision of law on carriage of goods by

sea, adoption of the Hamburg Rules;

. in the bulk trades, investigations of market

practices and procedures, particularly as regards the role of translational corporations;

. in phasing out flags of convenience, negotiations on conditions for registration of ships and

the convening of a plenipotentiary conference

to adopt a set of principles on registration; and

. in maritime legislation, preparation of model

laws.

Inclusion of Service

Industries Within GATT

GATT deals only with issues relating to trade

in goods and does not apply to trade in services.

With the increased importance of service transactions in both the overall economy and current account, Ambassador Brock announced in April 1981

the administration’s intent to make trade issues

relating to service a high priority in the administration’s overall trade program. This was the administration’s opening attempt at getting its major

trading partners to recognize the need to develop

a multilateral approach to dealing with trade in

services. Presently, the bilateral approach is the only
Ch. 7—international Trade and Cargo Policies 199

track available on a case-by-case basis to resolve

disputes over services.

At the time of the announcement, OUSTR recognized that progress would be slow in developing

a multilateral regime and that the reduction of service-sector trade barriers could not be achieved before 1990. This prognosis was confirmed at the

GATT Ministerial Conference in November 1982

when the administration won a minor concession

from the other GATT members to exchange information on their countries’ service sectors and

review whether any multilateral action was appropriate. These national work programs are proceeding at differing paces, with the U.S. analysis now

expected to be finished by late 1983. The other national work programs are not expected to be completed before the next GATT Ministerial in the

spring of 1984.

The status of services under GATT is of importance here because the maritime industry is included. Thus far, services have been excluded from

GATT. Covered commodities are “bound,” which

means that a country can set a tariff rate for that

good which cannot be raised in the future, although

it can be lowered. This approach probably would

not be feasible as a trade rule in shipping. Britain,

Norway, Japan, and West Germany have indicated

to a greater or lesser degree interest in extending

GATT to shipping. France and virtually all LDCS

have registered opposition.

An interesting question would arise were services

to be covered. Under the most-favored-nation concept in GATT, each signatory must grant equal

status in trade agreements to all other signatories.

Nontariff trade barriers are discouraged. The

UNCTAD Code, by its nature, erects such barriers (cargo-sharing). How the code would interact

with GATT should services be covered is questionable. However, the likelihood that GATT will act

in this area in the near future does not seem to be

great, so the question probably will not arise soon.

Financing International Trade

One aspect of trade and cargo policy that does

not appear to be incorporated in any multilateral

or bilateral framework at present are the methods

used or made available to finance international

trade. These methods form an integral part of trade

and cargo policy today because an increasing number of countries are getting involved in trade financing as a matter of government policy. While most

industrialized nations historically have provided

some instruments for foreign trade financing, such

as use of export/import credits, many countries and

organizations have moved far from these basic approaches. Among recent developments in international trade financing are:

Government Financing Assistance

●

●

●

●

●

●

●

●

Foreign exchange rate insurance. Here a government guarantees the currency conversion rate.

Barter or inkind payment for import or export

goods with governments involved in supplying

or purchasing and storing as well as stockpiling

imported goods (discussed under countertrade).

Foreign trade risk insurance, where governments

assume the risk of providing coverage of the risk

incurred in the trade.

Cofinancing-with-foreign-aid exports, where the

government’s foreign aid or development agency pays part of the cost as a foreign-aid grant to

the recipient country. This makes the export extremely competitive.

Provision of technical aid grants (in support of

exports), which are used for training of local staff,

expatriate professional staff, installation, and

other technical assistance as part of the trade at

no cost to the exporter. This is often an appreciable component of the value of the export deal

and may affect choice of procurement.

Foreign trade import financing through use of

excess foreign currency earned by governments

from government-to-government trade. This

often includes sale of such currency at below normal exchange rates.

Low-cost export/import financing through government export/import bank.

Import/export loan guarantees provided by government agency against small fee.

Commercial Financing Assistance

● Joint venture financing using multiple placements to minimize risk.
270 ● An Assessment of Maritime Trade and Technology

●

●

●

Cofinancing by private banks or other financial

institutions with domestic government agencies,

foreign banks, or international financing institutions, such as the World Bank, Inter American

Development Bank, and Asian Development

Bank. Cofinancing is often also done with foreign

government agencies for the local currency costs

of the trade such as transport, insurance, installation, and training.

Export financing through delivery or supply of

finished goods produced by export. This type of

financing scheme is usually combined with an

advance sale of the goods to be delivered in the

future. As an example, coal mining equipment

export is paid for by future coal deliveries sold

as an advance sale to an electric powerplant, etc.

Trading company export/import financing. Here

a trading company, which is usually also a commercial bank, finances foreign trade exports and

uses proceeds to buy other goods for import or

sale to a third country or party. It may also simply sell its proceeds to a third party. Because trading companies deal in a large number of goods

and are represented world~’ide, they have the

contacts and means to consummate the most

complex chains of trading deals.

The above are just a few examples of foreign

trade financing schemes used in recent years. Many

foreign countries have Ministries of Trade (Commerce) anci Industry that combine development of

trade and industrial policy. In the United States,

these functions are dispersed among various agencies. There appears to be no overall strategy of U.S.

trade financing policy that would serve to maintain a competitive U.S. position in world trade and

trading industries.

SUMMARY

All trading nations have a self-interest in expanding their exports and controlling their imports. As

trading complexities increase, governments have

attempted to exercise rational management over

their flow of imports and exports. The analysis in

this chapter has illustrated that the economics and

management of trade are closely linked to the economics and management of shipping.

As nations increasingly try to manage trade policy to their best economic advantage, they tend to

increase governmental involvement in shipping.

Most countries have some unilateral cargo reservation. In addition, many nations, particularly the

LDCS that are attempting both to capture more export trade and to bolster their national-flag fleets,

are pushing for the establishment of bilateral and

multilateral cargo-sharing agreements. The latter

attempts have achieved international recognition

in the form of the UNCTAD Code of Conduct for

Liner Operations. This calls for an even division

of liner conference cargoes between trading partners, with some percentage reserved for third-flag

vessels, if agreed to by the national-flag liner engaged in the trade. The United States is not a signatory to the code, although there are fears that

U.S. carriers and possibly U.S. trade will be

negatively affected once it is implemented.

The United States faces a significant disadvantage in dealing with countries where industry and

government have established close ties and where

national and corporate goals are meshed. Japan is

an example of how successful such a nation can be

in the international trade arena. The United States

tends to disavow governmental interference in international trade and shipping and Government

pronouncements historically have been in favor of

free and open trade. Many U.S. shipping companies find it increasingly difficult to compete in international markets that are protectionist or where

other governments more heavily subsidize their industries. Many foreign governments tend to intervene on behalf of their national carriers, while the

U.S. Government has not intervened.

There have been attempts by the United States

and some of its industrialized trading partners to

work within international organizations such as

GATT for tariff barrier reduction and freer trade.

However, the reality is that trade is becoming more,

not less, managed, Thus far, the United States has

not developed a national response that would be

effective in protecting our economic position and

at the same time remain consistent with our historical national philosophy of free and open trade.
Appendixes
Appendix A

Administration Announcements

on Maritime Policy, 1982-83

The Reagan administration early in its term indicated

that a strong merchant marine was one of its goals. Administration spokesmen, such as the Secretary of

Transportation, the Maritime Administrator, and the

Chairman of the Federal Maritime Commission (FMC),

have reiterated the administration’s commitment to rejuvenation of the U.S. fleet. This rejuvenation is supposed to be stimulated by a reduction of Government

regulations that hinder the ability of the U.S. fleet to

be competitive. The administration has supported regulatory reform legislation providing an expanded antitrust immunity and permitting the U.S.-flag liner operators similar flexibility as its international competitors.

Shortly after the administration took office, an interagency task force was set up to examine current maritime policies and to make specific recommendations for

changes. The first major step was the curtailment initially and then the cutoff of construction differential subsidy (CDS) funding. For fiscal year 1982, no CDS funds

were requested ($49. 5 million in carryover funds were

made available), compared with an average annual request of$132 million in the previous 4 years. It was announced that this was intended as a phasing out of the

CDS program and that in the future no funding would

be made available. Temporary authority (for 1 year)

was granted for the building of subsidized vessels

abroad.

On May 20, 1982, Secretary of Transportation Drew

Lewis announced the initial elements of a new program. i

He stated the administration’s intent to honor existing

operating differential subsidy (ODS) contracts and to

maintain the sanctity of the Jones Act and existing cargo-preference laws covering government-impelled cargoes. In addition, he announced the following initiatives:

support of an extension of temporary authority for

subsidized U.S. -flag operators to construct or acquire vessels built abroad without CDS but still

qualify for ODS under U.S.-flag operations;

administrative reform of ODS by Department of

Transportation (DOT)/Maritime Administration

(MarAd) to increase operating flexibility and reduce costs in the program;

encourage foreign investment in U.S.-flag shipping

and permit the current 49 percent foreign owner-

‘<‘ ~’. S. Department of T’ransportatmn News, May 20, 1982, Washington,

r) c

ship in U.S. -flag vessels to be increased to 75

percent;

relieve all U.S. -flag ships of the current 50 percent

ad valorem duty on repairs performed abroad, providing flexibility to ship operators in making such

repairs and reducing the repair costs to ODS;

reduction of unnecessary regulation of the shipbuilding and ship operating industries and establishment of a top level government-industry group

to further that effort; and

support by the administration of elimination of

FM-C re~lations governing the level of the rates

of liner operators in the domestic trades.

On August 5, 1982, the Secretary announced a second

●

●

●

It

set of policy initiatives:z

the administration would authorize an increase in

the fiscal year 1983 ceiling on ship financing guarantees (title XI) from $600 million to $900 million.

The additional funds would be held in reserve by

the Secretary to be used in the interests of national

security;

permission was to be granted to U.S.-flag operators

to use existing and newly deposited tax-deferred

moneys in capital construction funds (CCF) and

construct or acquire foreign-built vessels; and

the Department of Defense (DOD) would continue

its efforts to expand use of civilian nongovernment

seafarers to crew Government ships.

was reaffirmed that the Government would honor

existing ODS contracts, but that no new contracts would

be signed. The fiscal year 1982-83 moratorium on new

GDS contracts would be continued.

It also was announced that an interagency international shipping policy group would be established to

evaluate the options available to the government. The

group would be chaired by the Secretary of Transportation with the vice chairman from the State Department.

1t was affh-med that the U.S. Navy would be providing significant work for U.S. yards, not only in combatant ships, but the U.S. Navy T-ship programs that are

essentially construction/conversion of merchant ships for

Navy use,

*“U.S. Department of Transportation News, ” Aug. 5, 1982, Washington,

D c.

203
204 . An Assessment of Maritime Trade and Technology

The administration subsequently announced that a

third round of policy initiatives would be forthcoming

in the first half of 1983.

Most of the initiatives listed above require legislative

authority, although some can be implemented administratively. MarAd’s proposed fiscal year 1983 authorization bill included some elements consistent with the

administration’s position and others that limit the administration’s ability to implement some of the proposed

policies. The proposed bill included a 9-month extension of authority for foreign building of ODS ships. The

administration sought a 1 -year limit of $950 million on

title XI guarantees and annual limits in the future, as

well as limited guarantees because of vessel type (oil

drilling rigs were to be prohibited).

The administration also has sought authority within

authorization bills to allow use of CGF moneys for

foreign building. Amounts for subsidy programs in the

proposed authorization bill for fiscal year 1983 were

$454 million for ODS, $15.3 million for research and

development, $78 million for operations and training,

and $25 million for three ships being turned into the

reserve fleet by American President Lines Ltd.

In December 1982, the administration reported the

status of its policy initiatives as follows:

. reform of ODS—simplification of procedures

under section 605(c) of the Merchant Marine Act

is under review in DOT. Other reforms were presented to the industry for comment, Legislation

will be drafted within the next few months;

. shipbuilding, ship-operating regulatory reform—

changes in the number of statutes regarding manning have been drafted. These deal with such items

as mixing deck and engine room duties, persons

subject to watch, and number of persons in bridge

watch. They are all part of title 46 of the U.S.

Code, which has been proposed for recodification.

When this is accomplished, the above modifications will be pursued;

— amending the Longshoremen and Harbor

Workers Compensation Act;

— revise buy America requirements for title XI

ships. Would require modification of 46 CFR

298.1 l—a committee will be formed to evaluate

the proposal and insure an opinion as to its economic consequences;

— memorandum of understanding between U.S.

Coast Guard (USCG) and American Bureau of

Shipping (ABS)—discussions are continuing to

identify additional areas that can be transferred

to ABS;

— simplify vessel documentation requirements—

rules were published in June 1982;

— simplify and improve requirements for licensing of officers and motorboat operators—regulations have been drafted and are being received

in USCG. Proposed changes are to 46 CFR part

10;

revision of watch relief—Federal Communication

Commission (FCC) has changed requirements for

ships in coastal trade, international Maritime Organization (IMO) to consider changes in international requirements;

modification of regulations for vessel sanitation

devices—Coast Guard and Environmental Protection Agency (EPA) have under consideration, findings to be published in Federal Register shortly;

review proposed Occupational Safety and Health

Administration (OSHA) regulations pertaining to

marine terminals and shipyards—Maritime Advisory Committee to review in near future;

Interagency international Shipping Policy

Group— working group will continue to monitor

developments in a number of Asian countries and

assess recent Organization for Economic Cooperation and Development (OECD) negotiations;

authority for overseas construction of ODS vessels;

use of Capital Construction Funds (CCF) for foreign-built ships;

authority for reflagged vessels to gain immediate

access to government-impelled cargoes;

authority to increase allowable foreign ownership

of U.S.-flag vessels;

relief of duty on foreign repairs;

rate deregulation of the domestic offshore trades—

MarAd draft legislation is under DOT review,

FMC staff report and analysis of comments will be

sent to Commission shortly; and

possible legislation on fiscal year 1983 title X1

ceiling.

The Shipping Act Amendments which are currently

(September 1983) before Congress were also supported

by the administration.

In summary, the promotional maritime policy elements which do not require legislation announced by

the administration to date are: 1) operating subsidy contracts (22) will continue but no new contracts will be

signed; 2) construction subsidies no longer will be

funded; and 3) the mortgage guarantee program will

continue, as will the CCF program.

On April 8, 1983, the Secretary of Transportation

transmitted draft legislation to implement five promotional elements of the previously announced maritime

policy package. The following are excerpted from that

letter:

(1) Build Foreign

Since the enactment of the Merchant Marine Act of

1936, vessels receiving operating differential subsidy

(ODS) have been required to be constructed in the United

States. Such vessels were generally constructed with the
App. A—Administration Announcements on Maritime Policy, 1982-83 205

aid of construction differential subsidy (CDS). Public Law

97-35 added section 615 to the Merchant Marine Act

authorizing the granting of ODS for the operation of

foreign-built, U.S.-flag vessels in the absence of available CDS. However, that authority technically expires

at the end of fiscal year 1983, and because of certain restrictions such authority cannot be used after the last day

of fiscal year 1982. The draft legislation continues the statutory authority to permit subsidized operators to construct and acquire vessels outside the United States and

still receive ODS. It also clarifies current authority to acquire existing vessels outside the Untied States to be reflagged and made eligible to receive ODS.

(2) Immediate Cargo Preference Eligibility

for Reflagged Vessels

Section 901(b) of the Merchant Marine Act of 1936

currently requires that foreign-built or rebuilt vessels must

be documented under U.S. laws for 3 years before they

can carry Government-impelled cargoes under the provisions of that section. This requirement is inconsistent

with a major thrust of the President’s policies, which is

to allow U.S. operators to construct or acquire foreign

tonnage. Government-impelled cargoes are a major

source of revenue for virtually all the U.S. liner operators

and many U.S. bulk operators. U.S.-flag vessels cannot

be denied immediate access to such important cargoes

if we are to have a strong U.S.-flag merchant marine.

The draft legislation would provide immediate eligibility for reflagged vessels of less than 5 years of age for the

carriage of Government-impelled cargoes. Vessels between 5 and 10 years of age could receive immediate

eligibility if they were determined to be useful for the national defense.

(3) Foreign Investment in U.S.-Flag Shipping

There currently are no U.S.-ownership requirements

for a U.S. corporation to operate U.S.-flag vessels in the

foreign trade of the United States. However, problems

arise with respect to the citizenship requirements for a

U.S. corporation that has availed itself of one or more

of the promotional programs provided by the Merchant

Marine Act of 1936. Such a situation invokes the citizenship definition set forth in the Shipping Act of 1916, which

requires that the controlling interest of a U.S. corporation must be owned by U.S. citizens. Relaxation of the

existing citizenship requirements would provide additional potential sources of capital for new investment in

U.S.-flag tonnage. The draft legislation provides that foreign investment in U.S.-flag shipping be encouraged by

increasing the current 49 percent foreign-ownership linlitation to 75 percent.

(4) Capital Construction Funds for Foreign

Building or Acquisition

Section 607 of the Merchant Marine Act of 1936 authorizes the Secretary to permit a citizen of the United

States owning or leasing vessels to defer the tax on certain funds generated by particular vessels when such funds

are deposited into a CCF and subsequently used for the

acquisition of qualified vessels. The tax-deferred funds

from a CCF are an important source of capital for the

construction of U.S.-flag vessels, particularly for subsidized operators engaged in the foreign trade. Present law,

however, requires that CCF may be used only in connection with vessels constructed in the United States.

Thus, subsidized operators who acquire foreign-built

ships under section 101 of the draft bill would be deprived

of this important source of capital for the acquisition of

their vessels. Nonsubsidized U.S.-flag operators who acquire tonnage abroad are in the same difficult position

with regard to the availability of CCF to assist in their

capital programs. The draft bill would authorize a U. S.-

flag operator engaged in foreign commerce to use CCF

in connection with foreign built vessels.

(5) Ad Valorem TarifTon Foreign Repairs

Pursuant to the Tariff Act of 1930, a 50 percent tariff

currently is levied on the cost of nonemergency foreign

repairs that have been made on U.S.-flag vessels. This

ad valorem duty adversely affects the ability of U. S.-flag

vessels to compete with foreign-flag vessels. By requiring U.S.-flag vessels to return to the United States for

such repairs, this ad valorem duty limits the flexibility

of our liner operators, places undue hardship on our bulk

carriers operating in foreign-to-foreign trades, and results

in the interruption of service with the loss of operating

revenues. The draft legislation would amend the Tariff

Act so that the current 50 percent ad valorem duty would

no longer apply to foreign repairs made to U.S.-flag vessels. In addition, section 606 of the Merchant Marine Act

of 1936 currently requires subsidized operators to perform repairs in the United States or Commonwealth of

Puerto Rico. The draft legislation would permit subsidized operators who are eligible for repair subsidy to perform such repairs in foreign shipyards without subsidy

or within the United States and Commonwealth of Puerto

Rico with subsidy.
Appendix B

Maritime Cargo Policies of

64 Foreign Countries 1982-83

1

Algeria

Algeria requires a 50-percent clause in its export contracts for both oil and liquefied natural gas (LNG) that

gives preference to Algerian-flag vessels.

Article 1 of Algerian Law No. 78-02 of February 11,

1978, gives the state a monopoly on foreign trade. It

reads, “In accordance with the provisions of the national

charter and applying Article 14 of the Constitution, the

import and export of goods, supplies and services of all

kinds are under the exclusive control of the state. ”

Except for crude oil, traffic between metropolitan

France and Algeria is reserved for Algerian- and Frenchflag vessels.

Algeria and Brazil have signed a maritime navigation and transport agreement to cover all traffic between

the ports of the two countries except for petroleum and

bulk-cargo shipments.

Algeria also has bilateral agreements with the

U. S. S. R., Bulgaria, the German Democratic Republic,

Guinea, the People’s Republic of China (P. R. C.) and

the Republic of Cape Verde that divide cargo on a 50/50

or 40/40/20 basis.

Transportation of LNG is provided for in the sales

contracts and varies according to contract with the stateowned Campagnie National Algerienne de Navigation

(CNAN) usually receiving at least one-third of the cargo

generated.

Angola

Imports in Angola pay 20 percent less import duty

on cargoes carried by state-owned Angolan-flag lines.

Preferential customs legislation and reduced port dues

as well as handling priorities are given Angolan-flag

vessels.

In March 1976, the Angolan Government decreed

that priority be given to vessels flying the Angolan flag

in the shipment of imports and exports. The use of foreign ships is allowed only when there are no national

ships available or when expressly authorized in specific

areas by the Merchant Navy Board. At present, only

Angonave (Angolan Shipping Lines) is authorized to

carry or delegate Angolan Government cargo. The trade

is said to be served by Communist Bloc nonconference

lines, and Western European lines cannot get access to

cargoes.

Argentina

According to its 1973 Merchant Marine Law, the

government of Argentina must approve all freight conference agreements that involve Argentina’s “right” to

carry 50-percent of its waterborne foreign trade, Any

freight conference agreement that appears to place limitations on Argentine ships or assign a smaller than 50

percent share to Argentine ships will not be recognized

by the government. The government reserves the right

to deny port facilities to foreign ships that do not operate

under approved agreements. In actuality, the new legislation adds little to the previous legislation, but instead

acts as enforcement legislation, reinforcing the 50 percent provision. The new legislation also clarifies the financial aspects of the domestic provisions while making known the internal promotion mechanisms.

All imports consigned to a government organization

must be transported on Argentine-flag vessels. Argentine vessels must also be assigned the largest possible

share of government exports.

Argentina has commercial agreements with Uruguay,

Peru, Chile, the P. R. C., and the U.S.S.R. whereby the

exchange of goods is to be divided in equal proportions

between Argentine-flag ships and ships of these trading

partners. In case of a shortage of such ships, it is necessary to obtain a waiver for transport in third-flag carriers.

In practice, a liner conference that gives Argentina

at least 50 percent of the pool may carry cargo up to

a maximum of 50 percent. The 50/50 agreements reserve trade to conference vessels of two parties. Second

preference is given to national nonconference lines and

then to other—preferably Latin American—third flags.

Only a very small percentage of the trade is carried by

nonconference lines, however, and an even smaller percentage is carried by cross-traders (primarily Brazil).

Australia

I LI .S, wpa~ment of Transportation, ‘‘Maritime Subsidies, February 1983,

Washington, DC with update by the Ofllce of Technology Assessment,

Australia has no national laws, regulations, or administrative practices requiring international carriage to be
App. B—Maritime Cargo Policies of 64 Foreign Countries 1982-83 ● 207

reserved either totally or in part for national flag carriers. No apparent flag discrimination has been reported.

Japan agreed to purchase 6.5 million tons per year

from Australia’s Northwest Shelf LNG project in early

1981. Shipping requirements are estimated to be seven,

125,000 M3

. vessels starting in 1986. Vessel ownership

is to be divided between Australian and Japanese flags.

Bolivia

Legislation provides for 50-percent reservation to the

national flag, including general, reefer, and bulk cargo.

The remaining 50 percent is open to associate foreign

lines which have an agreement with the Bolivian national line. Implementation has not been possible,

however, because of a

ships).

Under Decree Law

and exports in which

lack of tonnage (fleet of only two

Brazil

666 of July 2, 1969, all imports

the government provides financial assistance must be carried on Brazilian ships when

available. However, this law provides for the waiver of

cargo preference in the following instances:

1:

2.

3.

import or export cargoes obligatorily linked to

transportation in Brazilian-flag ships can be liberated in favor of the flag of the exporting or importing country by weight up to 50 percent of the

total as long as the legislation of the buying or selling country concedes at least equal treatment in

relation to Brazilian-flag ships;

in case there is no Brazilian-flag ship or flag ship

of the importing or exporting country in position

to take on the cargo, the Brazilian Superintendent of Merchant Marine can, in his exclusive judgment, liberate the transportation (of the cargo) to

a third-flag ship specifically designated; and

when the exportation or importation of merchandise subject ~o liberation is made to or from a country that is not served by ships of both the countries involved, the Brazilian Superintendency of

Merchant Marine will effect prior liberation of the

cargoes covered by this decree, designating the

transporter.

Only a small percentage is allowed to be carried by

nonconference lines. Foreign shipping companies cannot operate to Brazil unless they are comembers with

a Brazilian line of a conference. Most agreements cover

the whole trade and do not recognize third-flag rights.

The government has a monopoly on the transportation of petroleum and petroleum products, except for

some small companies that were in operation when the

monopoly law went into effect.

All imports of ordinary paper (excluding special paper

and pulp) must be carried in Brazilian ships, but in

trades where special arrangements are made, as in the

case of the Equal Access Agreement between

SUNAMAM and the U.S. Maritime Administration,

the other national lines also can participate in this

carriage.

Algeria and Brazil have signed a maritime navigation and transport agreement to cover all traffic between

ports of the two countries except petroleum and bulkcargo shipments.

Since 1967, Brazil’s legislation has called for the

establishment of cargo quotas through pooling agreements aimed at achieving a 40-percent share for Brazilian carriers, 40 percent for national-flag lines of its

trading partners, and 20 percent for third flags. Between

Brazil and Argentina, Chile, Ecuador, Mexico, Peru

and Uruguay, however, the agreement is 50-50 unless

national-flag ships are unavailable.

A protocol to the Brazil/West Germany maritime

agreement provides for participation in equal rights in

regards to tonnage and freight values for governmental

cargo. Brazil also has signed maritime agreements with

the U. S. S. R., Poland, Romania, and East Germany.

Burma

In Burma, up-to-date information is not available,

but earlier legislation reserves all cargo to the national

line, except for certain regional trades where Burma

operates in a conference.

Cameroon

The Cameroon Shipping Lines is given exclusive right

to transport all imports for the government, public collectives, or state-owned companies. All contracts for

private imports and exports must give priority to or obtain a waiver from the company for any shipment it cannot handle.

Chile

Decree Law No. 3059 reserves for Chilean-flag vessels

50 percent of international ocean transport except when

reciprocity by foreign countries determines their individual participation above or below this limit.

Decree law signed December 23, 1975, provides that

50 percent of export cargoes may be carried on ships

of flag of country of destination as long as that country

recognizes an equal right for Chilean vessels.
208 ● An Assessment of Maritime Trade and Technology

Cargo moving between Chile and Argentina, Chile

and Brazil, and Chile and Peru, must be carried in equal

portions by ships of the two countries when available.

Chile and Israel have signed a convention according

the two countries equal shipping access to cargo in bilateral trade and equal port facilities in their respective

nations.

People’s Republic of China

A new maritime code is being drafted that is likely

to contain protectionist measures. The Chinese lay down

all conditions on which cargo moves in their trades.

They discriminate by buying f.o. b. and exporting c.i. f.

and by fixing freight rates. In practice, much cargo is

carried in foreign ships because of their small fleet.

Colombia

Legislation reserves a minimum of 50 percent of all

national cargo to Colombian vessels on routes where a

Colombian vessel operates. Import/export licenses only

are given to approved lines, i.e. , lines in a conference

with a pooling agreement that guarantees 50 percent of

the trade to Colombian lines. These licensing procedures

virtually preclude the operation of nonconference lines,

except for a very small group of unstamped cargoes.

Conference cross-traders are not necessarily excluded,

provided they do not take away from the 50 percent Colombian share.

Decree No. 1208 of July 1969, states as follows:

Article I.—In order to effect Article 1 of Legislative

Decree No. 994 of 1966, a reserve is made for Colombianflag ships of no less than 50 percent of the general cargo

of imports and exports on routes served by Colombian

vessels, providing that the requirements of Article 2 of

the same Legislative Decree are met.

The Colombian Government, after examining the capacity and speciality of the mentioned vessels through a

study made by the Ministry of Development, the Merchant Fleet, and a representative of the Colombian Shipowners, will establish a reserve of no more than 50 percent of Colombian-flag ships transporting bulk, liquid and

refrigerated cargoes of imports and exports.

The reserved cargoes stipulated in this article will be

applied only if they are not in conflict with previous

Government obligations with regard to foreign loans.

Article 2.—The reserved cargoes could be included in

the transportation treaties between Colombian shipowners

and foreign maritime companies, in order to enlarge, integrate, or consolidate the services and to reduce their

costs.

The Latin American shipowners registered in the Latin

American Association of Shipowners could participate in

the transportation of reserved cargoes under equal conditions as the Colombian ships, provided that equal treatment or its equivalent be given to Colombian ships in

their respective countries.

Decree 616 of 1972 states: “The Colombian reserve

for Colombian flag vessels also operates for cargo with

final destinations to Colombian trade zones. ”

Costa Rica

At present, 80 percent of all exports are reserved to

a Caribbean line, but in response to complaints from

foreign governments, Costa Rica has agreed to revise

the law when the U. N. Liner Code comes into force.

Cuba

All cargo is allocated to Cuban- or Soviet-flag ships.

Denmark

Effective July 31, 1973, any sea transport of goods

from Denmark to Greenland requires a permit from the

Minister for Greenland. Exempt from this requirement

are Danish Government and Government institution

ships, and sea transport of goods required for the operation of the Danish-American defense areas. With the

exception of this Greenland trade, Denmark has no

other national laws or regulations on cargo preference.

Dominican Republic

In the Dominican Republic, Law No. 180 of May

31, 1975, provides that 40 percent of commercial import and export cargo, 50 percent of “exonerate” cargo

and 60 percent of government-controlled

ried on Dominican Republic-flag ships.

that this law is ineffective in practice.

cargo be carIt is believed

Ecuador

Ecuador reserves 100 percent of hydrocarbon cargoes

exclusively for state companies or mixed companies in

which the state has 51 percent interest and the right to

carry 50 percent of all cargoes imported to or exported

from Ecuador.

All imports and exports that are the property of the

Government or its enterprises, or of public or private

institutions that are intended for social or public purposes, as well as cargo belonging to companies in which

the government owns more than 50 percent of the capital, are to be transported in vessels owned by national

shipping companies or by those which the cargo reserve

law considers as such. Fifty percent of the cargo may
App. B—Maritime Cargo Policies of 84 Foreign Countries 1982-83 ● 209

be transported on vessels of the importing or exporting

country provided it is done on the basis of reciprocity.

A series of decrees reserve 100 percent of imports from

Brazil, Argentina, and South Africa and 100 percent

of all trade with Panama, to Ecuador flag vessels or to

vessels of foreign companies associated with an Ecuadoran line.

Implementation is taking place route by route as

Ecuadoran vessels become available. Associate status

has been granted to a number of foreign lines in the

direct trades to Europe.

Egypt

In 1976, Egypt’s Council of State issued a ruling

through the Supreme Administrative Court in Cairo

that in the future all seaborne shipments entering or

leaving Egypt on the business of the Arab Republic of

Egypt, her public institutions, organizations, and their

affiliates must be arranged and supervised by the Egyptian Company for Maritime Transport or the foreign

agents of this company.

Article 1 of Ministerial Decree 221 of 1974 requires

all organizations in which the Government has 25 percent or more interest to give priority to Egyptian-flag

companies. More recently, Government cargoes, plus

30 percent of all imports and exports, have been reserved

for Egyptian-flag ships. The state cargo-allocation agency gives priority to the state line and second preference

to major Egyptian private lines.

Ethiopia

In Ethiopia, legislation is not known, but import

licenses bear the words ‘ ‘to be shipped in Ethiopianflag vessels. ” However, the fleet is very small and

waivers are given automatically.

France

According to a decree of April 1931, as amended in

August 1970, two-thirds of the crude oil imported for

internal consumption must be carried in French ships

or in ships of which the charter parties have been approved by the Ministries concerned [i.e., Ministry of

Fuel and Ministry of Transport (Merchant Marine)].

A 1935 French law specifies that 50 percent of France’s

coal imports be carried in French-flag vessels. Exceptions can be granted if needed ships cannot be supplied.

French-flag ships have a monopoly on coastal traffic

in metropolitan France; they also have a de facto monopoly on traffic between ports of the French Departments of La Guyane, La Guadaloupe, and La Martinique, and between ports of the same overseas Departments. Trafiic between ports of metropolitan France and

Tunisian ports is reserved jointly to French- and Tunisian-flag ships. It is the same for traffic between

metropolitan France and Algerian ports according to recent agreements. Trafilc between France and former

French colonies is not reserved to French-flag ships.

France has bilateral agreements with the Ivory Coast

and with Senegal dividing cargo on a 40/40/20 basis.

A French/Morroccan agreement divides cargo either

40/40/20 or 50/50 on a case-by-case basis.

Concerning export credits, France imposes Frenchflag vessels if the transport is being financed as well as

the goods being exported. This restriction relates only

to those exports that are being undertaken on a c.i. f.

basis. If, however, only the products are being financed

and not the transport, a complete freedom-of-choice flag

exists.

Gabon

A government decree signed on September 7, 1978,

confirms the division of cargo using the UNCTAD

40/40/20 formula, with the qualification that Government and quasi-Government cargo be expressly reserved

for Gabonese-flag vessels.

Gabon’s national merchant marine company, Societe

Natiomde de 7knsports Maritime (SONATRAM), has

signed agreements with both a West German and a Belgian company to divide cargoes on a 40/40/20 basis,

which is similar to a French/Gabonese agreement. The

agreements also provide for the Transportation of freight

by the Belgian and West German companies, for the

account of SONATRAM if no SONATRAM ships are

available. A similar agreement has been negotiated with

the Dutch line Nedlloyd.

Federal Republic of Germany

There are no legislative provisions requiring the use

of West German ships in the transportation of supplies

for development assistance provided by the Federal Republic of Germany (FRG). Bilateral agreements on capital assistance provide that receiving countries shall allow

free choice of transportation enterprises to passengers

and suppliers of goods and shall abstain from any measures that might exclude or impair the participation by

West German transportation enterprises.

Cargo may be reserved, however, to West Germanflag vessels if the receiving countries preclude West German lines from participation in the carriage of such

cargo. Furthermore, cargo may be reserved under existing agreements on sea transport concluded with the Re-
210 ● An Assessment of Maritime Trade and Technology

public of Ivory Coast and Brazil. West Germany has

signed an agreement with the Ivory Coast to divide cargo on a 40/40/20 basis.

Cargo- and revenue-pooling agreements that involve

nonresident shipping companies, and freight contracts

and charters with carriers from countries that discriminate against West German vessels, must be approved

by the government.

A supplementary protocol to the Brazil/FRG Maritime Agreement provides for participation on equal

rights regarding freight values and tonnage for governmental cargoes.

Ghana

Ghana favors f.o. b. purchasing as a means of discrimination, and all indications are that cargo control will

be tight and effective. All cargoes ordered by the Ghana

Supply Commission, the Government’s purchasing organization, are handled by the Black Star Lines as shipping agents. However, cargo is moved by the first available conference vessel. Ghana has indicated that nonconference lines will be allowed to participate but only

up to a certain share of trade (yet to be decided).

Guatemala

Guatemala Congressional Decree No. 26/77 derogated the previous basic shipping laws and established

a nondiscriminatory regime. A 6-percent surcharge,

which must be paid by all national or foreign shipping

lines that transport merchandise destined to the Republic of Guatemala, is levied on the value of maritime

freight on all products or merchandise entering the country through national ports and customs houses. Until

1983, 30 percent of the revenue collected will go the National Maritime Co. (in which the state has a majority

interest), with the rest going into a loan fund to assist

the merchant marine.

Honduras

In Honduras, no effective measures are yet in force.

The 1970 legislation reserves imports of certain “privileged companies” to Honduran vessels. However, the

fleet is too small for this legislation to be enforced.

India

Government cargoes in India are reserved to the national-flag fleet. Further legislation is under consideration to reserve 40 percent of all export cargoes to Indian vessels.

India is exerting cargo preference pressure on her oil

import trade The national refineries give preference to

shipping under the Indian flag, which is to transport

90 percent of all crude oil imports.

India has agreements with Peru, Romania, Czechoslovakia, Hungary, Bulgaria, the U.S.S.R, Poland, East

Germany, Iran, and Egypt to utilize as far as possible

shipping of either party in the carriage of mutual trade.

The agreements provide for the carriage of bilateral

trade on the basis of suitability and equality in tonnage

and earnings.

India has signed a bilateral agreement with Czechoslovakia that divides cargo on a 40/40/20 basis with the

20 percent share allocated to Polish and Yugoslav vessels.

Export-Import Bank cargoes that are not carried in

U.S.-flag vessels must be carried on national-flag vessels.

Shipments for

on national flag

Government account must be carried

ships.

Indonesia

An instruction of November 27, 1964, orders that all

requests for shipping space for export of Indonesian

commodities be channeled through the Directorate for

Shipping of the Directorate General of Sea Communications. This is designed to give national shipping companies priority in the transportation of Indonesian export goods.

The Minister of Sea Communications has ruled that

trans-shipment of goods for Indonesia must be with

Indonesian-owned ships using only Indonesian transshipment ports. It also was pointed out that as soon as

possible, Indonesian-owned coasters will be used for

tram-shipment from Bangkok, Thailand and Kompongsom, Cambodia. Licenses will be issued by the National

Shipping Bureau. If national vessels are unavailable,

foreign-flag ships can be licensed to carry transshipment. The Government has stipulated that national-flag ships carry 40 percent of all cargo moving between Indonesia and Europe.

Fifty percent of c.i. f. fertilizer imports (100 percent

of f.o. b. fertilizer imports) must be carried on Indonesian-flag vessels. In late 1981, Indonesia and Korea

negotiated an agreement to split the shipping of their

bilateral trade 50/50.

Minister of Communications Decree No. KM/16/

PR. 302/PHB-82 dated January 18, 1982, provides for

a 50-percent reduction in port and bunkering charges

for national oceangoing ships, including ships chartered

by national oceangoing companies, loading nonoil and

natural gas export products. The reduction is to be ac-
App. B—Maritime Cargo Policies of 64 Foreign Countries 196243 211

counted by the shipping company as port charges relief

to exporters.

Presidential Decree 18-82 dated April 12, 1982, states

‘‘the transportation of export and import commodities

owned by the Government of Indonesia will be carried

out by vessels operated by Indonesia shipping companies .

Iran

Iranian Decree No. 35510 of August 23, 1976, created

a bureau at the Ministry of Commerce for the purpose

of planning and programing the importation and shipment of Government goods. All ministries and Government enterprises and organizations, as well as Government-afllliated organizations (excluding the War Ministry and the Armed Forces) are responsible for arranging for the shipment of their own goods, whether by sea

or by air, through the Ministry of Commerce. The Ministry of Commerce arranges with the Iranian merchant

marine for the shipment of such goods, and all Government cargoes are apparently reserved to the Iranian flag.

Iraq

Preference in the carriage of cargo is given to Iraqiflag vessels.

Italy

Generally, Italy has no overall cargo-preference laws

or regulations. Italy and the U.S.S.R. have signed a

bilateral shipping pact that stipulates that Italian ships

should carry all raw materials while Soviet ships should

carry general cargo.

Italy and the Ivory Coast have signed an agreement

to divide cargo on a 40/40/20 basis.

Ivory Coast

An order of 1975 declares that cargoes of all types

coming from or destined for the Ivory Coast are divided

between Ivorian and foreign shipping following the

40/40/20 sharing formula of the UNCTAD Code of

Conduct for Liner Conferences.

Cargo booking offices in most trades contribute to

close control of cargoes. Preference for allocation is as

follows:

● Ivory Coast-flag ships,

● trading partner-flag ships,

. conference cross-traders,

● Ivory Coast nonconference lines, and

. others.

The Ivory Coast has signed agreements with West

Germany, France, and Italy which divide bilateral cargo

on the above basis.

Jamaica

The Cargo Preference Act of 1979 requires specified

import and export cargo be carried by ships owned,

chartered, or operated by the Jamaican Government.

Those cargoes are: all bauxite, alumina, and such other

natural resources of Jamaica and their byproducts as

may be prescribed; such agricultural products to be exported from Jamaica as may be prescribed; and all Government-controlled cargoes. A waiver of 50 percent of

cargoes can be based on reciprocity. The requirement

can be completely waived if in the national interest. A

strong directive has been issued to Government departments to use Jamaican-flag ships, but it has not been

well-implemented.

Japan

Japan has no generally applicable laws or regulations

in support of cargo preference. However, utilization of

Government financing or licensing services often result

in the direction of commercial cargoes to Japanese-flag

carriers. The shipment of tobacco from the United

States to Japan is a case in point—such cargoes have

been shipped exclusively on Japanese-flag vessels for

years. The close Government-industry relationship in

Japan necessarily results in a shipping policy that has

the net effect of a ‘‘ship Japanese’ program.

Republic of Korea (South Korea)

A preferential interest rate for importing raw materials for export production is extended to cover freight

costs when the imports are carried on Korean-flag ships.

The Marine Transportation Promotion Law of December 5, 1978, as supplemented by Presidential Enforcement Decree of June 8, 1979, reserves 100 percent

of all liner cargoes for Korean-flag vessels.

The Shipping Promotion Law enacted by South Korea makes it mandatory for exporters and importers in

that country to use only Korean-flag vessels for all their

shipments.

The Government encourages the use of Korean-flag

ships by awarding some Government procurement contracts on a f.o. b. rather than a c.i. f. basis, enabling these

ships to compete on a more equal level. The extent to

which this policy is successful is indicated by the relatively large ratio of cargoes carried by its oceangoing merchant fleet.
212 An Assessment of Maritime Trade and Technology

There is a waiver system designed to assure the utmost cargo for the national fleet. A waiver is allowed

only when there is no Korean vessel available for carrying cargo.

A Transportation Ministry decree names five commodities, imported in foreign bottoms, which as soon

as possible are to be carried in Korean-flag ships. These

items are crude oil, iron ore, logs, grains, and fertilizers.

Korea has trade agreements for the carriage of cargo

by ship with the United States, West Germany, Japan,

and Denmark.

Kuwait

Government of Kuwait crude oil sales contracts include terms that require that cargo preference be given

first to Kuwait-flag tankers, and then to other Arab

flags.

Libya

A Libyan decree reserving all imports to domestically owned or chartered vessels was to have been issued,

but, if issued, has never been implemented.

Malaysia

Malaysian law requires all coastal trade be carried

on Malaysian-flag vessels. All goods destined for East

Malaysia must pass through Johore Baru, eliminating

Singapore trans-shipment. The prime benefactor will

be the Malaysian International Shipping Corporation

(MISC), which is 51 percent owned by the Government.

Malaysia has adopted the UNCTAD Code of Conduct for Liner Conferences cargo carriage ratio of

40/40/20. Legislation and fiscal incentives reserving

Government and quasi-Government cargoes to the national flag are ineffective at the moment, but Malaysia

has ambitious plans for fleet expansion.

Malta

The Maltese minister for ports may exclude from

trade with Malta those lines not party to an agreement

of which he approves. Legislation has led to a number

of 50/50 commercial deals.

Sea Malta Co. Ltd. is to share in the carriage of

freight on the routes between Malta and Belgium, West

Germany, Holland, Italy, and the United States routes

on a 50/50 basis as a result of an agreement reached

between the island’s national carrier and a number of

foreign lines that operate on the Malta route.

Previous nonconference lines were accommodated in

these agreements, but presumably there would be difficulties for new nonconference lines. Cross-traders also

were accommodated but on a limited basis.

Mexico

The constitution of the Caribbean Multinational

Shipping Line (NAMUCAR) requires members to use

that line for all shipments between member countries

in which there is a Government interest, unless such

cargo is reserved to national lines.

Preferential treatment is on the basis of administrative

actions rather than laws. These actions have taken the

following forms:

1.

2.

3.

4.

5.

A

approval of applications for import licenses with

the provision that the goods covered by the application be imported in Mexican-flag vessels;

in some cases where the importation of a given item

is restricted by allocations of quotas in currency,

the cost of sea transportation is not charged against

the quota when the goods are imported in Mexican-flag vessels. The effect of such a ‘‘credit’ is

to increase the quota of the importer who chooses

to utilize the services of Mexican-flag ships;

a decree ofJanuary 30, 1967, grants a 97.7-percent

reduction of the export tax on cotton to cotton producers, The purpose of the decree is to encourage

producers to seek foreign markets. It is stated in

the decree that preferential treatment will be given

to shippers who use Mexican-flag vessels or vessels

chartered by a national shipping company;

a decree of January 18, 1963, established an export tax of 1 percent of the invoice value on bee

honey if the shipment is made on a Mexican-flag

ship. The tax applied on bee honey shipped on a

foreign-flag vessel is 3 percent; and

a decree effective January 1, 1966, provides the

following subsidies of products intended for export:

50 percent of the railroad freight rate for manufactured products not for end consumption. When

such products are shipped by sea, the subsidy can

only be given when either a Mexican-flag vessel

or a foreign-flag vessel under charter to a Mexican

shipping company is used.

provision has been published under the Mexican

Export Tax scheme which applies rebates on a progressive scale to exports if the exporter uses Mexican insurance and c:arriers.

Article 6 of the Mexican Decree on Fiscal Incentives

to the National Merchant Marine provides a tax credit

equivalent to 10 percent of the cost of transport and

other costs associated with the transport of imports to

those who contract with a Mexican-flag transport firm.
App. B—Maritime Cargo Policies of 64 Foreign Countries 19624?3 ● 213

The Law of the Development of the Mexican Merchant Marine enables the Secretariat of Communications and Transport to reserve specific shipments of

cargo for transport solely in ships of Mexican registry

and to fix the Mexican-registered vessels’ percentage

shares of the transport of import and export cargoes that

are the property of the Government or semi-public institutions. Under the law, import or export cargoes

marketed with state financing, subsidy or guarantee,

and duty exempt cargoes are preferably to be transported in ships of Mexican registry.

Regulations published on October 27, 1981, implementing Mexico’s Law for the Development of the Mexican merchant marine reserves 50 percent of all general

and bulk cargoes for the Mexican merchant marine.

Mexico’s Multimodal Transport Decree requires

equal participation of Mexican-flag carriers in the transport of containers. Despite legislation favoring conference shipping, a high proportion of trade continues to

be nonconference.

Morocco

State enterprises and mixed public-private activities

and/or concessions or subsidiaries of such entities reserve

all their cargo for Moroccan-flag carriers. Forty percent

of imports and 30 percent of exports are required to

move on Moroccan vessels. Morocco has agreed to divide cargo 40/40/20 or 50/50 on a case-by-case basis with

France and Spain. Existing bilateral exceed the UNCTAD Code by implicitly covering bulk trades.

Mozambique

All trade between Mozambique and Portugal is reserved for Portuguese-flag vessels. There is a 20-percent

reduction in taxes on goods shipped via Portugal.

Nicaragua

Decree Law No. 299 of March 24, 1972, provides that

cargoes purchased or sold by the State shall be transported exclusively by Nicaraguan shipping enterprises.

Fifty percent of commercial cargoes shall be carried by

national flag ships, and 50 percent by ships of the other

party. Should the other party not provide shipping services, the Nicaraguan share may go up to 80 percent.

A recently passed Government decree states that 40

percent of each shipment in or out of Nicaragua must

be transported on the state shipping line, Naviera

Nicaraguaense (NANICA). Forty percent of the shipment can be transported by a line from the trading partner and 20 percent by a shipping line of any Central

American country. Recent legislation, not yet implemented, calls for Government approval of freight rates

and increases.

Nigeria

On December 29, 1981, Nigeria anounced its adoption of the UNCTAD 40/40/20 cargo-sharing formula

with implementation to be effective January 1, 1982.

It was also announced that bilateral agreements will be

undertaken with friendly countries to promote shipping

trade. A 50/50 agreement has been concluded with Brazil, and discussions with OECD trading partners are

currently underway. A high proportion of current trade

is carried by nonconference lines.

Pakistan

Cargo preference is practiced among participants in

international shipping conferences that reserve a portion of the conference trade to Pakistan ships.

Half of U.S. and World Bank aid cargo and most

Government cargo is reserved to national-flag ships.

It is reported from Karachi that 40 percent of the

country’s imports and exports will be reserved to

national-flag ships. Pakistan is believed to have had a

50/50 cargo sharing agreement with Poland dating from

1975.

Paraguay

A decree reserving 100 percent of Paraguay’s inbound

cargo for Paraguayan ships was signed on August 21,

1981.

Peru

For certain types of cargo (wheat, corn) Peru reserves

100 percent of cargo for Peruvian-flag vessels. For other

cargoes, it reserves 50 percent, but since export cargo

is normally sold full-lot, the effect is that Peruvian flag

vessels end up with the entire cargo.

A decree, effective March 26, 1976, guarantees that

Compania Peruana de Vapores, the state-flag line, shall

receive preference in the carriage of all Government cargoes, whether national or local.

A Peruvian decree provides that all public bodies give

preference to the transportation of import and export

cargoes to vessels belonging to the Peruvian Shipping

Company (CPV). Also, the organization will contract

through CPV the transportation of cargoes which CPV

vessels cannot carry.
214 . An Assessment of MarMme Trade and Technology

A Peruvian Government decree established that up

to 50 percent of Peruvian exports and imports (calculated on a monthly basis) must be reserved for Peruvian shipping lines. In practice this started at 30 percent

and permitted a periodic increase to bring it up to 50

percent, to which it was raised by a decree of June 2,

1980.

Decree 22067 of January 11, 1978, obliges all public

 sector entities to contract Peruvian-flag shipping lines

for the maritime transport of nonconference articles for

import and export with priority to: 1) Corporation Peruana de Vapores (CPV); 2) Peruvian-flag vessels; 3) foreign-flag vessels chartered to Peruvian companies.

Supreme Decree No. 024-80-TC signed December

30, 1980, reserves cargo exclusively for Peruvian-flag

vessels in cases where the trading partner does not have

a representative line calling in Peru. Argentina and Brazil have similar agreements with Peru whereby the parties have an equal right to transport the cargoes and

share the freight receipts derived from their bilateral

trade. Peru has acceded to UNCTAD code with reservations.

Philippines

In the Philippines, an original decree reserved all

Government cargoes to the national flag. A subsequent

decree (January 1982) reserves 40 percent of all liner

trade to the national-flag vessels and 40 percent to the

bilateral partner. Legislation on Government cargo is

already in force, but implementing regulations for the

general cargo reservation law have been issued only for

the U.S. route so far. The combined effect of the two

decrees will probably mean 60 percent of the trade is

reserved for Philippine vessels.

Presidential Decree 806 states that the Government

will take all steps necessary, including the provision of

direct incentives to Philippine- flag vessels and national

shipping lines, to enable them to carry a substantial and

increasing share of the cargo generated by Philippine

foreign trade. It also states that Philippine-flag vessels

and those that are owned, controlled, or chartered by

Philippine nationals shall carry at least an equal share

of cargo as that carried by vessels of another country

in trade between the two countries.

Exporters will be able to deduct from their taxable

income an amount equivalent to 150 percent of overseas

freight expenses and charges in Philippine ports incurred

in shipping export products, provided they use Philippine-flag carriers. Enterprises registered with the Board

of Investments also will be allowed to deduct from their

taxable income 200 percent of shipment costs incurred

in the transport of their products and raw materials to

.

and from foreign ports, provided the shipments are on

Philippine vessels.

Under a Philippine licensing regulation, import licenses will be issued for a Government cargo only when

such import is to be transported on Philippine-flag ships.

However, import licenses may be issued if no Philippineflag vessel is available at the port of shipment. In actual practice, many shipments go to foreign liners due

to the unavailability of Philippine ships.

Presidential Order No. 37 requires that all purchases

of Philippine imports be made on an f.o. b. basis, that

all freight payments be made in pesos in the Philippines,

and that preference on the carriage of imports be given

to Philippine-flag vessels.

Presidential Decree 917 of April 1, 1976, established

the Freight Booking and Cargo Consolidation Center

to: 1) encourage, facilitate, and assist Philippine shippers, and affect the consolidation of their cargoes, in

order to achieve economy and efficiency in bulk

shipments; 2) provide systematic vessel-chartering services or charter vessels for the benefit of Philippine shippers; 3) secure adequate shipping services for the carriage of Philippine overseas trade and book cargoes at

reasonable freight rates; 4) serve as the central implementing authority for the utilization of Philippine shipping lines for the seaborne transport of Philippine export and lumber imports as prescribed under Presidential Decree No. 894; and 5) foster cooperation among,

and enter into suitable arrangements with, appropriate

private and public sectors in the Association of Southeast

Asian Nations for these purposes and projects.

Decree No. 894 of February 26, 1976, requires Government offices, agencies, and instrumentalities,

Government-owned or controlled corporations, and persons and entities enjoying tax exemption, incentive, or

subsidy from the Government to utilize in international

transportation the services of Philippine-flag shipping

lines to the maximum extent service by such lines is

available.

Presidential Decree 1466 narrowed the provisions of

Presidential Decree 894 by requiring only those cargoes

paid for with Government funds or with Government

loans, credits, or guarantees to be carried on Philippineflag vessels (waivers may be granted on the basis of reciprocity y).

All imports of U.S. agricultural commodities under

section 402, of the U.S. Government Mutual Security

Act and U.S. Public Law 480 that are in excess of the

50 percent required to be carried on U.S.-flag ships must

be shipped in Philippine vessels when available.

Executive Order No. 769 signed onJanuary 19, 1982,

orders the maritime industry authority to issue the necessary rules and regulations to reserve 80 percent of the

Philippine export and import liner cargo trade not cov-
App. B—Maritime Cargo Policies of 64 Foreign Countries 1982-83 ● 215

ered by Presidential Decree 1466 for flag carriers of the

Philippines and those of the bilateral partner, with the

reserved cargo to be shared equally.

Portugal

Decree Law 75-U/77 prescribes that the maritime

transportation of goods by any public administration or

public enterprise must be on ships under Portuguese flag

or on foreign ships chartered by the Portuguese ship

owners. This regime must also be observed for c. i. f. exports made by any public administration or public enterprise.

The principles that govern the granting of a derogation are expressed in the Decree Law 75-U/77, in its

Article 2:

Up to 50 percent of the import or export consignments

covered by the provisions of Article 1 may be freed for

carriage in foreign ships, in particular those of the importing or exporting country, provided that the legislation of such countries grants equal treatment to Portuguese vessels.

In practice, Portuguese authorities intervene only

when there is no agreement between carriers and shipowners, and even then only in cases in which there are

no significant differences in transportation costs and

there is no delay in the expedition or reception of goods.

In the other cases, waivers are automatically granted.

At present, there is no record of any waiver being denied. If the laws of the importing or exporting country

grant equal treatment to the vessels sailing under the

Portuguese flag, then up to 50 percent of the import or

export cargoes may be liberated in favor of ships flying

that country’s flag.

The maritime transport companies of Portugal and

the U.S. S. R. are entitled to equal shares in the carriage

of merchandise in the bilateral trade between their ports.

Saudi Arabia

By royal decree, preference shall be given to Saudi

companies whenever financial and other items are equal.

Saudi legislation in 1975 reserved 5 percent of Saudi

exports—mainly oil—for national vessels. This figure

was supposed to increase to 50 percent by 1980. Saudi

flag is also given first preference for defense and governmental cargoes.

Singapore

The Singapore Shipping Association and the Indonesian Shipowners Association have an agreement dividing

cargo between them on a 50/50 basis.

apore has no cargo preference laws.

South Africa

Otherwise, SingAll goods shipped from the United Kingdom or Europe to South Africa for government use must be shipped in vessels operated by the South and South-East

African Conference Lines of which SAFMARINE, Ltd.

is a member. No other cargo preference laws are in

effect.

Spain

A ministerial order dated March 15, 1963, implies

certain limitations on the freedom of shipping for imports of essential commodities, “the prices of which, due

to their absolutely essential nature, are exposed to the

very frequent changes of freight rates in the international

market, and which being considered as governmental

trade, do not contravene, therefore, to the rules of the

international organizations of which Spain is a member .

In this connection, the freedom of trade and freight

rates will be limited in the following cases:

. imports of governmental cargoes, which have to be

carried in full shiploads and on Spanish-flag vessels;

and

● the same conditions apply to the imports of those

crude oil loads, which are assigned to be consumed

within the area covered by the petroleum monopoly.

However, this regime is not entirely restrictive, in

view of the fact that 45 percent of crude oil is moved

in foreign-flag vessels, and waivers are granted when

or where there are no Spanish flags for the cargoes.

Spanish exports enjoying some kind of official support are not subject to any restriction on the flag of the

carrying vessels. If transportation is contracted with

non-Spanish vessels, the freight value is considered as

foreign content. Offlcia.1 support for foreign content normally is limited to 10 percent of total contract value.

The above comment implies exports on a c.i. f. basis

only. There is no restriction at all on a f.o. b. basis.

Spain restricts to national vessels, through Government monopolies, many imports such as petroleum, tobacco, and cotton. When Spanish-flag ships are subjected by another country to measures contrary to free

competition, they shall have the right to apply similar

measures in return.

A ministerial order of February 24, 1977, provides

that imports of goods classified as ‘‘commerce of state’

are reserved for national-flag ships.
216 ● An Assessment of Mar/time Trade and Technology

Sri Lanka The Tanzanian Government is establishing a central

freight bureau to oversee implementation of UNCTAD

The state-operated Ceylon Shipping Corporation has Code of Conduct’s 40/40/20 formula and to negotiate

a monopoly on all cargo imports for the Government freight rates.

and state-owned corporations. If that company is not

ready to carry cargo within 14 days it can be diverted

to other shipping companies. Law No. 26 of 1973 established the Central Freight Bureau of Sri Lanka to

centralize the booking of freight from Sri Lanka to foreign ports. All export cargo is allocated by the Ceylon

Freight Bureau since 1971, with first preference given

to the state line.

Sudan

Virtually all Government or quasi-Government cargo

(about 75 precent of total) uses Sudan’s national line.

Taiwan

Government agencies and state-owned enterprises in

Taiwan are required to consign their import cargoes to

national-flag shipping lines with second priority to flagof-convenience vessels. Liner operators may be licensed

and may be restricted if overtonnaging is found on a

route.

Other regulations require that imports of bulk commodities be shipped by national-flag vessels with second

priority to flags of convenience.

The Joint Overseas Shipping Association (JOSA), a

group formed by Taiwanese ship operators serving Taiwan, is responsible for ensuring Taiwanese vessels have

a preference on cotton cargoes. Each cotton importer

is required to approach JOSA before the issuance of the

import license in order to verify the shipping schedule

and intended Taiwanese vessels to be utilized for the

shipment. (A waiver can be issued if no Taiwanese vessels are available. )

Additionally, the financing for cotton shipments to

Taiwan is arranged through the Central Trust of China

(CTC) or a bank named by CTC. The importer is attracted to this financing because of the low interest rate.

within this financing there is a double check on JOSA

approval, and letters of credit will not be opened without

the proper import license approved by JOSA.

Tanzania

Tanzania has imposed an income tax on gross receipts

accrued from outbound shipping freight and passengers

effective April 2, 1976. This tax applies only to foreign

shipping lines. The tax does not apply to trans-shipment

traffic.

Thailand

Government agencies are encouraged to use the Government-owned forwarding agent and vessels belonging to the Thai Maritime Navigation Co. Ltd. and the

United Thai Shipping Corporation.

The Mercantile Marine Promotion Act B.E. 2521,

passed in October 1978, aims at promoting Thai-flag

vessels through fiscal and other measures, including

cargo preference and the prevention of dumping by foreign-flag vessels. It empowers the Government to permit a deduction amounting to not more than 50 percent of the costs of carriage from the shippers net income prior to income tax calculation when using Thaiflag vessels for import and export cargoes. It also empowers the Government to make mandatory the use of

Thai-flag vessels for the seaborne transportation of

cargoes ordered by governmental agencies and enterprises.

The Communications Ministry has issued regulations

requiring Government agencies, governmental organizations, and state enterprises to use Thai ships to transport their imported goods on five routes (Japan-Thailand, Korea-Thailand, Hong Kong-Thailand, TaiwanThailand, and Europe-Thailand). Goods purchased

through loans by foreign governments and international

financial institutes are exempt from the regulations. To

date, most imports have fallen into the nonreserved category.

Trinidad and Tobago

No legislation has been enacted to date, but discussions are underway concerning a proposed edict that

would reserve all governmental or quasi-governmental

cargoes (about 70 percent of all cargo) to the national

line.

Tunisia

Trade between Tunisia and metropolitan France is

reserved for Tunisian- and French-flag vessels. The

Government owns the Compagnie Tunisienne de Navigation (CTN) which aimed to carry 30 percent of the

country’s maritime trade by 1981.
App. B—Mar/time Cargo Policies of 64 Foreign Countries 1982-83 . 217

Turkey

All “public sector” cargoes must be carried in Turkish-flag ships. Furthermore, the Maritime Bank exerts

pressure on Turkish exporters and importers to ship

commercial cargo on Turkish ships when available.

The Turkish Government issued a decree in 1975

which directs that cargo for Turkish destinations should

be carried by Turkish ships whenever possible. However, should there be no Turkish ship in port at the time

the goods are ready to be taken on board, ships of any

other flag are free to take the business after obtaining

a Turkish nomination certificate.

United Kingdom

The only cargoes required to be shipped in British

vessels are sensitive stores and equipment of the armed

forces for which security considerations require them

to remain under national control.

In the United Kingdom, guaranteed finance is not

available for the foreign element of the freight costs:

. where there is clause in the contract which discriminates against United Kingdom shipping or in

favor of foreign ships; or

● for business with the CO MECON countries and

P. R. C., where the United Kingdom recognizes

that, even though there may be no overt flag discrimination clauses in the contract, the goods are

to be carried in COMECON vessels or, in the case

of P. R. C., in Chinese-registered vessels.

Uruguay

Law No. 14650, the Uruguayan Merchant Marine

Development Law, was enacted by Executive Power on

May 12, 1977. It reserves 50 percent of all waterborne,

(in particular, 100 percent of all imports) for Uruguayan-flag vessels; except where one is not available or is

fully loaded. Prior authorization from the Ministry of

Transportation and Public Works is needed to use a

non-Uruguay an-flag vessel. Such vessel must fly the flag

of a country which has an international convention with

Uruguay, be in a conference approved by the Ministry

of Transport and Public Works, or grant reciprocal

treatment to Uruguay an-flag vessels.

The above reservations can be extended to exports

that are tax exempt or are financed by the national banking system. Tax allowances are awarded to export

freights carried on national-flag vessels. Uruguay has

agreements with Brazil and Argentina that provide for

an equal sharing of their bilateral trade.

Venezuela

Legislation is in force reserving 50 percent of all cargo

to national flag vessels, with all Government cargoes being reserved to the state line. In practice, the national

line gets 50 percent of the conference trade. Nonconference lines have free access to nonreserxred cargoes but

rarely to reserved cargoes.

The Law for the Protection and Development of the

National Merchant Marine stipulates that ships should

be 80 percent owned and 100 percent administered by

Venezuelan nationals to qualify as Venezuelan flag, and

on the general cargo side, the law requires 50 percent

of the traffic of each shipper and importer to travel in

Venezuelan-flag vessels; it also further excludes the

Venezuelan private sector from much of this trade.

The National Executive shall initially reserve for Venezuelan-flag ships the transport of a percentage that is

not less than 10 percent of the export and import of petroleum and its derivatives. This percentage shall increase gradually until 50 percent of the total is reached.

In a like fashion, the transport of iron ore, wheat, and

other free-flowing cargo shall be treated equally whether

they are exports or imports.

Compania Anonima Venezalana de Novegacion

(CAVN) maintains joint services with several “associated’ * foreign-flag lines and under the agreements establishing the joint services imports partially or totally

exempt from import duties (known as exonerated cargo), ** must move on CAVN or ‘‘associated’ line ships.

The ‘ ‘exoneration ‘‘ is at the discretion of the Government agencies concerned and amounts to about 15 percent of the value of Venezuelan imports. This assures

a definite share of the cargo to CAVN in areas where

it maintains a service.

Yugoslavia

An export premium on ocean freight of 20 percent

to U.S. North Atlantic ports and 30 percent to other

ports is being given to Yugoslav exporters by the Yugoslavia National Bank when the following conditions

are met: 1 ) shipment is made via a Yugoslav port on

a Yugoslav vessel, and 2) if no Yugoslav vessel is available and shipment is made via a Yugoslav port, a foreign-flag vessel may be utilized; however, a certificate

*CAVN is associated with a number of lines in the Scandinavian countries,

Europe, and Japan whereby joint services are maintained.

“*Government financed cargoes The Government of Venezuela points out

the majority of ‘ ‘exonerated cargo’ IS bulk cargo that is not normally carried

by CAVN ships.

25-417 0 - 83 - 15 QL 3
218 ● An Assessment of Maritime Trade and Technology

must be obtained from the Association of Yugoslav Ship- ports from the Republic of Zaire and the monopoly on

owners stating that no Yugoslav-flag vessel is available. imports of all goods and products imported with the assistance of the Bank of Zaire. It may bestow a part of

Zaire the operation on other companies of its choice.

Law 70-014 of July 10, 1974, gives Compagnie Maritime Zairoise the monopoly of transport by sea of ex-
Appendix C

Federal Departments With Maritime

Responsibilities Related to Commercial

Shipping and Shipbuilding Industries

Transportation

Department of Transportation

● Primary administration spokesman on maritime policy issues. Has overall lead in all maritime issues, subject to coordination with other agencies having specific

areas of responsibility.

Maritime Administration

Administers subsidy programs (ODS, CDS).

Provides financing guarantees (title XI) for the construction, reconstruction, and reconditioning of ships.

Enters into capital construction fund agreements

which grant tax deferrals on moneys to be used for

the acquisition, construction, or reconstruction of

ships.

Conducts research and development activities.

Under emergency conditions, charters governmentowned ships to U.S. operators, requisitions or procures ships owned by U.S. citizens, and allocates

them to meet defense needs. In conjunction with the

Department of the U.S. Navy, develops definition of

shipyard mobilization base and sealift requirements.

Maintains a National Defense Reserve Fleet of

government-owned ships.

Operates the U.S. Merchant Marine Academy and

administers Federal assistance to State maritime

academies.

Oversees enforcement of cargo-preference laws.

Develops maritime policy analysis under guidance of

the Office of the Secretary of Transportation.

U.S. Coast Guard

●

●

●

Administers and enforces safety standards for the

design, construction, equipment, and maintenance

of commercial vessels of the United States.

Enforces vessel personnel manning and crew qualifications standards.

Administers the vessel documentation laws.

Commerce

International Trade Administration

Advises on the formulation and implementation of international economic policies of a bilateral, multilateral, or regional nature.

Develops policies and implements programs dealing

with import and export administration issues.

Administers U.S. antidumping and countervailing

duty laws.

Advises on international trade and investment policies

pertaining to domestic business sectors and carries out

programs to promote world trade and to strengthen

the position of the United States.

Manages ITA’s trade-related information and research-gathering and dissemination functions.

Navy

Military Sealift Command owns or charters a fleet

of cargo vessels for logistical military support.

Office of Assistant Secretary (Shipbuilding and Logistics). Responsible for maritime policy analysis

within DOD. In conjunction with MarAd, develops

definitions of shipyard mobilization base and sealift

requirements.

Deputy Commander for Acquisition and Logistics.

Develops and approves national defense features for

merchant vessels.

Justice

Antitrust Division

● Reviews and represents the U.S. Government in cases

involving agreements and activities of carriers and

conferences which may be anticompetitive.

219
220 An Assessment of Maritime Trade and Technology

State interstate Commerce Commission

●

● Office of Maritime and Land Transport Affairs—

has lead in coordinating U.S. Government responses

to international shipping issues as they affect inter- —

national conventions and trade practices.

Regulates inland waterway, Great Lakes, and coastal

shipping, primarily in maximum rate regulation, financial responsibility of passenger carriers, and in collective agreements.

Independent

and Groups

Federal Agencies

With Maritime

Responsibilities

Federal Maritime Commission

Interagency Group on International

Shipping Policy -

● Formulates and coordinates administration policies

on international shipping issues, such as bilateral and

multilateral cargo agreements, and positions on legislative proposals; includes representatives from

FMC, OMB, USTR. and the Departments of Trans-

●

●

●

●

Regulates the waterborne foreign and domestic off- portation, St-ate, Justice, Commerce, and Defense.

shore commerce of the United States and protects

against unauthorized, collusive activity. U.S. Trade Representative

Approves or disapproves agreements filed under section 15 of the Shipping Act, 1916; reviews activities ● A cabinet-level official in the White House with

under approved agreements. responsibilities for interagency coordination and

Accepts or rejects tariff filings. representing the United States in international trade

In domestic offshore trade, can set maximum or min- negotiations.

imum rates or suspend rates.
Appendix D

Glossary of Acronyms and Terms

Glossary of Acronyms

ABS —American Bureau of Shipping

ACVS —air-cushion vehicles

AID —U.S. Agency for International

Development, Department of State

ANL —Australian National Line

APL —American President Lines

ASIB —Active Shipbuilding Industrial Base

AWES —Association of West European

Shipbuilders

BLS —Bureau of Labor Statistics

CAB —Civil Aeronautics Board

CAD/CAM—computer-aided desigrdcomputer aided

manufacturing

CAORF —Computer-Assisted Operations

Research Facility

CCA —Controlled Carrier Act

CCF —Capital Construction Fund

CDS —construction differential subsidy

CGRT —compensated gross registered tonnage

c, i. f. —cost, insurance, and freight

CMEA —Council for Mutual Economic

Assistance

CPES —centrally planed economies

CPI —Consumer Price Index

DITI —proposed Department of International

Trade and Industry

DOD —U.S. Department of Defense

DOT —U.S. Department of Transportation

dwt —deadweight tons

EEC —European Economic Community

ETCA —Export Trading Company Act

Eximbank —Export-Import Bank

FMC —U.S. Federal Maritime Commission

f.o.b. —free on board

FTC —U.S. Federal Trade Commission

GATT —General Agreement on Trade and

Tariffs

GDP —gross domestic product

GNP —gross national product

grt —gross registered tons

IATA —International Air Transport

Association

I c c —U.S. Interstate Commerce

Commission

IMCO

IMO

IREAPS

ITB

LASH

LDCS

LNG

LOILO

LPG

MarAd

MEL

MSC

MTN

NACOA

NSC

NSRP

OBO

ODS

OECD

OPEC

OPIC

O TA

R&D

ROIRO

SAJ

SCA

SESS

SNAME

SWATH

teu

U.N.

—Inter-Governmental Maritime

Consultative Organization

—International Maritime Organization

—Institute for Research and

Engineering Automation and

Productivity in Shipbuilding

—integrated tug barges

—lighter aboard ship

—less developed countries

—liquefied natural gas

—lift-on/lift-off

—liquefied petroleum gas

—U.S. Maritime Administration

—Marine Equipment Leasing, Inc.

—Military Sealift Command, U.S. Navy

—Multilateral Trade Negotiations

—National Advisory Committee on

Ocean and Atmosphere

—National Security Council

—National Shipbuilding Research

Program

—oil, bulk ore

—operating differential subsidy

—Organisation for Economic

Cooperation and Development

—Organization of Petroleum Exporting

Countries

—Overseas Private Investment

Corporation

—Office of Technology Assessment

—research and development

—roll-on, roll-off

—Shipbuilders Association of Japan

—Shipbuilders Council of America

—surface effects ships

—Society of Naval Architects and

Marine Engineers

—small-waterplane-area twinhull vessels

—twenty-foot equivalent units

—United Nations

UNCTAD —United Nations Conference on Trade

and Development

USCG —U.S. Coast Guard

USTR —United States Trade Representative

VLCCS —very large crude carriers

221
222 An Assessment of Maritime Trade and Technology

Glossary of Terms

ABS—American Bureau of Shipping: A U.S.-based,

private classification, or standards-setting, society for

merchant ships and other marine systems.

ASIB—Active Shipbuilding Industrial Base: The major U.S. shipbuilding and repair facilities engaged in

seeking contracts for construction of U.S. naval ships

and/or major oceangoing or Great Lakes merchant

ships. Presently 26 yards are included and, for defense

purposes, are considered to be the core of the Nation’s

shipbuilding capability and a principal measure of the

U.S. ability to respond to a national emergency.

bare-boat charter: A charter agreement which stipulates that the charterer provides for all operating expenses including crew, fuel, maintenance, etc.

beneficial ownership: Designates the owner who receives the benefits or profits from the operation.

breakbulk: A general, multipurpose, cargo ship that

carries cargoes of nonuniform sizes, often on pallets,

resulting in labor-intensive loading and unloading.

bulk: Cargoes that are shipped unpackaged either dry,

such as grain and ore, or liquid, such as petroleum

products. Bulk service generally is not provided on

a regularly scheduled basis, but rather as needed, on

specialized ships, transporting a specific commodity.

CAD/CAM-computer-aided design/manufacturing:

An industrial term referring to the development of

specifications and design data, via computers, which

later are used as manufacturing inputs and controls.

CAORF—Computer-Assisted Operations Research

Facility: A MarAd R&D facility.

CCF—Capital Construction Fund: A tax benefit for

operators of U.S.-built, U.S.-flag ships in the U.S.

foreign, Great Lakes, or noncontiguous domestic

trades, by which taxes may be deferred on income

deposited in a fund to be used for the replacement

of vessels.

CDS—construction differential subsidy: A direct subsidy paid to U.S. shipyards building U.S.-flag ships

to offset high construction costs in American shipyards. An amount of subsidy (up to 50 percent) is determined by estimates of construction cost differentials between U.S. and foreign yards.

CGRT—compensated gross registered tons: A measure of shipbuilding output which modifies total gross

tonnage by allowances for differing levels of complexity in ships being built.

c.i. f.—cost, insurance, and freight: Export term in

which the price quoted by the exporter includes the

costs of ocean transportation to the port of destination and insurance coverage.

CMEA—Council for Mutual Economic Assistance:

A Soviet-bloc organization comprising: Bulgaria,

Cuba, Czechoslovakia, East Germany, Hungary,

Poland, Romania, and the Soviet Union.

cabotage policies: Reservation of a country’s coastal

(domestic) shipping for its own flag vessels.

cargo preference: Reserving some portion of a nation’s

imports and exports for their own flag vessels.

carriers: Owners or operators of vessels providing transportation to shippers. The term is also used to refer

to the vessels.

coastwise: Domestic shipping routes along a single

coast.

conference: An international group of ocean carriers

serving common trade routes that collectively agree

on rates and service.

container ship: A vessel designed to carry standard containers enabling efficient loading, unloading, and

transport to and from the vessel.

countertrade: A form of international bartering involving importing and exporting companies or countries.

cross-trades: Foreign-to-foreign trade carried by ships

from a nation other than the two trading nations.

DITI—proposed Department of International Trade

and Industry: This proposed department would consolidate existing ofllces and programs into a single

cabinet-level department.

dwt—deadweight tonnage: The total lifting capacity

of a ship, expressed in tons of 2,240 lb. It is the difference between the displacement light and the displacement loaded.

domestic offshore trades: Domestic shipping routes

serving Alaska and noncontinental U.S. States and

territories.

Eximbank—Export-Import Bank: A Federal agency

that aids in financing exports of U.S. goods and services through direct loans, loan guarantees, and insurance.

f.o.b. —free on board: Export term in which the price

quoted by the exporter does not include the costs of

ocean transportation, but does include loading on

board the vessel.

flag of registry: The flag representing the nation under

whose jurisdiction a ship is registered. Ships are always registered under the laws of one nation but are

not always required to establish their home location

in that country.

flags of convenience: Sometimes referred to as flags of

necessity; denotes registration of vessels in foreign nations that ofter favorable tax structures and regulations.

GDP—gross domestic product: The total value of

goods and services produced by a nation over a given

period, usually 1 year.

GNP—gross national product: GDP plus the net income accruing from foreign sources.
App. D—Glossary of Acronyms and Terms 223

grt—gross registered tons: A common measurement

of the internal volume of a ship with certain spaces

excluded. One ton equals 100 cubic feet.

Government-impelled: Cargo owned by or subsidized

by the Federal Government.

IMO—International Maritime Organization: Formerly known as the Inter-Governmental Maritime

Consultative Organization (IMCO), was established

in 1958 through the United Nations to coordinate international maritime safety and related practices.

IREAPS—Institute for Research and Engineering

Automation and Productivity in Shipbuilding:

IREAPS is a not-for-profit organization of shipbuilders and other members of the maritime industry

set up to facilitate contracting and the dissemination

of information from the National Shipbuilding Research Program.

intercostal: Domestic shipping routes serving more

than one coast.

intermodalism: The concept of transportation as a

door-to-door service rather than port-to-port. Thus,

efficiency is enhanced by having a single carrier coordinating the movement and documentation among

different modes of transportation.

intracoastal: Domestic shipping routes along a single

coast.

Jones Act: Merchant Marine Act of 1920, Section 27,

requiring that all U.S. domestic waterborne trade be

carried by U.S.-flag, U.S.-built, and U.S.-manned

vessels,

LASH—lighter aboard ship: A barge carrier designed

to act as a shuttle between ports, taking on and discharging barges.

Iandbridge: A system of through rates and service offered by a carrier for cargo shipments from a foreign

port to a U.S. port, across U.S. land to another U.S.

port and finally by sea to a foreign port destination.

lift-onflift-off (LO/LO): Ships designed to load and unload cargoes with cranes.

liner service: Vessels operating on fixed itineraries or

regular schedules and established rates available to

all shippers.

microbridge: A system of through rates and service offered by a carrier for cargo shipments from any inland U.S. location to a port, by sea to a foreign port

and finally overland to foreign inland destination.

NSRP—National Shipbuilding Research Program:

A research program jointly sponsored by the Federal

Government and members of the shipbuilding industry.

neobulk: Shipments consisting entirely of units of a single commodity, such as cars, lumber, or scrap metal.

noncontiguous: Domestic shipping routes serving Alaska and noncontinental U.S. States and territories.

OBO—oil, bulk, ore: A combination carrier designed

to transport combinations of petroleum, ore and drybulk commodities.

ODS—operating differential subsidy: A direct subsidy paid to U.S.-flag operators to offset the high

operating costs of U. S. -flag ships when compared to

foreign-flag counterparts.

open registry: A term used in place of ‘ ‘flag of convenience’ or “flag of necessity” to denote registry

in a country which offers favorable tax, regulatory,

and other incentives to ship owners from other nations.

RO/RO—roll-on/roll-off: Ships designed to allow

trucks or other vehicles to drive on with trailers of

cargo.

Shipper’s Council: An organization of shippers formed

to collectively negotiate rates and services with the

conferences of ship operators.

Seabee: A barge carrier design similar to “LASH” but

which uses rollers to move the barges aboard the ship.

shippers: Individuals or businesses who purchase transportation services for their goods or commodities.

teu—twenty-foot equivalent units: A measurement of

cargo-carrying capacity on a containership, referring

to a common container size of 20 ft in length.

title XI: A ship financing guarantee program, originally

established in Title XI of the Merchant Marine Act

of 1936, under which the government guarantees up

to 75 percent of the construction cost of vessels built

with CDS or up to 87.5 percent of the construction

cost of nonsubsidized vessels.

tramp service: Vessels operating without a fixed itinerary or schedule or charter contract.

USTR—United States Trade Representative: A Cabinet-level ofllcial in the White House with responsibilities for interagency coordination and representing

the United States in international trade negotiations.

U.S. Effective Controlled Fleet: That fleet of merchant

ships owned by United States citizens or corporations

and registered under flags of ‘convenience’ or ‘ ‘necessity’ such as Liberia or Panama. The term is used

to emphasize that, while the fleet is not U.S.-flag,

it is effectively under U.S. control by virtue of the

ship’s owners and can be called to serve U.S. interests

in time of emergency.

VLCCs-very large crude carriers: Crude oil tankers

between 200,000 and 400,000 dwt.
Index
Index

A & P Appledore, Ltd., 109, 136

administration announcements on maritime policy,

1982-83, 203-205

Alaska, 57, 77, 78

Alaska Navigation Co,, 166

Algeria, 206

Allis Chalmers Co., 124

American Bureau of Shipping (ABS), 133, 151

American President Lines, 73, 124

American Society of Testing Materials, 111

American Waterways Shipyard Conference, 88

AMPAC, 80

Angola, 206

Annual Report of the President on the Trade Agreements

Program, 23

Argentina, 206

Association of West European Shipbuilders (AWES), 34,

38, 40

Australia, 206

Australian National Line (ANL), 126

AUTOKON system, 136

Avondale Shipyard, 104, 133, 136

Bahamas, 25

Bath Iron Works, 133

Beaufort Sea, 122, 123

Belgium, 38

Bering Strait, 122

Bethlehem Shipbuilding Co., 105

Boeing Corp., 137

Boggs, Congresswoman Lindy, 183

Bolivia, 207

Boshwitz, Senator Rudy, 183

Brazil, 36, 39, 87, 188, 207

Bureau of Labor Statistics (BLS), 104

Burma, 207

Calcutta Shipping Conference of 1875, 69

California, 78

Cameroon, 207

Canada, 23, 43, 122, 123

CAORF, 133, 134

cargo policies of 64 foreign countries, 1982-83, 206-218

Chile, 207

China, People’s Republic of, 39, 41, 173, 186, 188, 208

Clarke, John, Citibank N. A., 173

Columbia, 208

Combustion Engineering Co., 126

Commission on American Shipbuilding, 109

compensated gross registered tonnage, (CGRT), 108, 109

Congress

General Accounting Office, 72, 158, 184

House Judiciary Committee, 157, 159

House Ways and Means Committee, 180

Senate Finance Committee, 180

Office of Technology Assessment (OTA), 5, 10, 14, 19,

110, 113, 185

questionnaire sent to SNAME’S Ship Technical

Operations Committee, 130-132

congressional interest, 12, 13, 14

construction differential subsidies (CDS), 63, 64, 74, 89,

152, 153, 154, 155

Consumer Price Index (CPI), 103

Containerization International, 62

Costa Rica, 208

Crowley Maritime Corp., 77

Cuba, 208

cyprus, 25

Denmark, 41, 208

Dominican Republic, 208

economic activity, trade, and shipping, linkage, of, 23

Ecuador, 208

E. G. Frankel, Inc., 110

Egypt, 209

Ethiopia, 209

European Economic Community (EEC), 34, 174, 181,

194

Export-Import Bank, 67, 179, 180

Exxon, 78

Fairbanks Trucking Co., 166

Far-Eastern Shipping Co., 150

Federal departments with maritime responsibilities, 219

Federal Republic of Germany, 27, 209

Federal Ship Financing Guarantee Program, 155

FORAN system, 136

Ford, President Gerald, 183

France, 41, 209

Gabon, 209

General Agreements on Trade and Tariffs (GATT), 173,

181, 199

General Dynamics Corp., 122, 126

General Electric Corp., 137

General Hydromechanics Research Program, 134

General Motors Inc., 137

Ghana, 210

Greece, 27

Green, Alan, 190

gross domestic product (GDP), 42, 43, 44

gross national product (GNP), 23, 24, 174

Guam, 79

Guatemala, 210

Hawaii, 57, 58, 77, 79

Heinz, Senator John, 177

Hiltzheimer, C. I., 81

Honduras, 25, 210

Hong Kong, 27

Hood, Edwin, 96

India, 36, 210

Indonesia, 36, 189, 210

Industrial Development Bank, 156

Institute for Research and Engineering Automation and

Productivity in Shipbuilding, 133

227
228 ● An Assessment of Maritime Trade and Technology

Inter-Governmental Maritime Consultative Organization

(IMCO), 151

International Air Transport Association (IATA), 150

International and Global Marine Development, Inc., 123

International Convention on Tonnage Measurement of

Ships, 1969, 108

International Maritime Organization (IMO), 151, 152,

197

Iran, 211

Iraq, 211

Italy, 87, 211

Ivory Coast, 211

Jamaica, 211

Japan, 27, 43

cargo policies, 211

shipbuilding, 34, 35, 41, 66, 85, 86, 111

shipyard safety, 107

trade outlook, 44

trading companies, 178

Jones, Congressman Walter B., 183

Joint Maritime Congress, 1982, 81

Kearney Management Consultants, 191

Korean Shipping Association, 190

Kuwait, 212

Latin America, 46, 49

Lebanon, 25

legislation

Act to Regulate Commerce, 1887, 146

Cabotage Law of 1817, 141, 164

Cargo Preference Act of 1954, 182

Controlled Carrier Act (CCA), 150

Elkins Act, 1903, 147

Export Trading Company Act of 1982, 178

Hepburn Act of 1906, 147

House Resolution, 587, 147

H.R. 3110, 163

H.R. 4627, 184

Intercostal Shipping Act of 1933, 142

Interstate Commerce Act (ICA), 146, 147

Longshoremen’s and Harbor Worker’s Compensation

Act (LHWCA), 108

Merchant Marine Act of 1920 (Jones Act), 9, 76, 78,

80, 82, 89, 142, 148, 163, 164, 165, 166

Merchant Marine Act of 1928, 142

Merchant Marine Act of 1936, 61, 117, 141, 142, 144,

150, 152, 153, 156, 160, 165

Merchant Marine Act of 1970, 74, 91, 117, 142, 153,

156

Military Transportation of 1904, 142, 182, 183

Panama Canal Act of 1912, 147

Public Resolution 15 of 1934, 142

Public Resolution 17, 182, 190

Reciprocity Act of 1828, 142

Shipping Act of 1916, 9, 13, 69, 72, 142, 147, 148,

157, 159

Shipping Act of 1983, 13, 71, 72, 158, 159

Subsidy Act of 1891, 142

Tariff Act of 1789, 141

Trade Act of 1974, 142, 181

Transportation Act of 1940, 147

less developed countries (LDCS), 23, 39, 43, 49, 60, 61,

66, 185, 191, 192, 193, 197

Liberia, 25, 27

Libya, 212

lighter aboard ship (LASH), 61, 62, 145

Lloyds Register of Shipping, 126

Lockheed Shipbuilding Co., 105

LO/LO cargo, 118

Long-Term World Economic Outlook, 1987-92, 42

Mahan, Admiral Alfred T., 142

Malaysia, 212

Malta, 212

Manalytics, Inc., 190

Marine Equipment Leasing Inc. (MEL), 96, 105, 112

maritime cargo policy, 182-200

bilateral cargo-sharing, 185-193

U.S. bilateral agreements, 186, 188, 189, 190

countertrade, 191

debate, 190

cargo preference in the United States, 182-185

financing international trade, 199-200

commercial assistance, 199

government assistance, 199

policies of 64 countries, 206-218

UNCTAD Liner Code, 193-198

bulk cargo shipping code, 195

convention on multimodal transport, 198

EEC Council, 194, 195

open registry, 197

U.S. opposition, 194

maritime trade patterns, 19

coal, 21, 30

crude oil, 22

grain, 22, 30

iron ore, 21, 30

principal commodities, 20

United States, 23

world seaborne trade, 20

Matson Navigation Co., 119

McLean Trucking Co., 118

Mexico, 212

Military Sealift Command, 64, 68, 133, 144, 183

Mitsubishi, 126

Morocco, 213

Mozambique, 213

National Academy of Sciences, 93

Maritime Transportation Research Board, 107

Structures Committee, 135

National Research Council (NRC), 117, 135

National Security Council, 179, 180

National Shipbuilding Research Program, 15, 133

Naval Sea Systems Command, 133, 135

Netherlands, 38

New England Electric, 126

Newport News Shipbuilding, 133, 136
Index 229

New York, 118

Nicaragua, 213

Nigeria, 213

Norway, 27

Occidental Petroleum Corp., 192

Oflice of Management and Budget, 156

OffIce of Maritime Affairs and Shipbuilding Technology,

103

Oman, 25

operating differential subsidies (ODS), 59, 61, 64, 79,

150, 152, 153, 154, 155

Organisation for Economic Cooperation and Development

(OECD), 23, 24, 29, 31, 32, 39, 42, 73, 108, 174,

197

Organization of Petroleum Exporting Countries (OPEC),

44

Overseas Private Investment Corp. (OPIC), 179, 180

Pakistan, 213

Panama, 25, 27

Pan American Steamship Co., 118

Paraquay, 213

Peru, 213

Philippines, 189, 214

Poland, 41

Portugal, 215

Puerto Rico, 57, 58, 77, 79

Pugh-Roberts Associates, 93

Quincy, Mass., 126

Reagan administration, 179, 203

Reagan, President Ronald, 177, 180

research and development (R&D), 14, 15, 97, 113, 117,

132, 133, 134, 135, 136, 137, 138

‘ ‘Review of Existing Agreements and Potential Cargo

Sharing Arrangements, 1981 ,“ 70

Romania, 41

RO/RO ships, 25, 31, 57, 61, 62, 80, 118, 144, 145, 163

Saudi Arabia, 215

Seafarers International Union, 194

Sea-Land, 59, 66, 68, 81, 118, 119

Seatrain Shipbuilding Corp., 165

Shell Oil Co., 123

Shipbuilders Association of Japan (SAJ), 38, 40, 41

Shipbuilders Council of America (SCA), 88, 91, 96, 162

Shipbuilding Research and Development: A

Recommended Program, 112

ship design and operating technology

maritime R&D, 132-138

Federal role, 137

MarAd R&D program, 133

CAORF, 134

cargo handling, 133

National Shipbuilding Research Program, 133

U.S. Navy R&D related to the merchant marine,

134-137

computer-aided design and manufacture

(CAD/CAM), 135, 136

operations, technological innovation in, 129-132

OTA questionnaire, 130-132

overview, 117

status and trends

advanced hull forms, 123

arctic transportation, 121

environmental concerns, 123

LNG tankers, 122

politiczd considerations, 123

submarine tankers, 122

bulk trades, technological innovation in, 120

liner trades, technological innovation in, 118

containerization, 118, 119

lift-on/lift-off (LO/LO) cargo, 118

RO/RO cargo, 119

trends in propulsion technology, 123

advanced powerplants, 127

alternate fuels, 124

diesel, 124

propulsor technology, 127-129

sail propulsion, 129

steam-power, 124

Singapore, 25, 215

Slater, Paul, Chairman, Pelican Finance Corp., 173

Smith, Congresswoman Virginia, 183

Snyder, Congressman Gene, 162

Society of Naval Architects and Marine Engineers

(SNAME), 117, 130

OTA questionnaire, 130

R&D, 133

Sohio Alaska Petroleum Corp., 123

South Africa, 215

South Korea, 24

cargo policies, 211

bilateral agreement, 190

shipbuilding, 35, 36, 38, 41, 66, 85, 86, 111

Spain, 41, 87, 98, 215

Sparrows Point, Md., 105

Sri Lanka, 216

Sudan, 216

Suez Canal, 69

Sulzer Brothers Ltd., 124

Sweden, 87, 109

Taiwan, 24, 36, 39, 41, 216

Tanzania, 216

Thailand, 216

“The Five-Year National Shipbuilding Productivity

Improvement Plan (1983 -88),” 133

The Influence of Sea Power Upon History, 1660-1783,

142

The Motor Ship, 120

Todd Pacific Shipyard, 133

trade policies

enforcement of fair trade laws, 181

international, 1945-75, 174, 175

GATT, 175, 176
230 ● An Assessment of Maritime Trade and Technology

International Trade Organization (ITO), 175

Multinational Trade Negotiations, 174

present trade policy, 175

overview, 173

U.S. policy, 176

export trading companies, 178

reorganization of Federal agencies, 179

Trinidad and Tobago, 216

Tunisia, 216

Turkey, 217

United Kingdom, 27, 87, 217

United Nations (U. N.), 42, 193

United Nations Conference on Trade and Development

(UNCTAD), 5, 173

Code of Conduct for Liner Operations, 11, 185, 190,

191, 193-198

Uruguay, 217

U.S. Agency for International Development (AID), 67,

75, 182, 184

U.S. Bureau of Census, 42

U.S. Civil Aeronautics Board (CAB), 150

U.S. Department of Agriculture (USDA), 179

U.S. Coast Guard (USCG), 132, 219

safety regulations, 151, 152

U.S. Department of Commerce, 179, 180, 181, 219

U.s

U.s

U.s

U.s

U.s

Department of Defense (DOD), 143, 144

Department of International Trade and Industry

(DITI), 179, 180

Department of Justice, 149, 158, 159, 165, 219

Department of State, 179, 189, 220

Department of Transportation (DOT), 73, 155, 162,

165, 219

Secretary Drew Lewis, 154

Us.

Us.

Us.

Us.

Us.

Us.

Us.

Us.

Department of Treasury, 179

Federal Maritime Commission (FMC), 69, 71, 72.

79, 147, 148, 149, 150, 157, 158, 159, 190, 203,

220

Federal Trade Commission (FTC), 159

Internal Revenue Service (IRS), 160

International Trade Commission (ITC), 179, 192

Interstate Commerce Commission (ICC), 79, 146,

147, 148, 166, 220

Lines, 62, 73, 80, 155

Maritime Administration (MarAd), 14, 15, 59, 61,

63, 66, 74, 80, 81, 87, 90, 96, 99, 117, 124, 127,

132, 138, 143, 179, 184, 219

“Cost Impact of U.S. Government Regulations on

U.S.-Flag Ocean Carriers, ” study, 152

Federal Ship Financing Fund, 156

IHI-Livingston project, 107

Maritime Subsidy Board, 150

Office of Maritime Labor and Training, 102

R&D program, 133-134

U.S. maritime policies

cabotage policies, 163-168

Alaskan oil, 164

exceptions, waivers, and suspensions, 164

Jones Act “fleet,” 164

proposal changes to the Jones Act, 166

development of, 141-152

comparison with other transportation policy, 146-151

U.S. v. international regulations, 149-151

history, 141-142

policies for the future, 143-146

industrial changes, 143

national defense, 143

U.S.S.R. comparison, 144-146

U.S. Coast Guard safety regulations, 151-152

regulatory policy, 157-159

Shipping Act, 157, 158, 159

subsidy policy, 152-157

Capital Construction Funds (CCF), 153

construction differential subsidies (CDS), 153, 154,

155

maritime subsidy outlays, 1936-80, 154

operating differential subsidies (ODS), 153, 154, 155

ship financing guarantees, 155-156

taxation policies, 160-163

accelerated cost recovery (ACRS), 163

Capital Construction Funds, 160, 161, 162

Construction Reserve Funds, 160, 162

deferrals, 161

investment tax credits, 163

U.S. Navy, 7, 9, 10, 15, 39, 64, 86, 88, 89, 90, 93, 102,

114, 132, 134, 135, 136, 144, 153, 163, 219

U.S. shipbuilding industry

“Active Shipbuilding Industrial Base” (ASIB), 87, 88,

89, 90, 91, 92, 94, 100, 101, 105

characteristics of, 87-106

comparison with Japan-Korea, 86, 98

computer-aided design/computer-aided manufacturing

@AD/CAM), 99, 111 -

decline in new buildings, 9, 86

definition of, 87

Federal funds, elimination of, 9, 86

labor force, 100, 113

management problem, 113

markets of, 89

military ships, 89, 90

orders, 91, 93

physical facilities problem, 112

productivity, 106-112

determinants of, 106

“buy America” policy, 108

length of building cycle, 106

man-hours required, 107

nonproductive peripheral costs, 107

shipyard safety, 107

improving of, 110-112

E. G. Frankel report, 110

management, 111

standards, 111

trends, 108-110

comparison, Japan-Korea, 109

shipyard work force

characteristics of, 102

method of wage payment, 103
Index ● 231

workers’ hours and earnings, 102

international wage levels, comparison of, 104

organization of labor, 104

unions, 106

size, 9, 39, 85

technology, level of, 96-99

U.S. shipyards, capabilities of, 94-96

U.S. shipyards comprising the ASIB, 88

U.S. Shipping Board, 147

U.S. shipping industry

bulk fleet, 8, 19

condition of, 8

lack of effective maritime policies, 5, 8

liner fleet, 8, 19, 25

ownership, 57

seaborne trade, 50

trade outlook, 52

trade patterns, 48

U.S. bulk fleet, 73-76

CDS-built tanker fleet, 74

competition, 75

construction costs, 73, 74

operating expenses, 73

U.S. dry-bulk carriers, 75

U.S. domestic fleet, 76-81

barge service, 77

crude oil trade, 78

foreign-built ships, use of, 79

regulation of, 79

tanker trades, 77

technological developments, 80

U.S.-effective-control fleet, 57, 58

U.S. liner industry, 59-73

cargo preference, influence of, 67, 68

conferences, pool ing, and cooperatives, 68, 69, 70

consortium, 70

containerization, 65, 71

containerships, 61, 62

cost, productivity, and competitiveness, 65, 66, 67

crew size, reduction of, 62, 73

flexible capabilities, 62

foreign trade, share of, 61

future competitiveness of, 72, 73

intermodal service, 65

joint service, 70

joint venture, 70

lighter-aboard-ship (LASH), 61, 62

pricing, rates, and shippers’ councils, 71, 72

technological developments, 61

terminals, automation of, 63

trade, 59, 60

U.S.-flag fleet, 59, 61, 81-82

value-of-service pricing, 71

U.S. Supreme Court, 74, 165

U. S. S. R., 27, 31, 32, 44, 47, 80, 123, 186, 188

comparison with the United States, 144, 145, 146

Five-Year Plan (1981-85), 145

U.S. Trade Representative (USTR), 23, 179, 180, 181,

199, 220

Venezuela, 217

very large crude carriers (VLCCS), 29, 32, 74, 120

Wharton Econometrics, Inc., 19, 42, 76

World Economic Outlook, 42

world economic and trade outlook

centrally planned economies (CPES), 43

dry-bulk goods, 46, 48, 49

economic forecast, 42

liquid-bulk cargoes, 46, 47, 49

seaborne trade, 44

trade flows, 43-44

U.S. trade patterns and networks, 48

world shipbuilding industry

in Brazil, 39

in China, 39

commercial merchant shipbuilding, 40

employment in AWES, 38

financing of, 39

in Japan, 34, 38, 66, 98

laser use, 99

LDCS, 39

production, 35

ships on order, 37

shipyard capabilities and capacities, 34, 38

in South Korea, 36, 38, 66, 98

in Taiwan, 39

in United States (see U.S. shipbuilding industry)

workers compensation, 104

world shipping industry

containerization, 32

general cargo, 31

national fleets, trends in, 32

overview, 25

shipping economics, 32

ship types and features, trends in, 32

United States (see U.S. shipping industry)

world bulk fleet, 30

Yugoslavia, 217

Zaire, 218

U.s . GOVERNMENT PRINTING OFFICE : 1983 0 - 25-417 QL 3