Merchant Marine: Let the New Millennium Begin
By ROBERT W. KESTELOOT
CAPTAIN ROBERT W. KESTELOOT, USN (Ret.), is founder and president of
K Associates Ltd. of Reston, Va., a maritime firm that specializes in
merchant marine and national security affairs. He also is a principal
in Management & Transportation Associates of New York City and a member
of the Navy League's Merchant Marine Affairs Committee. His last active-duty
assignment was as director of strategic sealift on the staff of the chief
of naval operations.
The United States is by far the largest trading nation in the history
of the world. U.S. ocean imports and exports combined exceeded one billion
metric tons last year, or almost 20 percent of the world oceanborne trade.
In addition, the United States imports 11 million barrels of oil per day.
Most of it also comes by sea.
Impressive numbers, but the fact to focus on is this: Last year, less
than three percent of that cargo was carried by U.S.-flag ships. The other
97 percent came and went in foreign-flag ships. However, the only complaint
heard by most Americans is about the imbalance of trade. No one considers
the export of billions of dollars paid annually to foreign ship operators
who carry the other 97 percent of the cargo, who do not pay U.S. taxes,
and do not hire U.S. mariners. This is economically indefensible--but,
more importantly, a threat to U.S. national security. With fewer military
forces forward-deployed in potential areas of threat, rapid response with
U.S.-flag commercial sealift has become more important than ever before.
As of 1 July 2000 the number of privately owned oceangoing commercial
U.S.-flag ships was down to 265, a continuation of recent trends. That
total included 118 ships in domestic (Jones Act) trade and 34 other ships
engaged exclusively in U.S. government work. Therefore, there were only
113 U.S.-flag ships operating in international trade, in head-to-head
commercial competition with foreign-flag ships and nations on a daily
Only 47 of these U.S.-flag ships receive government assistance--in the
form of Maritime Security Program (MSP) payments of $2.1 million per ship,
per year. An annual budget cap of $100 million per year and a minimum
payment per ship of $2.1 million dictated the size of the MSP program,
which started in 1996. Thus, the number 47 was budget-driven rather than
requirements-driven. A Journal of Commerce editor observed that the $100
million is "less than what the Agriculture Department spends on farm
subsidies in a slow week." It is highly likely that many of the 66
remaining ships engaged in international trade, but not receiving Maritime
Security Program payments, will be replaced by foreign-flag ships when
they are retired.
The MSP payments partially offset the higher cost of operating under
the U.S. flag and manning the ships with U.S. crews. In exchange for these
payments, the ship operating companies have agreed to make cargo capacity
and their entire intermodal systems--including port facilities, truck
and rail assets, electronic tracking systems, and management expertise--available
to the government for contingency operations. The Maritime Security Program
is already halfway through its originally planned 10-year life and will
expire in 2005. Each year, however, because it requires annual appropriations,
the program still has to run through the congressional gauntlet.
A point not always remembered, even by members of Congress, is that the
only way so few ships can provide adequate sealift for the deployment
and resupply of the nation's military forces is because MSP payments buy
cargo capacity, not ships. Any ship with which the U.S. operating company
has a cargo-sharing arrangement can provide that capacity. Because all
U.S. liner operators belong either to an alliance (usually consisting
of several ship operators from a number of independent nations) or have
entered into cargo-sharing agreements with one or more other ship operators,
the U.S. owner of ships eligible for MSP payments is able to ship government
cargo on any ship, without regard to flag, on which the owner has space
reserved. In essence, therefore, the 47 MSP ships provide leveraged access
to literally hundreds of other ships.
MSP participants also must enroll 100 percent of their U.S.-flag MSP
vessel capacity, intermodal resources, and services in the VISA (Voluntary
Intermodal Shipping Agreement) program, an Emergency Preparedness Program
run by the Departments of Defense and Transportation.
Jones Act: "Critically Important"
There have been several virulent attacks on the Jones Act fleet in recent
years, most notably from the Jones Act Reform Coalition, a group of shippers
seeking to change U.S. cabotage laws. Maritime interests, with strong
support from the Navy League and other patriotic organizations, replied
by encouraging passage of 1998 House Concurrent Resolution 65, cosponsored
by Reps. Joe Moakley (D-Mass.) and Gerald Solomon (R-N.Y.). The resolution,
which states specifically that "the Jones Act and related statutes
are critically important components of our nation's economic and military
security and should be fully and strongly supported," won overwhelming
support from 245 other members of the House.
The resulting confidence provided to Jones Act operators is evidenced
today by the increasing orders for new-construction ships: two large roll-on,
roll-off (RO/RO) ships for the Alaskan trade, one medium-size RO/RO for
the Hawaiian Islands trade, six new double-hull tankers for coastal oil
trade, and two new cruise ships for the Hawaiian trade. An agreement has
been signed, moreover, for the construction of two more cruise ships,
plus options for two additional ships, for use in the U.S. coastal cruise
trade. It is anticipated that construction contracts will be signed this
This commitment of investment dollars will make legislative assaults
on the Jones Act more difficult. However, it still will be necessary to
stiffen the resolve of the executive branch of government. This is because
of a World Trade Organization (WTO) agreement to review, within five years,
the 1994 WTO exemption of the 1920 Jones Act, as well as the closely related
Passenger Vessel Act of 1886, from national treatment rules. The European
Union and Japan have already called for the review.
It may be time, therefore, for the maritime industry and others interested
in maintaining the Jones Act fleet to remind the new president and incoming
Congress of the changing circumstances that make continuation of the exemption
essential. In 1982, direct shipbuilding subsidies were ended by President
Ronald Reagan because the 600-ship Navy envisioned at the time was expected
to keep shipyards busy, thus maintaining the shipbuilding base essential
to national security. Today, the Navy has only half as many ships and
the Navy's long-range shipbuilding plan projects so few new ships being
built that fleet numbers will shrink even further. Maintaining the "critical
mass" of the shipbuilding industry therefore may well depend upon
commercial construction--more specifically, the domestic Jones Act and
Passenger Vessel Act shipbuilding order books.
The second national-security implication resident in the need to preserve
the Jones Act relates to manpower. Unless the MSP is renewed--and expanded
to include more ships--there is little hope for growth in the international
trades. However, there is potential for growth in clean-product tankers,
the cruise fleet, and the domestic coastal shipping market. This growth
is essential for, among other reasons, providing new opportunities for
sustainment of the seafarer manpower base.
It seems evident that, for at least the next two decades, the Department
of Defense (DOD) will depend upon the VISA agreements, its own Fast Sealift
Ships, and the inactive Ready Reserve Force (RRF) to meet its sealift
needs in times of crisis. In order to activate these ships for national
emergencies or contingency purposes, however, qualified mariners must
be immediately available. Because most commercial ships operate about
340 days a year--with the balance of the year required for repairs, dry
docking, and mandated inspections--each ship has two full crews. Normal
rotation is about four months at sea and four months ashore for rest and
training. The off-duty crews provide the manpower pool required to make
the entire RRF concept both credible and executable.
The maritime manpower issue is really a global problem. The April 2000
quinquennial Baltic and International Maritime Council (BIMCO) and the
International Shipping Federation (ISF) Manpower Update quantified supply
and demand not only for the present but also for the next decade. The
worldwide supply of seafarers in 2000 was estimated to be 404,000 officers
and 823,000 ratings. The OECD (Organization for Economic Cooperation and
Development) countries--Western Europe, the United States, Canada, Australia,
New Zealand, Turkey, and Japan--remain the most important source for officers,
but the Far East has increased its share.
The latter is now by far the largest source for ratings. The estimate
of worldwide demand for seafarers in the near future is 420,000 officers
and 599,000 ratings.
The world fleet continues to rely upon large numbers of officers from
Europe, North America, Japan, and other OECD countries. More than 40 percent
of these officers are over 50 years old, though. Most serve in senior
positions as masters or chief engineers. The impact of their retirement,
without enough well-trained replacements readily available, could be severe,
particularly on the U.S.-flag merchant marine.
Several ongoing studies on U.S. coastal shipping have focused on increased
use of water transportation along the Northeast I-95 corridor--and for
good reason. This sector consists of 12 states--and the District of Columbia--
and stretches from Virginia and Delaware in the south to Maine, Vermont,
and New Hampshire to the north.
Within this corridor--6.2 percent of the U.S. landmass--reside nearly
25 percent of the U.S. population. The extremely heavy concentration of
people, infrastructure, and traffic within the region has made it the
most congested in the United States. It was this realization that led
to formation, in 1993, of the I-95 Corridor Coalition, a partnership of
transportation agencies and transportation industry volunteers. (Further
information on this organization, which already is producing tangible
results, is available at www.I95coalition.org).
The ongoing studies conclude that U.S. international shipping will double
by 2010 and triple by 2030. Some ports, such as the Port of New York and
New Jersey, foresee even greater increases--from 2.5 million TEUs (20-foot
equivalent units) in 1999 to nearly six million in 2010, almost 12 million
in 2030, and more than 14 million in 2040. This has the potential to establish
permanent gridlock in the surrounding areas and along the immediate I-95
corridor area unless alternative distribution methods are developed. The
same problem exists nationwide to varying degrees and affects the I-10
interstate along the Gulf Coast and the I-5 interstate on the Pacific
Coast. For that reason, there is a major national interest in these studies.
One study, "Coastal 2000," being conducted by a subcommittee
of the National Defense Transportation Association's Sealift Committee,
points out that the already projected doubling of U.S. international trade
equates to an additional 16 million TEUs of cargo arriving every day on
each coast and would require 11,000 semi-trucks to carry that cargo. The
same study notes that, on the East Coast, the recently combined Conrail
and Northern Southern railroads could take only about 1,000 of these trucks
per day. That leaves 10,000 more trucks that will have to be absorbed
by the already congested I-95 corridor--or one more truck on the highway
every 270 yards between Boston and Miami.
Several of these studies also postulate, though, that a combination of
domestic high-speed feeder ships and tug and barge systems could be used
to safely and swiftly bypass the most highly congested traffic areas on
the interstates and to decrease the number of port calls that have to
be made by transoceanic ships. These findings run counter to earlier-held
beliefs that short-haul barge trips are too expensive, at least compared
to truck dray-age costs. Closer and more recent
analysis has shown that trucking costs (as opposed to tariff rates) in
open-highway areas run about $1.50 per mile. However, in such highly congested
areas as the Northeast Corridor, trucking costs now run $3.50 per mile
or more. Moreover, the transfer of incoming containers from an international
carrier to a short-haul barge
service, rather than to port container yards, reduces long-term storage
The time that containers remain in port before they can be picked up
by trucks for final delivery is referred to as "dwell time"
and averages about eight days in major ports. Transferring containers
to barges means that cargo often can be delivered earlier, despite the
slower transit speed of barges when compared to trucks.
The opportunity to develop coastal shipping through the use of barges
and high-speed RO/RO ships could be a partial answer to the U.S. seafarer
manpower problem. A study commissioned by the Maritime Administration
and conducted by Louisiana State University's National Ports and Waterways
Institute envisions the following: (a) a coastwise network of low-cost
domestic terminals adjacent to deep-sea terminals; (b) a fleet of high-speed
monohull RO/ROs; (c) a service pattern based on highly coordinated multiport
loops; and (d) an institutional setting similar to that of the intermodal
U.S. rail system.
The high-speed ships would operate in regions that, on the East Coast,
for example, might consist of seven adjacent coastal areas extending from
Maine to Florida. Most of these areas would encompass several ports and
could be served by two or more ships operating on counterrotating routes.
The northern and southern arrivals and departures in the various regions
would be very closely coordinated with other transportation modes. These
ships probably would have limited defense utility, if any, because they
would be relatively small (less than 500 TEUs), have limited range, and
possess minimal seakeeping facilities. But their rotating crews would
be trained mariners, and would be available in large numbers for military
contingencies that require the activation of the RRF.
A Possible Show-Stopper
There is, however, a potential major impediment to the increased use
of coastal shipping: the Harbor Maintenance Tax (HMT). From 1789 to 1986,
before the Water Resources Act of 1986 was enacted into law, most harbor-maintenance
and harbor-deepening projects were funded from general revenues. The 1986
Act imposed an HMT of 0.04 percent on the value of the cargo for any port
use--e.g., the loading and unloading of imports and exports.
The HMT was designed to fund routine harbor maintenance. Harbor-deepening
projects would be cost-shared between the ports and the federal government.
Unfortunately, the law did not differentiate between foreign and domestic
cargo. Noncontiguous Jones Act cargo moving between the U.S. mainland,
Puerto Rico, Alaska, and Hawaii was exempted from the HMT, but domestic
coastal shipping, almost minimal in 1986, was not exempt.
In March 1998, the Supreme Court ruled that imposition of the HMT on
exports violates the Constitution's ban on export taxes. The HMT now stands
at 0.125 percent, or 12.5 cents per $100 of cargo value, and is still
collected, but only on imports. The ban on an export tax mattered not
at all in moving domestic cargo between two U.S. ports because the original
Act specifies that "only one tax shall be imposed ... with respect
to the loading on and unloading from ... the same vessel of the same cargo."
During the 106th Congress the Clinton administration proposed: (a) replacing
the HMT with a new tax based on the carrying capacity of vessels; and
(b) using the revenues to fund both routine harbor maintenance and harbor-deepening
projects, thus significantly increasing the amount that would have to
be paid by shippers (for domestic moves), by importers, and by private-sector
Last year, Rep. Robert A. Borski (D-Pa.) proposed a bill that essentially
would turn the clock back to 1986, when maintenance dredging was funded
in its entirety from general revenues. The American Association of Port
Authorities, ship associations, labor unions, and shipper groups all supported
the Borski bill on the premise that the entire country benefits from a
low-cost competitive port system and that, if enacted, the administration's
proposal would hurt exports.
The National Industrial Transportation League opposed the administration's
bill, but did not support the Borski bill.
Almost all segments of the sometimes-fragmented U.S. maritime industry
hope that Congress will pay prompt attention to this issue, but most industry
experts do not really expect expedient action because enough maintenance
and dredging funds are available to meet current needs, so "fast-track"
action would be viewed as unnecessary. However, it obviously is not in
the nation's best interest to discourage coastal shipping, and it makes
little sense to heap added cost on shippers attempting to move cargo vehicles
from the I-95 corridor to what might be called an alternative "W-95"
route serving the entire eastern seaboard.
Until the HMT issue is resolved, shipping interests have the option of
seeking congressional sponsorship for, and rapid passage of, Environmental
Tax Credit (ETC) legislation that would reward efforts to mitigate highway
congestion and improve air quality by granting a corporate income tax
credit equal to the amount paid for domestic HMT. While the domestic portion
of the HMT is not a large source of revenue for the U.S. Army Corps of
Engineers ($48.8 million in FY 1999), it is a potentially show-stopping
disincentive for domestic shipping. Such federal legislation could be
modeled on the existing Massachusetts Harbor Maintenance Tax Credit, passed
in August 1996, which serves this very purpose for corporations in that
The ETC would apply only to containerized and break-bulk cargo, including
vehicle shipments, and the cargo would have to be carried on oceangoing
Bigger Ships Around the Bend
Whatever the solution for the HMT problem, the deepening of many of America's
harbors is absolutely essential in order to accommodate the larger ships
now on the drawing boards. Maersk Sealand already operates ships with
cargo capacities greater than 6,000 TEUs. More than 100 post-Panamax cargo
ships--i.e., ships with beams wider than 105 feet and therefore unable
to transit the Panama Canal--are now on order. This will double the size
of the existing post-Panamax fleet. Hapag-Lloyd has ordered four of the
largest of these ships (capacities of 7,200 TEU) from Hyundai. The 6,000-TEU
Regina Maersk made a "show the flag" visit to New Jersey's Port
Elizabeth two years ago, but had to offload several hundred containers
in Halifax in order to enter New York harbor, which has a controlling
draft of 42 feet. Dredging already has begun to increase channel depths
to 45 feet by 2004, and a just-released Harbor and Navigation Study carried
out by the U.S. Army Corps of Engineers recommends further dredging, to
50 feet, to be completed by 2009.
Not all gridlock is confined to roads. Many of the U.S. container-handling
yards are already so overloaded that containers have to be "grounded"--i.e.,
taken off the chassis they were loaded onto when lifted off a ship, and
other containers stacked on top of because of inadequate acreage in the
container area of the port. Ideally, a container should be lifted off
the ship onto a chassis and moved to a temporary holding section until
a tractor can enter the yard, hook up, and move the chassis and container
to its final destination. When containers are grounded, the result is
double--and sometimes even triple and quadruple--handling, particularly
when containers are stacked. This causes major delays, compounds the congestion
within the yard, and increases operating costs.
The ports of Long Beach and Los Angeles are bursting at the seams and
struggling to handle nine million TEUs a year. The looming question is,
how will they handle twice that volume 10 years from now? There are a
number of infrastructure improvements planned, including on-dock rail
yards and expanded off-dock rail transfer facilities, but most movement
of cargo into and out of the ports will be by truck.
The Long Beach Freeway (I-710) now handles 80 percent of the traffic,
but the estimated saturation point, 50,000 daily trips, could come as
early as 2006. This estimate takes into account future use of the ongoing
$2.4 billion Alameda Corridor, scheduled for completion in 2002.
Long lines of truckers waiting in line are already common at nearly every
major U.S. port, particularly in the heavy import months of June though
November. Infrastructure improvements, both within and outside the ports,
will help, but cannot solve the problem. Los Angeles and New York have
plans in hand to expand port space by reclaiming land. Long Beach is converting
much of the old naval shipyard there to container piers. Faster cranes
capable of making 50 lifts an hour--and able to reach to the outboard
side of the wider post-Panamax ships--are replacing older, slower cranes.
In addition to these improvements, port authorities say, there has to
be wider use and acceptance of intelligent transportation systems (ITSs).
Extending the time that ports are open to trucks also will help. The technology
exists to automate dispatch systems, bar code both documents and cargo,
and conduct paperless gate transations. But much of the dispatching done
today still depends on the traditional stubby pencil and a notepad. This
is partly due to reluctance by the longshoremen unions--the International
Longshore and Warehouse Union (ILWU) on the West Coast, and the International
Longshoremen's Association (ILA) on the East and Gulf Coasts--to accept
ITS automation. The worst situation is on the West Coast, where union
leaders insist that any jobs created by ITS should also belong to the
Because no stevedore contracts are due to expire in the immediate future,
this could be an opportune time to trade jobs for union acceptance of
information technology and intelligent transportation systems that would
improve the productivity of almost every component of the nation's marine
transportation system. In the long term, the only way the exponential
increases in cargo now projected can be accommodated safely and cost-effectively
is by combining infrastructure improvements with information technology
systems and to move to "24/7" (24-hour, seven-day-a-week) operations.
The additional jobs generated by the extra shifts should more than offset
any job losses resulting from ITS and higher productivity.
The impact of 24/7 port operations would be felt nationwide. Truck traffic
near the ports would be spread over both night and day, easing congestion
during the traditional rush hours. Warehouses also would have to remain
open longer, and train schedules would require adjustment. But the end
result of all these changes should be even lower costs and higher productivity.
There undoubtedly would be some serious local zoning and noise-restrictions
issues to be resolved, though. Compromise or relocation may be required
in some cases. Drayage companies would benefit from the dilution of traffic
and better use of their equipment through "virtual yards" that
provide real-time conditions and current "ready-for-pickup"
signs, courtesy of ITS. Interestingly, the industry sector that would
be least affected would be the ships, since mariners routinely work 24/7.
The NDTA study cited earlier was recently briefed to the NDTA Sealift
Committee, which includes maritime industry CEOs, the commander in chief
of the U.S. Transportation Command, the commander of the Military Sealift
Command, and the Maritime Administrator. Those in attendence were presented
with a cogent, thought-provoking logic regarding support for a strong
U.S.-flag merchant marine that went something like this:
Each year the federal budget includes funding for hundreds of programs
providing federal assistance to undertakings deemed valuable because they
contribute to national security or support other legitimate national interests.
In the last quarter of fiscal year 1999, there were 1,424 domestic assistance
programs, administered by 57 different federal agencies, in the budget.
There also were a large number of national-security programs (many of
them classified, so the exact number cannot be determined) administered
by the Departments of Defense and State.
In the procurement of ships, aircraft, and weapon systems the U.S. defense
industry has argued, correctly, that government assistance often is needed
to "level the playing field" for U.S. manufacturers. They also
express legitimate concern about government actions that weaken the defense
industrial base and/or reduce the number of skilled workers in that base.
These same concerns apply to any potential weakening of the U.S. maritime
and/or shipping industries. However, except when there is a mobility crisis,
there are few champions for the shipping industry.
Yet maritime programs stand in good stead in any assessment of their
relative worth to the country. The national security link to strategic
mobility is the most obvious benefit, but others exist--helping to maintain
the defense industrial base, obviously, and building up the pool of skilled
The incoming Congress and new administration must ask themselves--and
then answer--two major questions related to strategic mobility: (a) How
important is it to U.S. national security that the United States have
available to it (through MSP and VISA) a core fleet of militarily useful
cargo ships and supporting infrastructures ready to respond to national
or international crises? (b) How important is it that government policies
help to ensure that U.S.-flag vessels can be crewed by skilled and experienced
U.S. mariners who in an emergency can man both the commercial fleet and
the government's own strategic sealift ships?
Congressional testimony during committee hearings on the MSP concluded
that the MSP/VISA programs save the government as much as $800 million
annually compared to what it would cost for the same lift capacity if
it had to be acquired and maintained by the Department of Defense. That
assessment includes the cost avoided by the government because it could
rely on using commercial ships for sealift missions in times of war or
The bottom line is that the various components of the nation's maritime
industry--including the ships, the construction and repair yards, maritime
suppliers, and, especially, the skilled maritime work force, both afloat
and ashore--are all part of the overall defense industrial base and, as
such, worthy of the support pledged in
the 2001 Maritime Policy of the Navy League (see the accompanying sidebar
on this page).
As the United States takes its first real steps into the new millennium,
it is worth emphasizing that an economically viable U.S.-flag Merchant
Marine and prosperous maritime industry are the best and most enduring
solution to meeting the U.S. national defense sealift requirements, both
for ships and for crews. The United States of America is the most prosperous
nation in the world--and the largest trading nation in all history. But
it is no longer a true maritime power--and will never again become one
unless there is a national resolve to do so.
The tax policies of the maritime industry worldwide, particularly as
they affect investment in new ships in this very capital-intensive industry,
suggest that the United States needs to reconsider the basis upon which
it taxes maritime activities. The issue of instability in the MSP, due
to reliance on annual appropriations,
is yet another example of how the federal budget process actually impedes
the long-term goals of the programs funded under those budgets. A long-term
MSP contract, just like a long-term commercial or government charter,
could serve as the basis for attracting commercial investment in new ships
constructed for the
The U.S.-Flag Merchant Marine
For economic, national security, and environmental reasons, the Navy
League of the United States:
Supports the Jones Act and related maritime cabotage laws critical to
America's maritime infrastructure--and, therefore, to U.S. national defense--and
strongly opposes legislation that has been introduced to alter those laws
in ways that, according to the Joint Chiefs of Staff and other defense
leaders, and to many members of Congress, would be harmful both to the
U.S. defense infrastructure and to America's economic well-being.
Supports proposals that would facilitate the shift of truck, car, and
passenger traffic from coastal highway and train corridors to deep-water
ships operating in U.S. coastal and inland waterways as a way to reduce
traffic congestion and vehicle emissions, improve highway safety, and
strengthen the U.S.-flag Merchant Marine through the building and operation
of increased numbers of ships in the contiguous Jones Act coastal trades.
Supports all additional budgetary and legislative measures necessary
to maintain a robust and economically competitive U.S.-flag Merchant Marine
and Marine Transportation System and its supporting infrastructure. Continuing
support of the annual appropriations necessary to fund the Maritime Security
Program is particularly important in this context.
Endorses equitable treatment for Merchant Marine veterans of World War
II by extending to them the same eligibility to veterans' status already
available to veterans of the nation's armed services.
For a complete version of the Maritime Policy of the Navy League of the
United States, visit www.navyleague.org and click on Legislative to access