Alternative Approaches to Cargo Policy: A

Supplement to an Assessment of Maritime

Trade and Technology

August 1985

NTIS order #PB85-239887
Recommended Citation:

Alternative Approaches to Cargo Policy: A Supplement to An Assessment of Maritime

Trade and Technology (Washington, DC: U.S. Congress, Office of Technology Assessment, OTA-BP-0-36, August 1985).

Library of Congress Catalog Card Number 85-600569

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402
Foreword

The United States increasingly depends upon international trade and shipping to

maintain a healthy economy. As trade has grown in importance, so too has the Federal

Government’s role in assuring fair and equitable U.S. participation in international

shipping.

When OTA published An Assessment of Maritime Trade and Technology in October 1983, one of its principal findings was that because national interests were not

defined and strategies for international negotiation had not been developed, there was

at that time no generally accepted U.S. cargo policy. The assessment stressed the profound influence of Federal policy and analyzed several options for congressional consideration, including that of clearly defining U.S. national interests and devising strategies and guidelines for future cargo policy initiatives.

Subsequently, the Senate and House Merchant Marine Subcommittees requested

that OTA conduct additional analyses of cargo policy. OTA found that there is still

no generally accepted U.S. cargo policy, because U.S. interests and negotiating strategies have not been defined. But foreign governments have adopted such policies, which

increases the disadvantage of U.S. shipping interests and therefore increases the intensity

of the debate over U.S. cargo policy.

As part of its investigation, OTA held a two-day workshop on December 3 and

4, 1984, with participants from the interested parties—shippers, operators, trading firms,

and Government. The workshop focused on three topics: 1) the effects of cargo policies now in force; 2) the status of new policies under consideration by the United States

and its various trading partners; and 3) costs and benefits of existing, proposed and

alternative policies. The workshop was structured around a series of presentations, followed by general discussion by participants selected on the basis of interest and expertise in four topic areas:

● Panel 1, Current Policy Initiatives;

s Panel 2, Industry Impacts of Liner Cargo Policies;

s Panel 3, Industry Impacts of Bulk Cargo Policies; and

c Panel 4, Alternative Approaches to Cargo Policy.

Summaries of panelists’ presentations and discussion for each panel are presented in

appendix A.

Director

,.. ///
OTA Project Staff—Alternative Approaches to Cargo Policy

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

Nan Harllee Paul B. Phelps

Administrative Staff

Kathleen A. Beil Jacquelynne R. Mulder

iv
OTA Workshop Participants, December 3 and 4, 1984

Panelists

Charles Angevine

Department of State

George Berg

American Farm Bureau Federation

Gus Caras

Ogden Corp.

Deborah Christie

Department of Defense

H. Clayton Cook

Cadwalader, Wickersham and Taft

Robert Ellsworth

Federal Maritime Commission

Peter Finnerty

Sea-Land Corp.

Ernst Frankel

Massachusetts Institute of Technology

Brian Garbecki

U.S. International Trade Commission

Jack Goldstein

Overseas Shipholding Group

Bonnie Green

American President Lines

William Johnson

Department of Commerce

Leslie Kanuk

Baruch College

Don Kash, Session Moderator

University of Oklahoma

Kenneth Kastner

Chemical Manufacturers Association

Sandra Kjellberg

MIRAID

John Leeper

Simat, Inc.

Arnold Levine

Department of Transportation

Peter Luciano

Transportation Institute

Joseph Lykes

Lykes Bros. SS. Co.

Kay McLennan

Department of Agriculture

Sam Nemirow

Council of American Flag Ship Operators

Lewis Paine

Department of Transportation

Robert Rickert

E.I. du Pont de Nemours &Co., Inc.

Emery Simon

Office of the U.S. Trade Representative

William Tuthill

Joint Maritime Congress

Harlan Unman

Georgetown University

Roger Wigen

3M Co.

Gene Yourch

Federation of American Controlled Shipping

OTA and Congressional Staff

John Andelin

OTA, Assistant Director

David Dye

Senate Committee on Merchant Marine and

Fisheries

Caroline Gabel

House Committee on Public Works and

Transportation

Jack Gibbons

OTA, Director

Chris Goebel

House Committee on Public Works and

Transportation

John Hardy

Senate Committee on Merchant Marine

Fisheries

Nan Harllee

OTA, Senior Analyst

Peter Johnson

OTA, Project Director

Larry Mallon

House Committee on Merchant Marine

Fisheries

Bob Niblock

OTA, Program Manager

and

and
Kip Robinson

House Committee on Merchant Marine and

Fisheries

Gerald Seifert

House Committee on Merchant Marine and

Fisheries

Lenore Sek

Congressional Research Service

Peter Tarpgaard

Congressional Budget Office

Cyndy Wilkinson

House Committee on Merchant Marine and

Fisheries

Alternates and Observers

Jim Caron

Department of Agriculture

Joann DeCarlo

Center for Strategic and International Studies

Judy Demetriades

Department of Agriculture

John Gaughan

Maritime Administration

Jackie Igoe

AIMS

George Miller

Lubrizol Corp.

Steve Moody

FACS

Jack Park

Crowley Maritime Corp.

Paula Petavino

Center for Strategic and International Studies

Janet Rice

Office of Management and Budget

William J. Smith

Federal Maritime Commission

Erik Stromberg

Federal Maritime Commission

Joe Toraselli

Prudential Lines

Brandt Wagner

CASO

vi
Contents

Section Page

1.

2.

3.

INTRODUCTION . . . . .

Shipping Industry . . . .

Cargo Policies . . . . . . . . .

Cargo Preference in the

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

United States . . . . . . . . . . . . . . . . . .

STATUS AND ISSUES IN CARGO POLICY. . . . . . . . . . . .

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Cargo Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Multilateral Cargo Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bilateral Cargo Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Defense Needs and Cargo Policy . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

U.S. Cargo Preference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Multilateral Cargo Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Bilateral Cargo Sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

National Defense and Cargo Sharing . . . . . . . . . . . . . . . . . . .

Appendixes

A.

B.

c.

Summary of Panel Presentations and Discussion . . . . . . . .

Panel on Current Policy Initiatives . . . . . . . . . . . . . . . . . . . .

Panel on Industry Impacts of Liner Cargo Policies. . . . . . .

Panel on Industry Impacts of Bulk Cargo Policies . . . . . . .

Panel on Alternative Approaches to Cargo Policy . . . . . . .

Plenary Session . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Summary of Specific Country Bilateral Negotiations . . . . .

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

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

Malaysia . . . . . . . .

Philippines. . . . . . .

Glossary of Terms

Table

Table No.

1. Cargoes and Routes for a Typical Chemical Parcel Tanker

Figures

Figure No.

1. Principal Commodities in World Seaborne Trade, 1980..

2. World Seaborne Trade, 1960-84 . . . . . . . . . . . . . . . . . . . . . . .

3. Projected World Seaborne Trade, 1975-2000 . . . . . . . . . . . .

4. World Grain Shipments, 1983 . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

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. . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . .

..., . . . . . . . . . . . . . . . . .

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3

3

5

5

9

9

11

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20

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Page

31

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Page

Voyage . . . . . . . . . 37

Page

. . . . . . . . . . . . . . . . . . . . 3

. . . . . . . . . . . . . . . . . . . . 10

..., . . . . . . . . . . . . . . . . 10

..., . . . . . . . . . . . . . . . ., 12

5. Number of Merchant Seamen in U.S.-Flag and USEC Fleets, 1950-85 . . . . . . . . . . . . 23
Section I
Section 1

Introduction

SHIPPING INDUSTRY

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. Between 1970 and 1980, the value of U.S. international trade more than doubled, and the ratio of

U.S. exports to gross national product rose from

4.4 to 8.5 percent.

Maritime trade generally is divided into three

broad categories: liquid-bulk, dry-bulk, and general cargo (see fig. 1). Petroleum alone accounts

for nearly all of the liquid-bulk 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 one-fourth 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 liner 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 by volume or tonnage.

Figure 1.— Principal Commodities in World Seaborne Trade, 1980

Oil

cargoes

Crude

oil

I t Oil products

OL

SOURCE Fearnleys Review, 1982

3
4
5

CARGO POLICIES

All trading nations have a self-interest in expanding their exports and controlling their imports. As nations try to manage trade policy to

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

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— industry groups that are

sanctioned by their respective governments. Such

conferences are able to assure national lines of full

or “fair” participation in their trade. In the case

of less developed countries (LDCs), more overt

government intervention is usually involved, such

as government ownership of shipping lines and

trading firms, Both conferences and more overt

government participation have been more common in the liner trades than in the bulk trades up

to now.

Many nations, particularly LDCs that are attempting to capture more export trade and bolster their national-flag fleets, are pushing for the

establishment of bilateral and multilateral cargosharing agreements. The latter objective has recently been achieved for liner trades by the United

Nations Conference on Trade and Development

(UNCTAD) in the form of a Code of Conduct for

Liner Operations (or UNCTAD Liner Code),

which went 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

in 1972.

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

government have established closer ties, and

where national and corporate goals are better

meshed, than in the United States. 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. The U.S. Government has tended to disavow interference in international trade and cargo

allocation.

CARGO PREFERENCE IN THE UNITED STATES

The practice of cargo preference can be direct purchased on an f.o.b. basis and exports on a c.i.f.

or indirect. In some cases, a country mandates basis.1 In addition, governments frequently grant

that a certain percentage of its imports or exports

must be carried on its national-flag vessels. Pro- — .

] \l’hen Imports are purchased “tree on b(lar(i ( t (). b. I the cost vision may be made for bilateral or multilateral quotcci doe~ not include ocean transp(~rtatl(~n ! r(~m the exporting

cargo-sharing, with the larger shares reserved for c ~~untr},. \\’herl exports are solci “cost, in~urance and freight ( c i. t. 1,

the national-flag lines of the trading partners. In- the cost quoted includes ocean transportation. This pt)lic} allt)ws

direct cargo preference can be accomplished by a nat]on to control tran~p~)rtat]on cwt~ in all itt import and exp[lrt

t ransact]on~, and therefore to retain a go~’ernment right tt~ select

a government mandate requiring imports to be ] ts own flag ships t o carr} th i~ car~(),
6

various tax deductions and other fiscal incentives

to importers and exporters that utilize their

national-flag carriers.

The United States has enacted three cargopreference laws concerning the movement of

Government-impelled (shipped by Government

agencies) and Government-financed cargoes.

These are the Cargo Preference Act of 1954, Public Resolution 73-17 (P.R. 73-17), and the Military Transport Act of 1904.

The Cargo Preference Act of 1954 mandates

that at least 50 percent of all 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).

P.R. 73-17, passed in 1934, 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 loans from the

Export-Import Bank. There is provision for

waiver of the law by the Maritime Administration (MarAd), so that up to 50 percent of such

shipments may be carried on the flag vessels of

the recipient nation.

The Maritime 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.
Section 2

Status and Issues

in Cargo Policy
Section 2

Status and Issues in Cargo Policy

OVERVIEW

Both national and international approaches to

cargo policies have recently undergone changes.2

These changes stem both from industry developments and from events in the public policy arena.

For

●

●

●

●

●

●

●

example:

The UNCTAD Liner Code has been in effect

for over a year, and experience with it is

growing.

Both U.S. and foreign liner companies have

begun some round-the-world shipping services; intermodal services are also growing.

Serious overcapacity persists world-wide,

especially in bulk shipping, forcing some

companies out of business and others to seek

government protection.

Discussions are proceeding between the United

States and its developed country trading partners regarding effects of the UNCTAD Liner

Code and the refusal of the United States to

participate. Agreements to help assure U.S.

carriers competitive access to cargoes are

under development, especially for crosstrades. 3

Initiatives to extend U.S. cargo preference to

commercial cargoes continue to meet strong

opposition. Such changes are unlikely in the

near term.

There have been attempts to repeal certain

existing preference programs. Record U.S.

trade deficits provide a strong argument for

those who favor maintaining the lowest possible transport cost for U.S. exports.

Bilateral cargo-sharing initiatives from some

trading partners have met substantial U.S.

opposition and few have advanced beyond

the discussion stage. In some other trades,

discussions of bilateral provisions and agree-

‘Th~ hlstc)rlcal basli for unilateral, bilateral, and multllatera] structures attectlng cargo allocation are described in the IQ83 OTA assessmen t This su pplem(’nt pro~’1 des an update [>f the Le)’ La rgo p~~l IC >’

t[~plc+ tlt current interest.

‘A “cros+tracie” ]s defined as trade between two natlon~ where

the (~cean carrier is a ship operator from a third nation.

50– 3’30 0 - El 5 - 3

ments took place in 1983 and 1984. Existing

South American/U. S. bilateral agreements,

for example, are undergoing re-evaluation.

The Shipping Act of 1984 (Public Law 98-

237) is considered to have some effect on

cargo policies because of a provision that allows U.S. action against foreign operators

whose country unfairly restricts cargo access

by U.S. carriers.

UNCTAD is proceeding, slowly, toward an

evaluation of perceived problems with the

“open registry” system.4 Some LDCs are expected to continue pressure for the phase-out

of open registry, It is not clear whether the

U.S. Government has developed an adequate

strategy to responds

The volume of world seaborne trade increased

in 1984 for the first time since 1979 (see fig. 2),

with containerized general cargo accounting for

most of the increase during 1983-84. Some continued expansion in world trade appears likely in

the near term, most likely in certain selected dry

bulk commodities and in the container trades (fig.

3). For most U.S. carriers, the container trade is

the most significant,

While this trade in general cargo is expanding,

the major liner companies are both shifting and

expanding services. New, larger ships are begin40pen rcglst ry sometimes called ‘t lags ot cc~nvenience’ ret t’r~

to the pract lce of registering ships in a country ( I. Iberia and I’and m.]

are prime examples ), while corporate t>wners reside in (~ne <>t t h~’

major industrialized countries. The United States is the lar~ett (~ti’nt’r

of open registry tleets.

‘Some industr} participants at the OTA workshop” ciiwgreed wy -

lng that the Administration has consistently opposed” thi~ Uh”CTAI )

] nit iat lve, The State Department a ISC) disagrees, c la I m i ng that t hc

United States intends to continue to work with de~el[~ped ct)untrit’i

in an eftort to insure that any agreement reached would pro\ld(,

rights to owners t () register vessels in the countries (~t the] r L h~~lc e

( Sam Keller, Oftice of Maritime and Land Transport, U S [department of State: pers~~na I commu n Ica t ion, hlat 21, 1 Q85 I [k;rt~nd

these clalms, however, OTA has not been” able to (~btaln an?

documentation o{ an o~erall strateg}’ or \peciflc guldel{nes tor t ht>

UNCTAD neg(~tiati~~n+, If it exists, such dcKumentat ]on may’ be classified and t h LI\ not a \ra i I able for use i n pub] ic p[~] i c; deba to

9
10

Figure 2.—World Seaborne Trade, 1960-84

1,500

1,000

500

/

I ●

\ / \

1960 1965 1970 1975 1980 1985

Year

SOURCE OECD & Fearnleys, 1984

Figure 3.—Projected World Seaborne Trade, 1975-2000

Liquid-bulk Dry-bulk General cargo

I

4,000

3,000

2,000

1,000

r-l

1975 1980 1985 1990 1995 2000

Year

SOURCE Wharton Econometric Forecasting Associates.

ning “round-the-world” services calling at only

major hub ports, and the same firms are offering

more comprehensive intermodal rates and services. Some industry spokesmen have observed

that increased rationalization in both large- and

small-volume trades is forcing changes in the economics of liner shipping. Some industry analysts

believe that “fewer, larger, more efficient enterprises will compete for market shares in future

years. “6

The OTA cargo policy workshop, together

with an analysis of the key questions raised by

the workshop and other sources, has identified

four issues that appear to be important not only

to the health and vitality of the U.S. shipping industry, but also to other vital national interests

involved in world trade and U.S. participation in

that trade. These issues, discussed in

ing sections, are:

● U.S. cargo preference;

. multilateral cargo sharing;

● bilateral cargo sharing; and

● defense needs that affect cargo

“Peter Finnert} in J$’orld Ports, February 1985.

the followpolicy.
— —

U.S. CARGO PREFERENCE

11

Current Authority

Cargo preference laws in the United States have

not changed since OTA’s Assessment of Maritime

Trade and Technology was published in 1983. In

essence, current law requires U.S.-flag preference

on Government cargoes. This ranges from 50 percent of Government-impelled civilian cargoes to

100 percent for military cargoes. The current

Administration has opposed any extension of

cargo preference to commercial cargoes.

Three major cargo preference statutes are presently in effect. The Military Transport Act of 1904

(33 Stat. 518) mandates that 100 percent of Department of Defense cargoes must be transported

on U.S.-flag vessels. The Cargo Preference Act

of 1954 (Public Law 83-664) calls for 50 percent

of U.S. Government-impelled cargoes (including

military) to be carried on privately owned U.S.-

flag ships. Public Resolution 73-17, passed in

1934, has evolved in practice to require that 100

percent of cargoes financed by loans made by the

U.S. Government to encourage exports must be

carried on U.S.-flag ships. Such cargoes are

largely financed by Export-Import Bank loans.

However, up to 50 percent of these shipments can

be carried on the vessels of the borrower’s choice

if a waiver is granted by the U.S. Maritime

Administration (MarAd), upon a finding of nondiscrimination to U.S.-flag shipping.

Federal agencies have also made cargo preference a topic of interagency debate: those representing shippers take one side, and those representing operators take the other. During the OTA

workshop, however, Federal agency representatives stated that the current Administration favors

neither an expansion nor a reduction in existing

cargo-preference laws. Most of these officials appeared to agree that present laws are reasonable,

but that any proposals to extend preference to

commercial cargoes would be strongly opposed.

Impacts of Liner Cargo Preference

Existing cargo-preference laws are important to

U.S. liner operators. For the liner industry, such

cargoes account for only 4 to 8 percent of total

carriage, but these are frequently the “base cargoes” that make operations on some trade routes

commercially feasible.

Proponents argue that the added cost of U.S.

cargo preference for liner cargoes is usually small,

because rates are set by industry conferences and

vary little from carrier to carrier. The added cost

may be higher in some instances, but such differentials tend to be minor in the aggregate, since

preference shipments represent less than 10 percent of total U.S. liner cargoes. Other industry

observers, however, claim that if a large portion

of cargo in any trade were merely allocated to a

conference by law, with no other competitive or

regulatory controls, then prices could in fact rise

unreasonably.

However, liner carriers do differ from each

other in terms of the other forms of Government

support they receive. One workshop participant

suggested evaluating whether the Government

should take into account the operating subsidies

paid to carriers when evaluating their bids for

preference cargoes, in order to compare the total

cost to the Government. This is done for bulk

shipments already and has been recommended by

the Administration for liner shipments. The Department of Transportation has sent to the House

and Senate a proposal for legislation to accomplish this by increasing insurance fees and/or reducing subsidy payments to operators carrying

subsidized cargoes.

Impacts of Bulk Cargo Preference

For the few U.S.-flag bulk carriers, preference

cargoes are sometimes the only cargo carried (see

fig. 4). For bulk preference cargoes, rates are negotiated between shipper and carrier. However,

the rates must be reviewed by the responsible

agency, such as the Department of Agriculture

(USDA). The agency will approve rates only up

to the “fair and reasonable guideline” ceiling calculated by MarAd.

Spokesmen for bulk shippers at the OTA workshop opposed cargo preference and spoke emphatically in opposition to any expansion of preference
12

—

Figure 4.—World Grain Shipments, 1983

NOTE Main Inter-area movements in million metric tonnes (billion ton-miles in brackets) Only main routes are shown Area figures and totals including smaller routes

are not shown separately Total trade 199 million tonnes (1,135 billion ton.miles)

SOURCE” Fearnleys

laws. They presented statistics on the increased

costs that would result for agricultural exports under commercial cargo preference, indicating that

if a 20-percent preference had existed in 1982, agricultural export costs would have risen substantially. If U.S. goods are to be competitive and U.S.

farmers to make a profit, they claim transportation must be at the lowest possible cost. In shippers’ eyes, the current U.S. trade deficit makes

it even more imperative that U.S. exporters not

be burdened further with higher transportation

costs.

The preponderance of bulk preference cargoes

are shipments of agricultural commodities under

Public Law 83-480, which established major U.S.

agricultural commodity aid programs. These requirements received significant attention during

the OTA workshop discussions. Under the Cargo

Preference Act of 1954 (Public Law 83-664), U.S.

food assistance to less developed countries (LDCs)

is subject to a 50-percent U.S. carrier reservation.

USDA, which manages the preference requirements for these Public Law 83-480 Title I (concessionary sales) shipments, cited a transportation differential cost of $120 million paid for

U.S.-flag carriage of food assistance cargoes in

1982. MarAd pointed out that the cost differential had declined to $65 million in 1983 and $76

million in 1984. Comparable detailed statistics are

not available for the Title II (gifts of food) shipments, whose preference requirements are monitored by the Agency for International Development

(AID). However, a GAO study estimated that

U.S.-flag liner carriage under the Public Law 480

Title II program could have cost $0.73/ton more

than foreign-flag carriage in 1980. At only $600,000

for 1980, the Title II cost differential was small

compared with Title 1.7

At present the U.S.-flag bulk fleet has operating costs that average two to three times those

of certain foreign competitors. These cost differentials are very significant to shippers, and U.S. bulk

H..J, S. General Accounting Office, Economic Effects of CargoPreference Laws, GAO OCE-84-3 (Washington, DC,: GAO, Jan.

31, 1984).
13

carriers are utterly dependent on preference shipments for their survival. Panelists also pointed out

that the U.S. bulk fleet is modernizing significantly, which could lower future costs. A MarAd

study of Public Law 83-480 shipments to Egypt

showed that in 1981, 61 percent of Public Law

83-480 shipments were on bulk carriers over 22

years old, while in 1984, 63 percent of shipments

were carried on vessels 5 years old or under.8 This

may lead to greater efficiency and reduced differentials in the future, because the new vessels

are more automated and use less fuel; but it does

not imply that the U.S.-flag bulk fleet is nearing

profitability. A severe depression exists worldwide

in bulk shipping, and foreign competitors are

offering very low rates.

Government participants at the OTA workshop

disagreed on the actual burden imposed by preference requirements. It is clear, however, that there

are problems with the bookkeeping, both in the

timeliness of information collection and, in some

instances, of records being kept at all. Further

study on the costs and benefits of cargo preference might be useful.

Implementation

Liner industry spokesmen at the OTA workshop alleged that the “50-percent requirement” is

not being met in a single U.S. preference program.

While they are not pressing for expansion of

cargo-preference laws, liner operators are extremely concerned that current laws are not being enforced and that U.S. carriers are not getting the share of cargoes they are due. Participants

suggested that part of the problem is that MarAd

does not receive information on cargo carriage until well after the movement; it is difficult to enforce compliance after the fact.

Concern was greatest with respect to agricultural cargoes, and operators claimed that when

new programs are started they are usually designed to avoid preference requirements. In addition, a number of DOD programs are not covered. Recently promulgated Federal acquisition

regulations call for 50-percent preference. For

these programs, liner operators note that the 1904

Act requires that 100 percent of DOD cargoes are

to be carried by U.S.-flag ships. Some ExIm Bank

programs, like the short- and medium-term guarantee programs, do not have U.S.-flag requirements. Finally, conversion of AID’s commodityexport program to a cash-transfer program effectively diminished U.S.-flag participation. Industry representatives made a strong plea for enforcement of existing laws and suggested that it would

be very helpful for the President to make a clear

statement in support of those laws to assure compliance by Federal agencies.

An example of the controversy over implementation of existing laws is the litigation resulting

from USDA’s failure to apply cargo-preference

requirements to the “Blended Credit ”9 export promotion program (Transportation Institute v. Dole

and USDA ). A recent U.S. District Court decision found that USDA and the Department of

Transportation had violated the law by not requiring the use of U.S.-flag ships for this program.

The Administration has appealed the decision, but

it has also suspended the Blended Credit Program

and announced plans for a new export promotion program that will not be subject to cargo

preference. Legislation has also been introduced

in both the House and the Senate that would exempt some or all agricultural commodities from

cargo-preference rules.

OTA reviewed some of the claims of noncompliance in cargo-preference programs during 1984.

The most recent data available measuring compliance are for calendar year 1982, as reported by

MarAd in their Fiscal Year 1983 Annual Report .’”

That year’s data show fairly good compliance,

with some instances of U.S.-flag carriage well

above the 50-percent requirement. Carriers represented at the OTA workshop, however, claimed

that in 1983 and 1984 many programs did not

comply with these preference quotas. Data for

these years have not yet been reported by MarAd.

9This program [Jfters a “blend” or combination of twcl type~ ~)t

credit to a n~tion purchasin; U, S agricultural exports – one type

being direct lntertmt-t ree lodns trom the Comm[~dlt}’ Credit Corp(~-

rat i (~ n and the (~ t her helng c(~m mercl a I l[~an ~ua ra n t ees

I hlar,4d IS re~p[~n~lble t(~r m(>nlt[~rlng the ~dr~(~-preference pri~-

gram~ (JI ~)thc’r a~encles, \uch as DOD, L’SIIA, and AI[), and t(~r
14

The question of compliance or noncompliance

has been the subject of an exchange of letters between MarAd and the other agencies, especially

AID and USDA. Many of these letters concern

interpretations of how to collect and use cargopreference data and the circumstances that may

or may not be covered by cargo preference. For

example, MarAd has exchanged several letters

with USDA’s Foreign Agricultural Service (FAS)

on the subject of whether or not FAS complied

with the Public Law 83-480 Title 1/111 program

in 1983.11 MarAd claimed that the cargo statistics

showed only 48.2 percent of the program’s total

cargo was actually shipped by U.S.-flag carriers.

FAS claimed that they approved 50.1 percent of

the total tonnage for U.S.-flag shipment but cannot control precise loading dates at the end of each

year; thus, actuals may be above or below their

“approved” number.

Such a debate over 1983 statistics may serve

to clarify the nature of the problems and the complexity of the rules, but it shows little promise of

resolving the basic issue of cargo-preference compliance, Since a major Federal responsibility is resolving conflicts in the public interest, it would

be useful for the agencies to jointly formulate

compliance guidelines, methods of reporting data,

and practical methods of allocating cargo before

shipment. Since an Interagency Shipping Policy

Group already exists, Congress could require it

to bring the agencies together on this subject and

MULTILATERAL CARGO SHARING

UNCTAD Liner Code

The UNCTAD Liner Code calls for sharing of

liner conference cargoes12 between the fleets of

trading partners, with some portion reserved for

third parties (cross-traders) if agreed to by the

prepare the cargo-preference guidelines and procedures.

Discussion

U.S. cargo-preference programs appear to be

flawed compromises, in which no one is fully

satisfied. On the one hand, many U.S. ship operators and builders view cargo preference as a necessity, both for countering similar practices in

other countries and for maintaining an industry

vital to national defense. Operators stress not only

the need for cargo preference policies, but also

the need for implementation. Many operators

who participate in existing cargo-preference programs claim that current laws are not properly

enforced and that cargoes are not always reserved

for U.S. operators as required. In addition, those

who favor Federal promotion of maritime industries maintain that expanding cargo preference is

an equitable method of indirect subsidy that is urgently needed to replace the direct construction

subsidies of the past.

On the other hand, some Government shippers

as well as many commercial shippers view cargopreference laws as an unjustified cost burden.

Such policies increase program funding needs,

especially for agricultural support programs; or

they reduce the funding available for what are perceived to be other, more important uses; or they

make U.S. shippers noncompetitive in the world

market. Shippers—especially those of agricultural

products—have been strident in their opposition

to cargo preference, claiming that existing laws

have hurt the U.S. export position and that any

expansion would cause further damage.

national-flag lines. The Code was developed by

Third World nations in an effort to capture for

their own carriers a larger percentage of their trade

with the industrialized world. The United States

strongly opposed the Code and refused to ratify

it, but the Code went into force among its signatories in October 1983. While it is too soon to assess its long-term economic effects, no significant

impacts are apparent yet.
15

A recent European analysis of the potential effects of the UNCTAD Liner Code, based on

known reservations (or exclusions) to the cargosharing principle (such as the European Economic

Community’s reservation and the policies of the

Centrally Planned Economies), found that only

about one-third of all trade will be regulated.13

The study suggested that while the eventual consequences of the Code are still uncertain, it is

likely to have only a small effect in practice.

Potential Bulk Code

Workshop participants discussed the possibility of an UNCTAD bulk code, generally concluding that it is unlikely to happen. Many LDCs are

less interested in pushing for a bulk code than they

were because they no longer perceive that it would

be in their interests. Many of these nations simply do not have the wherewithal to build and

operate commercial fleets. In addition, there is

clear opposition on the part of most OECD countries. Bulk trade, unlike liner trade, does not follow established routes on a regular basis. Rather,

bulk trade tends to be “round the world, ” with

contract carriage of a specific cargo from one place

to another. This arrangement does not lend itself

to some forms of cargo allocation.

Open Registry

Underdeveloped countries who espoused the

Liner Code and proposed bulk code, now seek to

phase out open registries as well. While no action has thus far been taken on a bulk code, conferences on open registry were held in 1983 and

1984.

At issue is an attempt to phase out “flags of convenience”: every carrier would be required to have

a “substantial relationship” with the country under whose flag its ships sail. Many LDCs believe

that if Western lines now flying the flags of convenience registries, such as Panama and Liberia,

were required to register elsewhere, these other

LDCs would capture a substantial share of the

new registrations and the resulting economic ben-

‘ ‘T. Wergeland, “UNCTAD Liner Code, 40-40-20: Potential Redlstributi{~nal Eftects It>r Liner l’essels, ” Llq}’d’s Shipping Economist,

February 1Q85, pp &Q.

efits. Another view expressed by LDCs on this

subject is that if Western flag-of-convenience carriers are forced to register their ships under their

own national flag and employ Western seamen,

they would be unable to operate economically and

thus would phase out of many trades, enabling

LDCs to increase their share of the carriage.

Phase-out of open registries is opposed by the

major shipping nations that make significant use

of convenience flags. The “U.S. effective controlled” (USEC) fleet of U, S.-owned but foreignregistered vessels represents the single largest fleet

of flags-of-convenience vessels in the world. Two

UNCTAD meetings, one in July/August 1984 and

another in February 1985, failed to reach any consensus on the open registry issue but produced a

negotiating text which was considered at a July

1985 session. (As this background paper was going to press, reports from the open-registry talks

in Geneva indicated that a compromise agreement

may be reached. ) The U.S. Administration believes it is unlikely that open registry will be

banned any time soon. 14 However, efforts to do

so will probably continue.

One workshop participant compared the U.S.

approach to multilateral shipping agreements to

the negotiating approach that the United States

has taken in other areas of international marine

affairs. The issue expressed was whether U.S. tactics in this area will be analogous to the on-again

off-again U.S. approach to Law of the Sea, where

the United States wound up out of sync with the

rest of the world; or whether it will instead be

analogous to the cooperative approach used for

the 200-mile fishery zone, which resulted in a system that requires other nations that fish in the U.S.

zone to adhere to U.S. conditions. 15

Relations With Europe and Japan

Relations between the United States and its major trading partners—members of the European

Economic Community and Japan—continue to be

unsettled in the wake of their adoption of the

UNCTAD Liner Code. The United States resisted

the passage of the UNCTAD Liner Code and has

‘“It should be noted that U.S. officials did not think that the no;\-

rat ified UNCTAD Liner Code had an~’ chance of passage either.

‘

s

Transcript ot OTA \4’orkshop on ‘Cargo I’olic}, p. 406.
rejected its implementation in U.S. trades. European nations tend to favor the Code and either

have already implemented it or are moving to do

so, but they would exempt intra-OECD trade

from its purview. Japan has stated that it will

ratify the code with no reservations.

It appears that each side is suspicious of the

other’s dedication to free trade. In a March 1984

symposium of leading shipping officials, Europeans accused the United States of protectionism,

citing in particular the Jones Act, Operational

Differential Subsidy, and cargo preference. The

U.S. Maritime Administrator, on the other hand,

pledged that the United States would fight any

efforts toward protectionism. He cited the

UNCTAD Code as “the most pervasive protectionist initiative” and expressed fear that European

signatories would try to exclude U.S. crosstraders. He also said that the United States opposes bilateralism” conceptually, but will protect

U.S.-flag markets if necessary (see the section on

“Bilateral Cargo Sharing” below).

Protectionism was also a major topic of government meetings between the United States and

the Consultative Shipping Group (CSG) from Europe and Japan, held in September 1984 and January 1985. A major area of contention was the

EEC/Japanese ratification of the Liner Code and

their perception that the United States is moving,

toward protectionism. The United States has

steadily opposed the UNCTAD Liner Code, while

at the same time discussing bilateral agreements

with several LDCs in response to threats of unilateral cargo reservation. Both the United States

‘“Govemment-to-govemment agreements between two trading nations where cargo shares are allocated to the ships of those nations

under some fixed ratio.
17

and the CSG, in short, perceive anticompetitive

actions on the part of the other, while at the same

time recognizing that coordination and cooperation are in the best interests of all parties.

The Europeans would like the United States to

enter into a binding agreement under which each

signatory would “resist protectionism .“ The specifics of such an agreement are not clear, and at

least some United States representatives see no

benefit in yet another ambiguous statement on the

subject. The January 1985 CSG meeting addressed

the problem of assuring U.S. carriers access to cargoes in trades between the Third World and other

industrialized countries. No agreement has been

reached on this point, although U.S. Government

participants reported a narrowing of U.S.-CSG

differences. These discussions are currently under review by the Administration. U.S.-flag liner

operators have urged the Administration to terminate current negotiations.

Cross-Trades

With increasing acceptance of the UNCTAD

Liner Code by foreign governments, some observers are concerned that U.S. liner operators

could be squeezed out of traditionally profitable

cross-trades. Five U.S.-flag carriers (American

President Lines, Delta, Lykes, Sea-Land, and U.S.

Lines) carried nearly 3 million long tons17 of crosstrade cargo in 1982, producing gross revenues of

almost $300 million. Loss of such trade could have

serious consequences for U.S. carriers.

Participants at the OTA workshop liner panel

stressed that cross-trading by U.S. carriers also

benefits U.S. shippers and U.S. commerce in general. Revenues from cross-trade cargoes contribute to the overall profitability of U.S. carriers,

allowing them to remain competitive in the hotly

contested U.S. trade routes. Opportunities for

cross-trading will also be increasingly important

as carriers develop and pursue round-the-world

trade routes.

A study prepared by Manalytics, Inc., for the

Maritime Administration concludes that the U.S.

Government can effectively protect U.S. liners’

interests because a far larger percentage of U.S.

trade is carried by third-flag vessels than is carried by U.S. carriers in foreign-to-foreign trades .18

In 1982, for example, Northern European flag

ships lifted 12.9 million long tons of cargo as

cross-traders in U.S. liner trades, while U.S. crosstraders carried less than 0.6 million long tons in

these nations’ trades. Thus, the threat of withholding access to significant volumes of cargo in U.S.

trades could provide leverage in negotiations over

impediments to cargo access by U. S .-flag carriers

in foreign-to-foreign cross-trades. The Manalytics

study also noted that many of the countries whose

carriers are major cross-traders in the U.S. trades

generate relatively little trade of their own.

The study listed the following possible U.S.

Government responses to artificial impediments

raised to bar U.S.-flag carrier access to crosstrades:

● cancellation of cross-trade tariffs of foreign

carriers;

• discriminatory reservation of cargo against

foreign carriers;

. imposition of operating restrictions; and

. imposition of taxes or currency exchange

controls.

Shipping Act of 1984

Section 13(b)(5) of the Shipping Act of 1984

(Public Law 98-237) specifically permits Government actions in response to foreign actions that

are discriminatory to U.S.-flag carriers in foreignto-foreign trades. OTA workshop participants

discussed the potential use of this provision in the

future. Agency representatives believed that the

threat of sanctions, rather than actual imposition,

would in most cases be sufficient to achieve U.S.

objectives. No cases have yet been brought under section 13(b)(5).

Several workshop participants also stressed the

role of the 1984 Shipping Act in enabling U.S. interests to gain market access in international liner

trades. The Act allows conferences to establish

intermodal rates, giving shippers the advantage

17A long ton equals 2,240 pounds.

‘

8 Mana1ytics, Inc., U. S,-Flag Crosstrading, prepared for the Office of Market Development, U.S. Maritime Administration, July

1984 (contract No. DTMA91-83-C-30045).

50-390 0 - 85 - 4
18

of a through bill of lading. It also requires conferences to assure the right of independent action

for any individual conference member, requiring

a maximum of 10 days notice prior to such action. Shippers’ associations are authorized, although antitrust exemption does not extend to

them. The rate-approval process required by FMC

is considerably accelerated and simplified.

The rights of all carriers in U.S. trades for protection against discrimination is provided. The

Act retains section 19 of the Merchant Marine Act

of 1920, under which the tariffs of any country’s

vessels may be suspended, effectively excluding

them from U.S. trades. Provisions of the Controlled Carrier Act of 1978 are also retained in

the new Act. Under this provision, action may

be taken against controlled carriers of any flag

that unfairly compete by offering less than compensatory rates. Finally, as noted above, section

13(b)(5) of the new Act gives FMC power to suspend the tariff of any carrier in U.S. trade if the

country whose flag it flies, or the commercial

practices of the carrier, unduly impairs the access

BILATERAL CARGO SHARING

Current Policy

The Administration’s policy toward bilateral

agreements was summarized in 1984 by the Deputy Secretary of Transportation, speaking before

the Maritime Law Association in New York.

Any bilateral arrangements we might ultimately reach would be designed to place minimum

constraints on trade and preserve maximum marketplace competition. They could also include

both free access without Governmentally imposed barriers for national-flag carriers and a significant role for cross-traders. Our objective is

to limit the amount of trade that is arbitrarily

or Governmentally reserved to the flag carriers,

while preserving equal access to reserved cargo,

Naturally, our resistance to bilateral pressure will

be tempered by realism and the need to protect

our carriers’ interests as well as our broader shipping and general trading interests. ”

19 Jame~ Burnley, U.S. Deputy Secretary of Transportation, address to the annual meeting of the Maritime Law Association, New

York, May 4, 1984.

of U.S. carriers as cross-traders in foreign-toforeign trade. Several participants stressed the importance of this latter provision, which they

viewed as vital in protecting U.S. carriers against

certain cargo-sharing schemes in effect around the

world.

Future Strategy

The Administration’s strategy for future international cargo policy negotiations is to continue

resisting all forms of cargo-sharing agreements,

but if resistance fails, to negotiate bilateral agreements with competitive elements, It may be useful for congressional deliberation if the Administration were to develop an explicit statement of

these strategies, which would include: responses

to UNCTAD initiatives; positions relative to CSG

discussions and agreements; and the intended use

of U.S. provisions, such as those in the new Shipping Act, in response to cargo policies of other

nations. Congress could call for such a strategy

paper, possibly requesting that the Interagency

Shipping Policy Group prepare it.

Thus it appears that, at present, the United

States will only reluctantly accept cargo-sharing

agreements with market-economy nations. Few

such agreements have been concluded over the

years, and only two are currently in effect .20 During 1983 and 1984 one bilateral cargo-sharing

agreement, involving the United States and Brazil, was renegotiated. Discussions of competitive

access have been held with three other countries,

including the possibility of bilateral agreements

with more competitive provisions.

The negotiation of such “procompetitive” bilateral agreements that recognize the maritimepromotion objectives of U.S. trading partners is

an option that the Administration may pursue,

as a last resort, in cases where other nations insist on some form of cargo allocation as a condition of trade, Such bilateral agreements may be

the only feasible compromise between free trade

20App. B contains descriptions of some specific bilateral

agreements.
19

and protected trade objectives of various trading

partners, especially for the present Administration, which has objected so strenuously to multilateral regimes such as the UNCTAD Liner Code.

Given that bilateral cargo-sharing agreements

exist today with two U.S. trading partners, and

may be introduced with others from time to time

in the future, it is important to address future

strategies for these agreements. Strategies are

needed that will seek to satisfy the goals of efficiency and good service, as well as supporting

each country’s national interest. It may not be

possible to balance all conflicting interests.

Cargo Sharing and Competition

A major issue raised during the OTA workshop

was whether bilateral shipping agreements can be

devised that will preserve elements of price and

service competition. Historically, the United

States has entered into such agreements only when

another country has made it a condition for the

carriage of its cargo. The agreements with Argentina and Brazil are examples of the U.S. response

to those countries’ cargo-allocation policies (see

app. B). The Federal Maritime Commission (FMC)

has been investigating the competitive environment in these trades since late 1984. The current

U.S.-Brazil agreement is due to expire at the end

of 1985, and the Administration will soon begin

discussions with Brazilian authorities. Discussions

with Argentine officials are likely to follow.

Most workshop participants agreed that restraint on competition is unhealthy. But they also

agreed that restraints do exist in many countries,

and that U.S. carriers and shippers must deal with

them. A possible role for the U.S. Government,

therefore, is to protect shippers and operators

from unfair competitive practices on the part of

foreign governments and carriers, In the liner

trades, for example, where price and service are

fixed by conference system, competition is still

considered necessary. A conference must be sufficiently powerful to maintain stability, that is, but

outside competition should also be strong enough

to prevent the conference from earning monopoly profits, Conferences in U.S. trades are open

to any carrier desiring to join; trade is open to

nonconference carriers; and the right of independent action by conference members is fully protected.

A radically different system was hypothesized

during the OTA workshop panel on alternative

approaches, in which competition would be assured within a bilateral agreement. Bilateral treaties would be negotiated without allocation of

fixed shares of cargo, but with third-flag carriers

excluded. Every carrier would be independent;

rates would not be fixed; and carriers of either

trading nation could compete for as much of the

cargo as they could capture. Such an arrangement

might allow U, S, carriers to compete more effectively, or enhance overall efficiency for the trade

routes in question, z]

Government Participation

A major concern expressed by workshop participants was whether national governments were

involved in both regulating and operating their

international shipping industries. A number of industry participants believed that bilateral agreements maintained by commercial conferences

would neither impede trade nor work counter to

the interests of carriers and shippers. However,

they raised several questions about government

participation in the shipping industry, which is

common in many other countries.

A recent analysis, prepared as part of FMC’s

investigation of the U.S.-Brazil and U. S.-

Argentina trades, identifies some of the problems

arising from bilateral agreements that involve substantial government involvement.22 The staff paper concludes that these trades are protected by

government-supported cartels; that a few liner

operators carry nearly all of the cargo in these

trades; and that these trades are marked by entry restrictions and little or no service and price

competition. One of the key problems, according to the report, may be that the Brazilian and

Argentine agreements themselves create an entry

barrier and that, “by mandating conference and

21 Leslie Kanuk( Baruch College, presentation to OTA Workshop

Panel on Alternative Approaches to Cargo Policy.

“Statement of Austin L. Schmitt, Chief Economist, Federal hlari time Commission, “Section 19 Inquir}-U. S, Argentina and

U.S. Brazil Trades, ” Docket P84-33, Washlngtonr D. C., Dec. 31,

1984.
20

—

pool memberships, set the stage for the lack of

service and price competition.”23

The question that remains to be answered is

what the United States can effectively do to open

these and other trades to greater competition. The

U.S. State Department has indicated that in future bilateral negotiations the United States will

resist agreements that require cargo sharing.

Whether this will be possible in the increasingly

protectionist international environment remains

to be seen. Congress could also call for the development of an Administration policy strategy

paper on bilateral, in a manner similar to requesting a strategy paper on multilateral (see above).

Trade Barriers

Shipper representatives at the OTA workshop

expressed concern that all trade barriers—whether

cargo preference, conference action, or bilateral

or multilateral cargo reservation—are inefficient

and uneconomic. They gave the example of a container shipped from the Midwest to Argentina or

Brazil: via Europe, the cost is $3,400, while direct shipment costs $5,000. Shippers were optimistic that the Act addresses some of these problems

and that the new Shipping Act will result in a better balance between carriers and shippers than existed under the 1916 Act. However, they remain

concerned that conferences can still set rates, pool

revenues, restrict sailings and volume capacity,

and prevent competition.

“U.S. Maritime Commission, Docket #84-33, Section 19

Inqui~—U. S, Argentina and U.S. /Brazil Trades, Memorandum of

Law, p. 10.

Shippers feel that the success or failure of the

Act will ultimately depend on how carriers respond to its independent action provision. Competitive opportunities are available to both shippers and vessel owners, including the ability to

provide intermodal services,24 independent action,

25 and a prohibition against loyalty contracts, 26 except as allowed under antitrust law.

Thus far, however, the impact of the Act has varied by trade area. In general, carriers in the OECD

trades have been more aggressive in seizing new

opportunities than have those in LDC trades. Independent action has become common in the Pacific trades, while carriers on the North Atlantic

appear afraid of starting a new rate war.

Individual shippers have taken advantage of

new provisions, such as service contracts, to a

greater or lesser degree. Shippers’ associations are

not yet common, and leaders in organizing them

have yet to come forward. Many shippers fear

antitrust problems and therefore have adopted a

“wait and see” posture. However, the recently

formed Shippers for Competitive Ocean Transport (SCOT) has provided a means of bringing

shippers’ interests into focus and representing

those interests in national and international negotiations. SCOT supports a competitive regime

that will encourage good service, reasonable rates,

and innovation.

Z4A contract for shipping se~ice5 covering severa] modes of transportation (truck, rail, ship, etc.).

“The right of a carrier in a conference to otfer independent service and rates.

2

* Confidential loyalty agreements between shipper and carrier in

exchange for favored rates,

DEFENSE NEEDS AND CARGO POLICY

A number of workshop participants expressed direct military support and continued support of

concern about the ability of the U.S. merchant the civilian economy. DOD recently completed

fleet to support wartime needs, today and in the a study to determine wartime logistics needs and

future. The rationale for most forms of Federal adequacy of the merchant marine to fulfill them .27

subsidy to the maritime industry, including cargo “The stud; is classified, but Deborah Christie’s presentation to preference, is national security. The U.S. mer- the OTA Workshop Panel on Current Policy Initiatives contained

chant fleet would be tasked in wartime with both the unclassified highlights.
21

The findings were that sufficient container capacity exists for carriage of containerized military cargoes. However, there is a significant shortfall of

capacity—breakbulk 28 and Ro/Ro29—to carry

large units of equipment (such as tanks). DOD

has launched two initiatives to ameliorate this

problem: 1) purchasing older breakbulk and

Ro/Ro vessels on the open market and putting

them in the National Defense Reserve Fleet

(NDRF); and 2) purchasing the flat racks and sea

sheds needed for converting containerships, which

make up most of the U.S.-flag liner fleet, to carry

large equipment such as tanks.

When the liner cargo panel was told that DOD

is considering acquiring its own in-house fleet to

provide sealift capability, participants questioned

whether this would be cost effective compared to

zgshlp~ ~’~arry genera] cargo in a large variety of ~izes

‘

9 Ships that carry vehicles or trailers that are loaded and discharged

by “rolling on and rolling of f.”

promoting the development of needed capacity

in the private sector. A clear policy decision needs

to be made as to whether it is desirable to have

a largely nationalized fleet maintained at Government expense, or whether it would be more efficient to build and operate a commercial fleet with

some Government support. DOD contends, however, that there are few ideas for stimulating private sector growth, and that DOD considered

those that were around when launching its

program:

In fact, our program is cheaper than past policies (ODS, CDS, and cargo preference), which

were not providing the needed capability, and

we have yet to hear any suggestion that shows

promise of stimulating significant growth in the

flag fleet for equal cost.’”

‘“Letter from Deborah P. Christie, Division Director for Projection Forces and Analytical Support, Office of the Secretary, Apr.

30, 1985.

“% . “ “

“%.%

*“” .3

a- -“

●

✎ ✎ ✍

Photo credit U S Manffrne Admfnfs(rat/o~

National Defense Reserve Fleet at anchor.
2 2

National defense requirements were discussed

in some detail during the bulk cargo panel, since

product tankers31 are valuable defense assets, The

USEC fleet of U.S.-owned, foreign-flag ships contains sufficient large crude oil carriers to serve defense needs, in the panel’s opinion. But some participants expressed concern about the number of

usable tankers: most of the USEC tanker fleet is

made up of large crude oil carriers, which may

not be as useful militarily as smaller oil-product

tankers, Because of consolidation in the world petroleum industry, furthermore, the tanker fleets

of U.S. oil companies and of our NATO allies are

declining in size and significance. A separate point

raised by shipping interests was the cost of

defense-related features of their fleet and whether

these costs should be borne by U.S. taxpayers,

rather than by a small number of shippers.

Another issue raised by workshop participants

is the adequacy of the pool of merchant seamen

to crew reserve fleet ships, should they be required. The recent decline in number of U.S. merchant seamen is expected to continue due to retirements and the declining crew requirements of

modern vessels (see fig. 5). As a result, several

participants questioned whether an adequate

number of crew members could be found for military support operations in wartime.

I] Tankers that carw refined petroleum products, such as gasoline, diesel, fuel oil, etc.

Workshop participants agreed that these and

other defense issues merit further study. Among

the topics mentioned were a cost-benefit analysis of the merchant fleet as a defense support base,

the cost of defense requirements to the merchant

fleet, and the crewing issue. Congress may wish

to call for more specific, in-depth analyses of these

issues, possibly as part of the charter of the newly

established Commission on Merchant Marine and

Defense. Workshop participants suggested three

specific areas in which additional analysis could

improve future policies:

1.

2.

3.

A cost comparison of alternative approaches

to providing needed military sealift capability (for example, comparing the cost of having DOD buy or build the ships they need

vs. the cost of encouraging the commercial

operation of those ships through subsidy

programs, including hidden costs, multiplier

effects, etc. ).

An analysis of actual costs of providing defense features in shipbuilding, and who ultimately pays for them. At present the commercial industry is thought to be funding

certain features and practices that support

national defense goals, but without direct

DOD support.

An analysis of the relative military usefulness of the existing commercial fleet. DOD

claims that it does not currently have access

to the types of vessels needed for mobilization; others claim they do.
23

Figure 5.—Seafaring Employment— U.S.-Flag Oceangoing Commercial Ships

60,000

1960 962 1964

These data are for oceangoing commercial ships

The data show a steady decline since 1968 which

966 1968 1970 1972 1974 1976 1978 1980 1982 1984

Year

 onIy which Include the coastal (Jones Act) trade but not the Inland waterways

 stems from a number of factors includinq a decline in the active fleet a switch to Iarger ships, a reduction in crew

sizes and the general SI urn p I n world f rade I n add It Ion these f Ig u res are for the privately o-wn ed fleet on I y and do not Inclu de the 3,000 to 4,000 jobs current Iy n the

government operated fleet (prlnclpalljMSC)

SOURCE MarAd data 1985
Section 3

Summary
Section 3

Summary

The current trend worldwide is toward more

and more government involvement in trade and

cargo policies. These policies have taken various

forms, including unilateral declarations as well as

both bilateral and multilateral agreements or treaties. The United States is unusual among major

maritime and trading nations in its advocacy of

a completely free trading environment and its

reluctance to accept any form of bilateral or multilateral cargo-allocation regime. Many other nations have much more direct government involvement in their trading and shipping industries.

OTA’s Assessment of Maritime Trade and

Technology, published in 1983, stated that there

was at that time no generally accepted U.S. cargo

policy, and that the lack of such a policy has been

detrimental to U.S. trading and shipping interests.

U.S. CARGO PREFERENCE

The debate about cargo preference for agricultural commodities is especially intense as this

Background Paper is being published. Many current legislative proposals seek to eliminate cargopreference requirements for certain export programs. In addition, maritime interests have called

for better enforcement of existing cargo-preference

laws. OTA’s investigation has identified three possible initiatives for consideration:

c A directive requiring more specific evaluation of cargo-preference costs (by program

MULTILATERAL CARGO SHARING

This 1985 review of cargo policies has found little changed from 1983 except for a decided increase in the intensity of the debate, especially as

it concerns U.S. cargo preference.

The OTA cargo policy workshop, together

with an analysis of the key questions raised by

the workshop and other sources, has identified

four issue areas that appear to be important not

only to the health and vitality of the U.S. shipping industry, but also to other vital national interests involving U.S. participation in world trade:

● U.S. cargo preference;

• multilateral cargo sharing;

• bilateral cargo sharing; and

. national defense needs that affect cargo

policy.

and agency), as well as a clear allocation of

those costs (e. g., for defense-related requirements).

• Development of comprehensive interagency

guidelines for cargo-preference compliance

and reporting.

Ž A requirement to evaluate all Government

subsidies offered each firm, both direct and

indirect, in order to gain more equity and

balance among promotional programs.

The most significant international (multilat- fused to accept this treaty, although many of our

eral) agreement on cargo sharing, the United Na- trading partners have either signed it or antions Conference on Trade and Development nounced their intention of signing. It is too early

(UNCTAD) Code of Conduct for Liner Confer- to measure any major impacts of the Liner Code

ences (or UNCTAD Liner Code), has been in ef- on the shipping industry. However, UNCTAD is

feet since October 1983. The United States has re- new pursuing other initiatives such as a code for

27
2 8

bulk cargo and an effort to phase out open registries (flags of convenience).

While the U.S. Government has consistently

resisted attempts to institute cargo-sharing agreements, strategies to achieve such a goal have not

been clearly defined or widely debated in the

BILATERAL CARGO SHARING

Some observers have advocated a strategy of

selective bilateral agreements on cargo policy, in

lieu of a more general (or multilateral) approach

involving many trading nations. The rationale is,

first, that the United States would have a stronger

negotiating position and, second, that a minimum

number of nations would have to be accommodated.

The United States now operates under bilateral

cargo-sharing agreements with Brazil and Argentina, and has had such agreements with the Soviet Union and China in the past. While the

present Administration has resisted further atUnited States. OTA investigations suggests that

the Interagency Shipping Policy Group, or some

other appropriate organization, could be directed

to develop a strategy paper to guide future international discussions on cargo policies.

tempts at bilateral cargo sharing, it is likely that

other nations will continue to seek forms of cargo

allocation for the benefit of their own shipping

industry. OTA has identified two possible approaches for consideration:

●

●

Develop a bilateral strategy for future guidance

in responding to other nations’ cargo-sharing

initiatives, to be prepared by an interagency

group.

Develop a legislative framework for cargo sharing, including strategies for future bilateral

agreements.

NATIONAL DEFENSE AND CARGO POLICY

National defense is the overriding justification ●

used for most forms of Federal support of the U.S.

merchant marine, including those of funding cargo- ●

preference costs or taking actions in the international arena that would serve to strengthen the

U.S. shipping industry. There is little debate about

the need for some defense mobilization base, but

there is considerable debate about specific defi- ●

nition of shipping needs, the cost of providing

them, and the various approaches toward Government support of the industry. OTA’s investigation revealed three initiatives for consideration:

Analyze the desirability of allocating the direct

costs of cargo preference to the defense budget.

Evaluate the long-term desirability and costs of

direct support for a national fleet to meet defense needs vs. indirect support for a commercial fleet, including the question of an adequate

pool of merchant seamen for the future.

Evaluate the long-term viability of the merchant

fleets of our allies as they contend with difficult competition from the Soviets and other

controlled carriers.
Appendixes
Appendix A

Summary of Panel

Presentations and Discussion

OTA Cargo Policy Workshop, Dec. 3 and 4, 1984

PANEL ON CURRENT POLICY INITIATIVES

Panelists

Charles Angevine

Department of State

Deborah Christie

Department of Defense

Robert Ellsworth

Federal Maritime Commission

William Johnson

Department of Commerce

Topics for Discussion

1.

2.

3.

Trends in maritime trade, trading patterns,

and shipping services; current policy initiatives involving the interaction of trade and

shipping.

Present cargo preference regulations and

their effects, including trends in U.S. policies

to promote U.S. exports.

Current initiatives and responses to international cargo policies, such- as the UNCTAD

Phu/o credl~ H G M///er

OTA Workshop on Cargo Policy, meeting in the hearing

room of the House Committee on Merchant Marine and

Fisheries, Dec. 3 and 4, 1984

Arnold Levine

Department of Transportation

Kay McLennan

Department of Agriculture

Lewis Paine

Department of Transportation

4.

5.

Liner Code and bilateral agreements with

major trading partners.

Current trends in the use of new Shipping

Act authority to gain cargo access and the

effect of regulatory policy on U.S. cargo

shares.

Impacts of military readiness requirements

on-cargo policies or U, S. position in trade

and shipping.

Summary of Discussion

At the first workshop panel, participants from

Federal agencies discussed current initiatives in

cargo policy. The agencies represented included

the Departments of State, Agriculture, Transportation, Commerce, and Defense, and the Federal

Maritime Commission. The panelists presented an

optimistic outlook for both U.S. shippers and the

maritime industry. They stressed that their programs were directed toward goals of maximum

flexibilit y for shippers along with access to cargo

for U.S. carriers. A common theme expressed was

“open market competition. ” On the international

level, the panelists believed it important to protect U.S. vessels from unfair practices in order to

meet the goals of access and competition.

31
32

Shipping Act of 1984

Several participants stressed the role of the 1984

Shipping Act in enabling U.S. interests to overcome barriers to market access in international

liner trade. The Act allows conferences to establish intermodal rates, giving shippers the advantage of a through bill of lading. It also requires

the right of independent action for any individual conference member, requiring a maximum of

10 days notice prior to such action. Shippers’ associations are authorized, although antitrust exemption does not extend to them. The rate-approval

process required by FMC is considerably accelerated and simplified.

The rights of all carriers in U.S. trades for protection against discrimination is provided. The

Act retains section 19 of the Merchant Marine Act

of 1920, under which the tariffs of any country’s

vessels may be suspended, effectively excluding

them from U.S. trades. Provisions of the Controlled Carrier Act of 1978 are also retained in

the new Act. Under this provision, action may

be taken against controlled carriers of any flag

which unfairly compete by offering less than compensatory rates. Finally, section 13(b)(5) of the

new Act gives FMC power to suspend the tariff

of any carrier in U.S. trade if the country whose

flag it flies, or the commercial practices of the carrier, unduly impair the access of U.S. carriers as

cross-traders in foreign-to-foreign trade. Several

participants stressed the importance of this latter

provision, which they viewed as vital in protecting U.S. carriers against certain cargo-sharing

schemes in effect around the world.

Cargo Preference

There was considerable discussion of U.S. cargopreference laws and policies. The stated Administration position is that current laws should be

enforced, but that no expansion of preference

should occur. Cargo-preference requirements on

agricultural products received significant attention from the group. Under the Cargo Preference

Act of 1954 (Public Law 83-664), U.S. food assistance to less developed countries (LDCs) is subject to a 50-percent U.S. carrier reservation.

USDA, which manages the preference requirements for these Public Law 83-480 Title I (concessionary sales) shipments, cited a transportation differential cost of $120 million paid for

U.S.-flag carriage of food assistance cargoes in

1982. The cost differential was $65 million in 1983

and $76 million in 1984. Comparable detailed statistics are not available for the Title II (gifts of

food) shipments, whose preference requirements

are monitored by AID.

The panelists pointed out that while one-third

(by tonnage) of all U.S.-flag waterborne shipments are preferential, only 4 to 8 percent of total liner shipments are preference cargoes. In the

liner sector, there is generally no differential

within conferences, where set rates apply to all

carriers, notwithstanding flag. Of course, this is

tempered by the situation in U.S. trades where

independent action is encouraged and a number

of nonconference carriers operate. It should be

noted, however, that in some instances an agricultural commodity rate may be “opened” by the

conference, which means that a conference-wide

rate does not apply.

It is in the bulk area, where U.S. operating costs

average two to three times those of certain foreign competitors, that the cost differentials are significant. However, U.S. bulk carriers are utterly

dependent on preference shipments for their survival. On the other hand, panelists also pointed

out that the U.S. bulk fleet is modernizing significantly. A MarAd study of the large Egyptian program showed that in 1981, 61 percent of Public

Law 83-480 shipments were on bulk carriers over

22 years old, while in 1984, 63 percent of shipments

were carried on vessels 5 years old or under. This

does not imply that the U.S.-flag bulk fleet is nearing profitability. A severe depression exists worldwide in bulk shipping, and even the lowest cost

competitors are failing to cover their costs.

Cargo Reservation

The issue of cargo reservation, whether unilateral, bilateral, or multilateral, was raised by several panel members. Flexibility of approach is perceived by several panel members as essential in

assuring U.S. interests. FMC has recently instituted or completed investigations into the Venezuelan, Brazilian, Philippine, and Argentine trades

based on allegations of discrimination against U.S.
33

or third-flag carriers and shippers, Panelists stated

that the real threat to U.S. interests is foreign government intervention, rather than commercial efforts at cargo sharing.

Most panelists also felt that the UNCTAD Liner

Code has not been as detrimental thus far as was

widely feared. Some indicated that the potential

for real harm from UNCTAD Liner Code provisions exists only where U.S. carriers are crosstraders in a foreign-to-foreign trade. Should that

occur, section 13(b)(5) of the Shipping Act of 1984

allows the FMC to intervene in U.S. trades to prevent such discrimination in foreign-to-foreign

trades. The overall opinion of the panel was that

the UNCTAD Liner Code does not pose much direct threat to U.S. carriers. Were a bulk code to

be implemented, the effect on world trade would

be much greater, but this is not regarded as an

imminent possibility.

Some panelists believed that a significant problem exists in negotiations between the United

States and its trading allies in Europe and Japan

regarding cargo access. Over the past 3 years, the

Consultative Shipping Group (CSG) has met with

the United States several times in an attempt to

coordinate resistance to cargo sharing. The United

States has steadily opposed the UNCTAD Liner

Code, while some of its allies have ratified the

Code (albeit with the Brussels Package reservation). 32 At the same time, however, the United

States has discussed bilateral agreements with several LDCs in response to threats of unilateral cargo

reservation. Both sides, in short, perceive anticompetitive actions on the part of the other, while

at the same time recognizing that coordination

and cooperation are in the best interests of all

parties.

Defense-Related Issues

While most of the panel’s allotted time was

spent on the competitive environment facing both

shippers and carriers, the discussion also touched

on the importance of the Merchant Marine as an

arm of defense. The rationale for most forms of

subsidy to the maritime industry, including cargo

preference, is national security. The U.S. merchant fleet would be tasked in wartime with both

direct military support and continued support of

the civilian economy. DOD recently completed

a study to determine wartime logistics needs and

the adequacy of the merchant marine to fulfill

them. The findings were that sufficient container

capacity exists for carriage of containerized military cargoes. However, there is a significant shortfall of capacity—breakbulk33 and Ro/Ro34—to

carry unit equipment. DOD has launched two initiatives to ameliorate this problem: 1) purchasing older breakbulk and Ro/Ro vessels on the

open market and putting them in the National Defense Reserve Fleet (NDRF); and 2) purchasing the

flat racks and sea sheds needed for converting containerships to carry large equipment, such as

tanks.

Some participants raised the point that, even

if sufficient sealift capacity is achieved, there may

not be an adequate pool of merchant seamen to

crew NDRF ships. The average age of U.S. merchant seamen is in the 50s, and newer commercial vessels are being operated with smaller crew

complements. In addition, the commercial sector

has little need for large numbers of replacement

crews, and this reduces the pool of U.S. seamen

even further.

Another issue raised was the cost of defense features on merchant ships. Theoretically, DOD pays

the full cost of these features, Several participants

questioned whether this is in fact the case.

“Th[s states that all lntra-OECD trades would be exempt from

the provisions of the Code and opens portions oi OECD-tmLDC

trades to all OECD members.

~ 3Ships that carry genera] cargo in a large variety of sizes

34Sh1p~ that ~rv Vehic]es or trailers that are loaded and discharged

by “rolling on and rolling of f.”
34

PANEL ON INDUSTRY IMPACTS OF LINER CARGO POLICIES

Panelists

Peter Finnerty

Sea-Land Corp.

Bonnie Green

American President Lines

Peter Luciano

Transportation Institute

Topics for Discussion

1. Impacts of current cargo-preference laws and

regulations on the trade, on shippers, and

on carriers—including estimates of costs and

benefits now and in the future.

2. Impacts of current bilateral agreements;

prospects for future bilateral and their

effects.

3. Experience to date with implementation of

the new Shipping Act; prospects for benefits to shippers and carriers.

Summary of Discussion

Liner operators emphasized the importance of

preference cargoes to their sector of the industry.

While these cargoes may account for a small percentage of all liner cargoes, they frequently are

“base cargoes” that allow operators to carry commercial cargoes on routes that otherwise would

not be profitable. This is even more true for exports than imports, because on some routes (LDC

trades in particular) AID cargoes may comprise

the preponderance of all U.S. exports. At a time

when commodities are hard to sell abroad due to

the strength of the dollar, Government-impelled

shipments are particularly vital to carriers. Liner

representatives also pointed out that there is very

little disparity in liner rates between U. S.- and

foreign-flag conference carriers, since rates generally are set by a conference and adhered to by

all conference members. However, a GAO study

reported that U, S.-flag liner carriage under the

Public Law 83-480 Title 11 program cost $0.73/ton

more than foreign-flag carriage in 1980—an annual premium of $600,000.

Sam Nemirow

Council of American Flag Ship Operators

Robert Rickert

E. I. du Pont de Nemours & Co., Inc.

Roger Wigen

3M Co.

4.

5.

Experience to date with the UNCTAD Liner

Code and prospects for future impacts on the

industry.

Experience with changing international approaches to cargo policies and impacts of

cargo policy initiatives of major trading

partners.

Implementation Issues

Liner operators are not pressing for expansion

of cargo-preference laws. However, they are extremely concerned that current laws are not being adequately enforced and that U.S. carriers are

not getting the share of cargoes they are due. Participants suggested that part of the problem is that

MarAd does not receive information on cargo carriage until well after the movement; it is difficult

to enforce compliance after the fact. Concern was

greatest with respect to agricultural cargoes. In

1983, all agricultural programs subject to Public

Law 83-480 had U.S.-flag shares below 50 percent.

Liner operators claimed that many new programs,

such as the “blended credit” program, are not subject to preference requirements at all.

In addition, a number of DOD programs are -

not covered. The new Federal acquisition regulations should help with this, but they call only

for 50-percent preference, while the 1904 Act requires that 100 percent of DOD cargoes are to be

carried by U.S.-flag ships. Carrier representatives
35

also were concerned that the Military Sealift Command frequently contacts a carrier asking for

berth-term availability, and then later enters into

the charter market for the same tonnage. Some

ExIm Bank programs, like the short- and mediumterm guarantee programs, do not have U.S.-flag

requirements. Finally, conversion of AID’s commodity-export program to a cash-transfer program

effectively diminished U.S.-flag participation.

Carriers asked for action to assure implementation and enforcement of preference laws, including a statement from the President ordering agencies to comply fully.

Shipper representatives expressed a different

point of view on trade barriers generally, whether

cargo-preference, conference action, or bilateral

or multilateral cargo reservation. All trade barriers are inefficient and uneconomic. An example was given of shipping a container from the

Midwest to Argentina or Brazil: via Europe, the

cost is $3,400 while direct shipment costs $5,000.

Shippers were optimistic that the new Shipping

Act addresses some of these problems. However,

they still have some concerns. Conferences can

set rates, pool revenues, restrict sailings and volume capacity, and prevent competition. Ultimately the success or failure of the Act will be

depend on how carriers respond to the independent action provision incorporated in the law. Shippers are also optimistic that the new Shipping Act

will result in a better balance between carriers and

shippers than existed under the 1916 Act. Competitive opportunities are available to both shippers and vessel owners, including the ability to

provide intermodal services,35 independent action,

36 and a prohibition against loyalty contracts, 37 except as allowed under antitrust law.

Thus far, the impact of the 1984 Shipping Act

has varied by trade area. In general, carriers in

the OECD trades have been more aggressive in

implementing its provisions than have those in

LDC trades. Independent action has become common in the Pacific trades, while carriers on the

JSA contract for shipping services covering severai modes of transportation (truck, rail, ship, etc. ).

‘

b

The right of a carrier in a conference to offer independent service and rates.

17 Confidential loyalty agreements between shipper and carrier in

exchange for favored rates,

North Atlantic appear afraid of starting a new rate

war. Individual shippers have taken advantage

of new provisions such as service contracts to a

greater or lesser degree. Shippers’ associations are

not yet common, and leaders in organizing them

have yet to come forward. Many shippers fear

antitrust problems and therefore have adopted a

“wait and see” posture.

Access to Foreign Trades

The second major topic addressed by the panel

was the difficulty faced by U.S. cross-traders in

an increasingly protectionist international environment. The liner companies regard their crosstrading activities as very important financially,

not only to themselves but to shippers. The ability to pick up cargoes as space is available means

that carriers can improve utilization of available

capacity, and thereby reduce rates. Again, the

Shipping Act was mentioned as an important protection for cross-traders. Under section 13(b)(5),

FMC may suspend U.S. tariffs of the flag carriers

of any nation in U.S. trades which discriminates

against U.S.-flag cross-traders in its trade with a

third country.

The final major issue raised by members of the

liner panel was the lack of consistency in U.S.

policy—that is, an indecisiveness as to whether

the merchant fleet is a commercial entity or a Government entity. Most countries regard their merchant marine as an arm of government. The

United States, on the other hand, seems to believe

that its merchant fleet should compete commercially and yet should be readily available to support U.S. Government interests. At some point,

U.S. policymakers must grapple with the problem that some parts of the industry may survive

on a commercial basis, but they may not be sufficient to support broader U.S. interests. DOD is

embarking upon development of its own merchant support fleet, which may or may not be the

most efficient way to serve the national interest.

It was suggested that, before the United States is

committed to letting the merchant fleet as it currently exists die and be replaced by a defenseoriented merchant fleet, the long-term costs and

benefits should be weighed and a conscious policy developed.
36

PANEL ON INDUSTRY IMPACTS OF BULK CARGO POLICIES

Panelists

George Berg

American Farm Bureau Federation

Gus Caras

Ogden Corp.

Topics for Discussion

1.

2.

Effects of current U.S. cargo-preference laws

and regulations on levels of trade and on

U.S. bulk operators and shippers, including

estimates and projections of costs and

benefits.

Impacts of any increased cargo-preference requirements, imposed either by U.S. actions

or by our trading partners; trends toward

and effects of commercial bulk cargo-preference laws.

Summary of Discussion

Industry Conditions and Prospects

Industry representatives on the bulk shipping

panel pointed out that the entire bulk shipping

industry worldwide is extremely depressed and

is expected to continue to be in the foreseeable

future. Rates are not expected to justify new building at least through the end of the decade. U.S.

carriers are in even worse condition, with operating costs $2 million per vessel per year higher

than those of foreign competitors, but even lowcost operators are going out of business. In the

past, conglomerates found it profitable to have

shipping subsidiaries; but today many are being

spun off, both because current rates cannot justify

needed investment and because, with low inflation, there is no benefit in holding physical assets in the expectation of appreciation.

Little optimism was expressed. U.S. bulk operators cannot compete and the U.S. Government

is not helping to improve the situation. Operators believe that most Americans do not appreciate the extent to which foreign countries subsidize their fleets. Direct cargo-preference is not

typical, but aid is available in many forms. Shipyards frequently are nationalized, and belowJack Goldstein

Overseas Shipholding Group

Kenneth Kastner

Chemical Manufacturers Association

3.

4.

prospects for and impacts of an UNCTAD

bulk-code or other multilateral or bilateral

agreements on bulk cargo policies; prospects

for UNCTAD efforts- to_ phase out open

registry.

Impacts of existing and future cargo policies . —

on U.S.-controlled, foreign-flag operators.

market financing may be offered for ships purchased from national yards. Governments may

also provide tax incentives for shipping on national flag carriers.

Three possible forms of subsidy for the U.S.

maritime industry were cited: construction and/or

operating aid; a Government build-and-charter

program; and cargo preference. The panelists felt

that the United States must define its shipping

needs, then take steps to assure the needed fleet.

They urged that existing cargo-preference laws

should be implemented fully. They also suggested

that the Government might exclude from U.S.

ports foreign ships built at costs that could reasonably be described as “dumping” levels.

Defense-Related Issues

National defense requirements were discussed

in some detail. The primary requirement is for

small product tankers. 38 Sufficient tonnage now

exists in the “U.S. effective control” (USEC) fleet

of U.S.-owned foreign-flag ships, in the panel’s

opinion. However, some participants expressed

concern about the number of usable tankers: most

‘

8 Tankers which carry refined petroleum products, such as gasoline, diesel, fuel oil, etc.
37

of the USEC tanker fleet is made up of large crude

oil carriers, which may not be as useful militarily as smaller oil-product tankers. Because of consolidation in the world petroleum industry, furthermore, the tanker fleets of U.S. oil companies

and of our NATO allies are declining in size and

significance. A separate point raised by shipping

interests was the cost of defense-related features

of their fleet and whether these costs should be

borne by U.S. taxpayers, rather than a small number of shippers.

While the panel provided no real answers to

the plight of the U.S. bulk fleet, the “Japanese solution” was described as a possibility. In Japan,

shipping is just one component of an overall business venture. If a major project to export a commodity is contemplated, everything from the manufacture of the item to the transportation system

is planned as a whole. The government is involved

from the start and tailors its aid to the specifics

required, probably including subsidizing such

items as interest rates and crew costs. The consequence is that Japanese-flag ships carry 50 percent of Japanese bulk trade, even though Japan

is no longer classified as a low-cost carrier.

Cargo Reservation and Preference

The panel also discussed the possibility of an

UNCTAD bulk code, with the general reaction

that it is unlikely to happen. Many LDCs are less

interested in pushing for a bulk code because they

no longer perceive that it would be in their interests. Many of these nations simply do not have

the wherewithal to build and operate commercial

fleets. In addition, there is clear opposition on the

part of most OECD countries. Bulk trade, unlike

liner trade, is not over established routes on a

regular basis. Rather, bulk trade tends to be “round

the world, ” with contract carriage of a specific

cargo from one place to another (see table 1). This

does not lend itself to bilateralism. Further, some

bulk vessels, such as parcel tankers, are dedicated

to carriage of specific cargo and must be used

wherever that trade is at the moment. U.S. bulk

cargo-preference was discussed at length by shippers’ spokesmen. They oppose cargo-preference

and spoke emphatically in opposition to any expansion of preference laws. Statistics were presented on the increased costs of agricultural exTable 1 .—Cargoes and Routes for a Typical

Chemical Parcel Tanker Voyage

Westbound mute A:

Europe westbound via the United States to the Far East:

Time of westbound voyage, . . . . . . . . . . . . . 70 days

Total cargo carried . . . . . . . . . . . . . . . . . . . . . 40,000 MT

Parcels carried . . . . . . . . . . . . . . . . . . . . . . . . 36

Ports of call (berths 29). . . . . . . . . . . . . . . . . 15

Origin/destination countries of cargoes . . . 16

(England, West Germany, Belgium, Spain, France, Netherlands, USA, Canada, Panama [Canal Zone], Japan, Korea, Taiwan, Hong Kong, Philippines, Singapore, and Malaysia)

Westbound route B (vessels regularly operate on both routes):

Europe westbound to Australia via the United States:

Time westbound . . . . . . . . . . . . . . . . . . . . . . . 75 days

Total cargo carried . . . . . . . . . . . . . . . . . . . . . 28,000 MT

Parcels carried . . . . . . . . . . . . . . . . . . . 52

Ports of call (berths 24). . . . . . . . . . ... . . 14

Origin/destination countries of cargoes . 11

(England, West Germany, Belgium, Spain, France, Netherlands, USA, Colombia, Panama [Canal Zone], New Zealand,

Australia)

Eastbound route A (typical return voyage for westbound

voyage A or B):

Time eastbound . . . . . . . . . . . . . . . . . . . . . . . 70 days

Total cargo carried . . . . . . . . . . . . . . . . . . . 43,000 MT

Ports of call (berths 24). . . . . . . . . . . . . . . . . 12

Parcels carried . . . . . . . . . . . . . . . . . . . . . . . . 29

Origin/destination countries of cargoes . . . 7

(Indonesia, Philippines, Japan, Canada, USA [West Coast and

Gulf], France, Rotterdam [parcels trans-shipped to several

European countries on through bill of lading])

Return route B (occasionally vessels on one of the above

westbound routes will continue westbound to India, Saudia

Arabia, and [via Suez Canal] to Greece, Italy, Spain, and on

to Rotterdam. Cargo details of an actual voyage are not

available).

A typical round voyage combining routes westbound A and

eastbound A would involve the following:

Time of voyage . . . . . . . . . . . . . . . . . . . . . 140 days

Total cargo carried . . . . . . . . . . . . . . . . . . . . . 83,000 tons

Parcels carried . . . . . . . . . . . . . . . . . . . . . . . 65

Ports of call (berths 53). . . . . . . . . . . . . . . . . 27

Origin/destination countries . . . . . . . . . . . . . 17

SOURCE Chemical Manufacturers Assoclatlon

ports which would result under commercial cargopreference. If a 20-percent preference had existed

in 1982, agricultural export costs would have risen

over $1 billion. If U.S. goods are to be competitive and U.S. farmers to make a profit, transportation must be at the lowest possible cost. The

current U.S. trade deficit makes it even more imperative that U.S. exporters not be burdened further with higher transportation costs.
38

In general, this panel—or at least the maritime counterparts. New and innovative proposals will

industry participants—were far less sanguine be needed if the U.S.-flag bulk fleet is not to disabout the industry’s prospects than were their liner appear altogether.

PANEL ON ALTERNATIVE APPROACHES TO CARGO POLICY

Panelists

H. Clayton Cook

Cadwalader, Wickersham and Taft

Ernst Frankel

Massachusetts Institute of Technology

Leslie Kanuk

Baruch College

Topics for Discussion

1.

2.

3.

Outlook for maritime industry and U.S.

trade under current regulations, and potential benefits of changes in U.S. cargo-preference laws.

Developments in other countries’ cargo policies and potential impacts on U.S. interests.

Possible response to future multilateral cargo

policy initiatives and strategies to benefit

U.S. interests.

Summary of Discussion

The panel on alternative approaches to cargo

policy, which commenced the second day of the

OTA Workshop, was made up of participants

with no direct interest in the maritime industry—

academicians, consultants, etc. Because of this,

they were asked to do a bit of “free thinking” and

to develop possible alternative cargo policies.

Competition

A recurring theme was the need to develop a

fully competitive atmosphere, in which shippers

would have the freedom to choose among carriers

in order to get the best combination of rates and

service. At the same time, carriers would be protected. One way to achieve this would be the

establishment of bilateral (or multilateral) shipping agreements, under which the national-flag

carriers would compete for the available business

and other carriers would be excluded. There

Harlan Unman

Georgetown University

John Leeper

Simat, Inc.

4,

5.

Prospects for developing bilateral agreements, either in response to other nations’

initiatives or as a U.S. initiative.

Outlook for changes in U.S. maritime industry prospects due to shifts U.S. or international cargo policies.

would be no conferences, no rate fixing, and no

antitrust immunity. There would be complete

freedom of entry into a trade. There would be no

operating restrictions, such as now exist under

operating differential subsidy regulations. There

could be tax incentives for shippers to use U. S.-

flag vessels, The Maritime Administration would

continue to exist as a promotional agency, but all

regulatory functions would be vested in an intergovernmental commission, which would adjudicate allegations of price fixing, discrimination, etc.

Regulation

Overall, the panel agreed that a major problem facing the maritime industry today is overregulation by the Government. There was general agreement that the Government’s function

should be only to set up a “protective cocoon”

to deal with discriminatory practices by other

countries, and then to assure free competition
-—— ———— —.—.— . -- —-.

39

among carriers in a trade, It was stressed again

and again that market forces must be allowed to

govern.

Cargo Reservation

Another, but similar approach—multilateral

cargo reservation, perhaps like that under the

UNCTAD Liner Code—was put forth as essential

to the security of the United States and its NATO

allies. It was pointed out that not one West European or Scandinavian liner carrier is currently

making enough money to allow replacement of

its fleet. The outlook for availability of allied merchant vessels in support of a NATO in a future

war is very gloomy. The reason for their depressed condition is that the Soviet Union is setting rates for its ships in these trades at 20 to 40

percent below conference rates. It is difficult for

European countries to close their ports unilaterally because the Soviet Union is so near and is

such an economic presence. Only through agreement between the United States and its free world

allies can the fleets of our allies (and of the United

States as well, when Soviet ships return to U.S.

trades in great numbers) be assured a fair marketplace. If the United States took the lead, it

could fashion a “limited flag” environment where

competition could be maintained between certain

registries, but controlled carriers could be prevented from destroying free world merchant fleets.

On the actual UNCTAD Liner Code question,

the panel called for U.S. leadership in solving restrictions on trade. Many countries that are signatories to the Liner Code (and this may shortly

include many of our major allies) are not anxious

for restrictive cargo carriage, Some are in fact

looking for loopholes to escape the full impact of

the Liner Code. The United States must take an

active and aggressive role in the international

arena, both for national security and for commercial reasons.

Defense-Related Issues

The importance of the merchant fleet to national security was emphasized by panel members.

At the same time, the Center for Strategic and International Studies has forecast that the U.S. maritime industry will decline by one-third or more

by 1989. The panel called for a comprehensive

framework for both national security and commercial objectives. One element may be separating Government programs supporting shipyards

from those supporting the operating industry.

This point was raised a number of times throughout the sessions. Heavy manufacturing industry,

like shipbuilding, is very different from transportation; solutions to their respective will be different as well.

Policy Needs

The need for flexibility in maritime policy was

cited many times, The fact that the Merchant Marine Act of 1936 remained in place long after its

usefulness had ended was responsible in part for

the decline of the Merchant Marine, Through

World War II, the Act accomplished its mission

of building a U.S. merchant fleet. At that time,

the United States had 61 percent of the world’s

tonnage. But continuing to subsidize a large

healthy merchant marine during a time of limited

competition resulted in a dependent and noncompetitive industry. The proliferation of Government restrictions and the disincentives to efficiency created by the subsidy system helped to

undermine the fleet. Future policies must be structured more flexibility, so they can respond rapidly to the changing maritime environment.

Overall, the sense of this panel, as with several others, was that cargo policy should be an

integral element of maritime policy, but in practice it should be used to increase marketplace freedom and competition, Unilateral commercial cargo

reservation is detrimental to economic efficiency.

Bilateral and multilateral agreements may be beneficial if they are structured so as to protect carriers against unfair trading practices and allow

maximum market freedom within their framework.

Future Developments

This market freedom will allow innovative

companies to flourish, while others may fail. The

potential for growth in intermodalism was mentioned as an example. Some ports, like that of

Seattle, are purchasing railroad cars and will offer their own intermodal service. The fact that

some old-line maritime firms may be unable to
40

compete with the innovators was seen as inevitable. The industry as a whole will be stronger

PLENARY SESSION

Summary of Discussion

Defense-Related Issues

During the second-day wrap-up session, most

of the major maritime issues were discussed. National defense questions absorbed much of the

time. Again, it was suggested that the shipbuilding segment of the industry should be funded by

DOD, and that operators should not be saddled

with the cost of defense features requirements.

DOD should pay for the vessels it deems necessary for national security, but budgetary restrictions might make it necessary to fulfill requirements only for direct military support vessels (like

Ro/Ros), and to forego construction of ships to

support the civilian economy in wartime. Support

for the commercial U.S. shipbuilding industry

probably cannot be justified on economic grounds

alone, since the market for new construction is

so depressed and Far East shipyards are able to

offer prices that are so much lower.

One suggestion that would aid U.S. shipbuilding without cost would be to set up foreign trade

zones for ship construction, in the same manner

as they now exist for automobile and other manufacturing. Components and raw materials are

imported without duty, and the absence of duty

results in lower delivered cost. A few foreign trade

zones for ships have already been established, For

the practice to become widespread, however,

MarAd regulations on domestic content for ships

built under Government tax deferral or loan guarantee programs would have to be changed.

The availability of crews for reserve fleet ships

was again questioned. With a merchant fleet of

perhaps only 100 ships and newer vessels requiring fewer crew members, the pool of shipboard

labor may soon be inadequate.

A question raised as a possible topic of further

study was whether DOD has adequately considered whether commercial ships are as useful as

and more competitive if innovation is more widespread.

DOD-designed

port purposes.

ships, or more so, for defense supMaritime Objectives

A broader national security raised at the workshop issue concerned what part of the merchant

fleet should be considered as supporting national

security. While only some ships are useful in direct military support, it might be considered that

we are in economic warfare with the Soviet bloc.

The Soviets have already introduced ships that

offer substantially below-market rates in both

U.S. and European trades. Their ability to dominate free world trade is clearly enhanced by the

diminution of the U.S. fleet. Some would argue

that this is sufficient reason for Government support of the entire merchant marine.

There was agreement that the merchant marine

should not be viewed as an economic end in itself, but as a support for trade and U.S. exports.

Some workshop participants held that U.S.-flag

ships are more reliable than foreign ships and,

therefore, their use is beneficial to shippers. Other

participants, notably the shippers, pointed out

that for U.S. goods to be competitive in the marketplace, their price must be reasonable. Any increase in transportation costs, such as results when

shippers are required by preference laws to use

U.S. vessels that may be higher cost, reduces the

competitiveness of U.S. products.

On this issue, there really was no resolution.

Carriers continue to believe that cargo preference

is important to them and that it benefits shippers

as well by making carriage on some routes possible. Shippers generally believe that the lowest

transportation cost provides the greatest benefit

to them and their customers. Liner operators point

out that their rates are fixed by conferences and

are identical with the rates of foreign-flag conference members. However, it was also pointed out

that conference rates are generally fixed to be
41

compensatory to

quently the U.S.

the highest cost

operator.

operator, freGovernment Regulation

There was agreement that excessive Government regulation has been detrimental to all sides.

Foreign building is considered essential to profitable liner operations. Currently, unsubsidized operators who build abroad are discriminated against

in cargo-preference regulations. Those vessels

must wait 3 years before having equal eligibility

to carry Government cargoes. At the same time,

subsidized carriers were allowed (for 1 year only)

to build abroad, and those vessels can carry

preference cargoes and receive operating subsidies immediately. Some weaker companies seek

to sell the Government their older vessels in order to raise capital to build modern ships abroad.

Some participants supported legislation permitting foreign building as a high priority.

It was also noted that subsidized operators are

forced to adhere to operational differential subsidy (ODS) regulations relating to essential trade

routes, min-max sailings, etc.39 While there has

been effort on the part of MarAd to reduce the

burden of such regulations, some participants felt

they should be removed. Others felt that if they

were removed, a reduction in subsidy amount

would be appropriate. Some participants believed

that U.S. liner operators can compete in operating costs in the international sphere with modern containerships, and that the Government

should cease making this more difficult than necessary. Nonsubsidized carriers have advocated

removal of ODS for foreign-built ships as a feasible way to phase out the ODS restrictions and

Government direct subsidy in general. They believe this would bring all U.S.-flag carriers into

an equitable promotional situation.

“These regulations require that the operator who receives subsidy payments maintain certain sailings on routes that are defined

as essential to U.S. trade.

Bulk Cargo Issues

On the bulk side, the story is different. Commercial shippers appear to be reasonably satisfied

with this foreign-flag market. A truly free market exists, and shippers can negotiate terms and

choose whatever carriers they wish. There was

agreement that any efforts to reduce the freedom

of the bulk markets, such as imposition of an

UNCTAD bulk code, should be firmly resisted.

Shippers are also firmly opposed to any Government-imposed commercial cargo reservation, such

as that in several recent legislative proposals.

Other Issues

The bright spot in U.S.-owned bulk carriage is

the USEC fleet, and there was sentiment that the

U.S. Government should support this foreign-flag

fleet through reduced regulation and strong advocacy in international forums. The current attack on open registries in UNCTAD is a situation

where the U.S. Government could support American-owned foreign-flag fleets.

Finally, one participant stated that there appears to be one area where U.S. industry could

make inroads—neobulk shipping .40 Neobulk trades

(such as automobiles) have been increasing rapidly, while liner and regular bulk trades have been

steady. The U.S.-flag fleet has not penetrated this

trade at all. Yet the vessels are of a type where

the United States has a comparative advantage—

sophisticated, highly technological vessels. Most

operations are now by European or Japanese

fleets. No specific suggestions were given as to

how the U.S. Government might support expansion into these trades. Further study may be warranted.

AOTrades where contract services are provided similar to bulk shipping practice but the commodities shipped are more of a general

cargo type. Such commodities transported now in “ship-lots” are

automobiles, logs, scrap steel, etc.
Appendix B

Summary of Specific Country

Bilateral Negotiations

BRAZIL

The present maritime arrangement between the

United States and Brazil can be traced to a 1970

Memorandum of Consultation, which has been

extended with modification several times, most

recently through December 31, 1985. The Administration is preparing to begin negotiations with

Brazil later this year in which it intends to seek

liberalization of the current arrangement, including greater access for independents, more pronounced competition by price and service, and

greater incentives for adopting modern containerization techniques in the trade.

CHINA

The U.S.-China maritime agreement expired in

December 1983, and no successor agreement has

yet been concluded. Four rounds of negotiations

have been held, most recently in April 1984, but

no solution has been found to the outstanding issues, notably the vexing problem of defining a

cargo-sharing provision. The United States is preMALAYSIA

At the request of Malaysia, the United States

agreed to hold bilateral discussions with the view

to negotiating a maritime agreement if possible.

Malaysian and U.S. representatives met in Washington on April 24-26, 1984, with inconclusive results. The major sticking point was that Malaysia wanted a very general agreement, calling for

PHILIPPINES

In a reaction to Philippine attempts to impose

cargo sharing on bilateral liner trade, the United

States agreed to hold bilateral discussions with the

view to negotiating a maritime agreement if posIn a motion to the Federal Maritime Commission (FMC) filed April 15, 1985, the Administration asked that the FMC investigation of the U. S.-

Argentine and U.S.-Brazilian trades (Docket #84-

33) be suspended pending further consultations

with the concerned governments. The FMC discontinued its investigation of the U.S.-Argentine

trades (Docket #84-34) when Ivaran Lines (a

Norwegian-flag operator) withdrew its petition,

saying that it had received the assurances that it

sought from the Government of Argentina that

it would continue to operate in the trade.

pared to resume negotiations on a new agreement

whenever it appears that there is a reasonable

prospect of concluding a mutually satisfactory arrangement, Some U.S. carriers consider Chinese

ports marginal; others perceive undue protectionist behavior on the part of Chinese trade

agencies.

fair and equitable access to cargo, while the United

States insisted on a “procompetitive” agreement,

which would have provided for third-flag access

to bilateral liner cargo and competitive access to

one another’s trades with third countries. Neither

side has requested a second round of talks.

sible. During discussions held in Washington in

February 1983, U.S. negotiators offered a “procompetitive” draft agreement, providing for competitive access to all commercial bilateral liner

42
43

cargo for the vessels of all flags, equal sharing of

a limited amount of government-impelled bilateral

cargo, and competitive access to one another’s

trade with third countries. No agreement was

reached during the February 1983 meeting or in

subsequent discussions.

In October 1983, FMC instituted a proceeding

under section 19 of the Merchant Marine Act of

1920 to determine if “conditions unfavorable to

shipping in the foreign trade” existed in the U. S.-

Philippine trade. In May 1984, the Philippine

Government rescinded the implementing order

with which it had attempted to impose cargo sharing on our bilateral liner trade, and in August 1984

FMC discontinued its proceeding. However, the

notice of discontinuance stated that the FMC

would continue to monitor the situation closely.

Philippine laws apparently still remain in effect

which would, if enforced, reserve for Philippineflag vessels all of the Philippine Governmentimpelled cargo and 40 percent of the commercial

cargo in each of the country’s liner trades.
Appendix C

Glossary of Terms

bare-boat charter: A charter agreement which

stipulates that the charter provides for all operating expenses including crew, fuel, maintenance, etc.

bilateral/-ism: Government-to-government agreements between two trading nations where cargo

shares are allocated to the ships of those nations under some fixed ratio.

blended credit: This program offers a “blend” or

combination of two types of credit to a nation

purchasing U.S. agricultural exports—one type

being direct interest-free loans from the Commodity Credit Corporation and the other being commercial loan guarantees.

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.

Capital Construction Fund (CCF): 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.

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.

conference: An international group of ocean carriers serving common trade routes that collectively agree on rates and service.

construction differential subsidy (CDS): A direct

subsidy that was, in the past, 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.

containership: A vessel designed to carry standard containers enabling efficient loading, unloading, and transport to and from the vessel.

cost, insurance, and freight (c.i.f. ): Export term

in which the price quoted by the exporter includes the costs of ocean transportation to the

port of destination and insurance coverage.

cross-trades: Foreign-to-foreign trade carried by

ships from a nation other than the two trading

nations.

deadweight tonnage (dwt): The total lifting capacity of a ship, expressed in long tons of 2,240

pounds. It is the difference between the displacement light and the displacement loaded.

essential trade routes: Regulations requiring that

the operator who receives subsidy payments

maintain certain sailings on routes that are defined as essential to U.S. trade.

Export-Import Bank (ExIm Bank): A Federal

agency that aids in financing exports of U.S.

goods and services through direct loans, loan

guarantees, and insurance.

fighting ships: A term used in the liner trade to

describe ships hired by conferences to operate

in competition with independent operators outside the conference, with the intention of forcing those independents out of business.

flags of convenience: Sometimes referred to as

flags of necessity; denotes registration of vessels in foreign nations that offer favorable tax

structures and regulations.

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.

flat racks: Portable platforms that are designed

to be installed on containerships, in order to

convert those ships to carry a variety of military cargo other than containers.

free on board (f.o.b): 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.

general cargo: Any of a variety of manufactured

goods or raw materials in nonuniform packages.

Government-impelled: Cargo owned by or subsidized by the Federal Government.

44
4 5

independent action: The right of a conference

member to offer rates and services other than

those set by the conference.

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.

International Marine Organization (IMO): Formerly known as the Inter-Government Maritime Consultative Organization (IMCO), was

established in 1958 thorough the United Nations

to coordinate international maritime safety and

related practices,

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.

liner service: Vessels operating on fixed itineraries

or regular schedules and established rates available to all shippers.

minimum/maximum sailing: Regulations requiring that the operator who receives subsidy payments maintain certain sailings on routes that

are defined as essential to U.S. trade.

multilateral/-ism: Cargo sharing agreements

among a number of nations, with the goal of

allocating some or all of the cargo imported and

exported from those nations to be carried by

the merchant fleets of those nations.

neobulk: Shipments consisting entirely on units

of a single commodity, such as cars, lumber,

or scrap metal.

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

high operating costs of U.S.-flag ships when

compared to foreign-flag counterparts.

roll-on/roll-off (Ro/Ro): Ships designed to allow

trucks or other vehicles to drive on with trailers

of cargo.

sea sheds: Portable containers designed to fit on

standard containerships and to carry special

military cargo.

shipper’s council: An organization of shippers

formed to collectively negotiate rates and services with the conferences of ship operators.

shippers: Individuals or businesses who purchase

transportation services for their goods or commodities.

Title I and II: Food assistance programs established by Public Law 83-480 in 1954 and subject to a 50-percent U.S.-flag carrier preference.

Title I (concessionary sales) is administered by

USDA; Title II (gifts of food) by AID.

Title XI: A ship-financing guarantee program,

originally established by 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.

unilateral/-ism: Policies by which a single nation

reserves certain cargoes to be carried exclusively

by its own merchant fleet.

U.S. effective controlled fleet (USEC): That fleet

of merchant ships owned by U.S. 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 ownership and

can be called to serve U.S. interests in time of

emergency.

from other nations.

operating differential subsidy (ODS): A direct

subsidy paid to U.S.-flag operators to offset the

o