Protecting and Promoting the U.S.-Flagged Fleet

Klaus Luhta, chief of staff with the International Organization of Master, Mates, & Pilots, urged a U.S. Senate hearing on Wednesday to address the competitive disadvantages of operating U.S.-flag LNG vessels and reaffirmed the role that the nation’s merchant fleet in national security.

U.S. Sen. Deb Fischer (R-Neb.) chaired the Surface Transportation and Merchant Marine Infrastructure, Safety and Security Subcommittee’s hearing titled “The State of the U.S. Maritime Industry: Stakeholder Perspectives.”

Luhta noted that the number of vessels in the U.S.-flag foreign trade fleet declined from 106 vessels in 2011 to 78 vessels at the end of February 2016.

“The export of LNG gas from the United States creates a tremendous opportunity to increase the size of the U.S.-flag commercial fleet and to provide much-needed new employment opportunities for American mariners. To realize this opportunity, we believe that the Secretary of Transportation should be required to report to the Congress on the steps taken to develop and implement a program to promote the carriage of LNG exports on U.S.-flag LNG vessels.”

To address one of the major competitive impediments to operating a U.S.-flag rather than a foreign flag LNG vessel, Congress should extend the provisions of section 911 of the Internal Revenue Code (the foreign source income 10 exclusion) to American mariners working on board LNG vessels engaged in the carriage of LNG exports from the United States, says Luhta. 

“In the short term, extending section 911 to Americans working aboard vessels carrying LNG exports and thereby treating American mariners in the same fashion that foreign mariners are treated by their flag nations, we would be eliminating a significant economic disincentive to the employment of American mariners aboard foreign flag LNG ships. Without this opportunity for employment, Americans would not attain the sea time requirements and training needed to operate vessels in this trade, preventing the operation of LNG vessels under the U.S.-flag.”

Congress should also allow foreign built, foreign flag LNG vessels to document under the U.S.-flag to engage in the carriage of LNG exports in international trade without the need for any vessel construction-related changes provided they meet commonly accepted international standards set out by the IMO and hold a valid United States Coast Guard Certificate of Compliance for foreign flag LNG vessels entering U.S. waters.

Maritime Security

A U.S.-flag commercial fleet, along with its associated American maritime manpower, is a critical national defense asset, says Luhta.

One of the key components of American maritime policy is the Maritime Security Program. This program authorizes a maritime security fleet of 60 privately-owned, militarily-useful U.S.-flag commercial vessels that is supported by an annual stipend intended to help offset the cost of operating under the United States-flag.

The Maritime Security Program (MSP) is a unique government – private shipping industry partnership that gives the Department of Defense (DOD) the commercial sealift capability it needs while saving the American taxpayer the billions of dollars it would take for DOD to develop and maintain this capability itself. Developed under President George H.W. Bush, and first implemented under President Bill Clinton, full funding for MSP has been supported by each President and Congress since 1996.

Since 2009, privately-owned U.S.-flag commercial vessels and their civilian U.S. citizen crews have transported more than 90 percent of the sustainment cargo needed to support U.S. military operations and rebuilding programs in Iraq and Afghanistan. Vessels enrolled in MSP carried 99 percent of these cargoes. 

“Without the assured U.S.-flag commercial sealift capability provided by MSP, U.S. troops stationed overseas could find themselves dependent on foreign vessels and foreign crews to deliver the supplies and equipment they need to do their job,” said Luhta.

Food Aid

“We further reaffirm our position that Congress should restore the U.S.-flag share of PL 480 Food for Peace and other humanitarian food aid cargoes to the 75 percent level that was in place beginning in 1985 until reduced to 50 percent in 2012,” said Luhta. “Food aid cargoes are the single greatest source of preference cargoes. It has provided more than half of the dry preference cargo tonnage available since 2002, and the availability of food aid cargoes will continue to become even more important as Department of Defense cargoes further decline with the drawdown of operations in Iraq and Afghanistan and the broad reduction in overseas and bases. 

“It is no coincidence that the size of the U.S.-flag fleet has shrunk by more than 26 percent since the 2012 reduction of the U.S.-flag share of food aid cargoes. It is important to note that the GAO has reported that when the statutory share of food aid cargoes to be carried by U.S.-flag vessels was reduced from 75 percent to 50 percent, USDA shipping costs were not affecting at all and USAID shipping costs fell by less than nine percent. The cost of increasing cargo preference requirements for food aid cargoes back to 75 percent has in the past been scored at only $11 million per year.”

The full testimony is available here.