Op-Ed: AFL-CIO Needs to Take Lead on Revitalizing U.S. Merchant Marine

The U.S. Merchant Marine is in its worst state in history. Today, there are less than 200 deep draft U.S. flag ships. In 1960 there were over 3000. 

Can the U.S. Merchant Marine be revitalized in a way that is “Win-Win-Win”?  The answer is clearly “Yes” when the facts are examined. The AFL-CIO is the organization to best present these facts to industry.

Why is it in the nation’s best interests to have a strong U.S. Merchant Marine?  

First, for national security. The U.S. flag maritime industry has played an important role in projecting American influence, trade, and armed forces around the world. Having strong prepositioning forces, for instance, enables the U.S. to address threats to national security, help other nations and American citizens when it comes to natural disasters, and secure and facilitate trade routes. 

In the recent past, military actions such as Desert Storm have highlighted our need for U.S. flag ships and American mariners. During Desert Storm we had to use foreign flag ships to supplement our U.S. flag fleet. Some of these foreign flag ships refused to enter what they considered dangerous waters. 

In addition to national security, U.S. flag ships provide thousands of jobs for American mariners whose wages remain in the U.S. and on which they pay U.S. taxes. This of course is not the case with foreign flag ships.

The U.S. imports and exports huge volumes of goods by sea, virtually all on foreign flag ships because they are less expensive. That is true, however the benefits of using U.S. flag ships outweigh the small additional costs.  

Let’s examine this by looking at some numbers for large and growing trades.

 

Analysis

U.S. flag operating costs are about $17k/day higher than foreign flag (~$25k vs ~$8k).  Most of this difference is due to higher American crew wages vs. crews from India or the Philippines which are the sources of many foreign flag mariners. The other costs for shipping are capital expenses and voyage costs. These are the same for U.S. (non-Jones Act) and foreign ships.

 

1. Container imports. The round-trip voyage time on a container ship from Shanghai to Los Angeles is about 28 days under normal conditions. 

That makes the voyage cost on a U.S. flag ship about $476k higher ($17k x 28 days).  But, this is only about 0.15 percent of the average value of cargo on the container ship*.  This is 75 cents on a $500 television. 

 

2. U.S. LNG exports. The round-trip voyage from Corpus Christi to South Korea for an LNG carrier is about 47 days, so the higher cost on a U.S. flag ship would be about $800k. That is a lot of money that U.S. LNG producers would not necessarily want to pay.

 

The value of a U.S. LNG cargo delivered to South Korea (174k cubic meters) is about $46 million based on term forecasts of $12 per million BTU (the December 2021 price for LNG delivered to South Korea is about $35/MMBTU, but this price is an historic high).   $800k is only about 1.7 percent of the $46 million value of the cargo. 

Note that no government or other subsidies are required to produce these results. 

 

Actions Needed

A good case is made for using unsubsidized  U.S. flag ships for at least a portion of American consumer product imports and U.S. LNG exports. These are just two examples. 

The analyses for these and other trades would need to be examined on a larger scale and verified. Then the costs and benefits for using U.S. flag ships have to be presented to the stakeholders and decision makers.  

The numbers strongly support using U.S. flag container ships for imports, so this should be focused on first. Energy and agricultural exports can be looked at next.

Someone has to take the lead on this. The AFL-CIO should assume this leadership role.

Thousands of new high paying American mariner jobs would be created. These mariners would be available to the nation in times of crisis.  Most if not all of the new American mariner jobs would be union jobs, and there is no more powerful voice than the AFL-CIO to champion this initiative. 

After confirming the economics in further depth, the President of the AFL-CIO should meet directly with the CEOs of Walmart, Target, Home Depot and Lowes, the top four U.S. importers, and present this opportunity to them.  

When these industry leaders are made aware of the low cost economic and national security benefits that would result by having their companies use U.S. flag ships, how could they say no?  Their American companies rely upon safe and reliable marine transportation.  It is doubtful that a shopper will balk at paying 75 cents more for a television.

The AFL-CIO and large consumer goods importers would be doing themselves, the U.S. economy and our national security a great service.  

“Win-Win-Win”

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*From American Shipper, October 21, 2021: “The total customs value of the Port of Los Angeles’ containerized imports in 2020 was $211.9 billion. Given that imports totaled 4,827,040 TEUs, this equates to an average of $43,899 per import TEU. (Several other sources also estimated average cargo value at around $40,000 per TEU.)  

This suggests that the cargo (in 80 ships) currently waiting off the ports of Los Angeles and Long Beach on Thursday is worth around $25.5 billion…”.    

$25.5B divided by 80 ships = average cargo value of $319m/ship.  $476k/$319m = 0.15%.

 

About the Author: Robert P. Curt has over 45 years’ experience in the maritime industry. He is retired Vice President Marine Transportation for Mobil Oil, General Manager Marine Transportation for ExxonMobil and Managing Director of Qatar Gas Transport Co (Nakilat), the world's largest owner/operator of LNG tankers. He was CEO of MLR Petroleum and served on the Boards of Aker Philadelphia Shipyard, Capital Product Partners Ltd. (CPLP) and Sky Petroleum. Mr. Curt holds a BS degree in Marine Engineering from the U.S. Merchant Marine Academy and an MBA from Iona College. He is a Captain USNR (Ret).