When Leadership Prevails On Capitol Hill

The US Merchant Marine (USMM) has been an integral factor in building a secure and wealthy nation since its birth. But, it has fallen on hard times since the 1970s due to weak government policies. In fact, today’s maritime policies and funding are pathetic at best as the US government continues to dump billions upon billions into broken highway systems that are constantly in need of maintenance while the maritime industry gets next to nothing in support. However, the USMM has a real champion in Representative Elijah Cummings (MD-07), who grilled MARAD’s administrator David Masuda at a hearing yesterday, challenging his knowledge and leadership of the industry’s most vital link to the administration.

One of the issues that had Cummings hot under the collar is the Department of Energy’s (DOE) guaranteed loan program, which snubs its nose at the Cargo Preference laws. DOE is authorized to provide up to $4 billion in guaranteed loans for energy related projects, including wind farms, renewable energy, and other energy related projects. Yet, it denies US carriers access to transport cargos derived from these loans.

Beyond the Maritime Security Program (MSP), Cargo Preference is the life-blood of US operators. In 2007, preference cargoes accounted for 49.6 percent of all cargo carried by US flagged operators. In 2007, cargo preference provided US operators $919.4 million for military cargo, $319.8 million for agricultural cargo, and $113.4 million for civilian agency cargo and cargo gained from the Export and Import Bank.

But, DOE has continually assumed the cargo preference laws do not apply to loans it provides under Title XVII of the Energy Act of 2005. Specifically, Title XVII of the Energy Policy Act gives the agency the ability to guarantee 80 percent of the cost of the development of renewable energy systems, including offshore wind and ocean energy, advanced fossil energy technologies, hydrogen fuel cell technologies, carbon capture and sequestration facilities, efficient electrical generation and transmission facility and a variety of similar projects.

But, DOE repeatedly avoids heeding cargo preference laws legislated by Congress under 46 U.S.C.5503. The first time Cummings asked Masuda about the DOE’s lack of compliance was at the July 2010 hearing before the Subcommittee on Coast Guard and Transportation. Masuda could not answer the question. And, Cummings was incensed and sent him away to talk to DOE about not following the law. Masuda returned on September 29th, and still didn’t have an answer beyond that he is still working with the highest levels of DOE. Again, Cummings was not pleased to say the least.

US Flagged Vessels in Foreign Commerce

The Shipping Act of 1916, the Merchant Marine Act of 1920 and the Merchant Marine Act of 1936 tried to support the US maritime industry. But, after World War II, unfavorable tax laws and Reagan’s end of subsidies stopped the industry’s growth and it struggled beyond the Jones Act. Today, the only funding schemes for the industry have been for supporting the US military via the Maritime Security Act of 1996. The Maritime Security Act of 2003 reauthorized fixed payments from the Department of Defense (DOD) and expanded the program from 47 US flagged ships to 60 ships. It also increased annual payments totaling $174 million or $2.9 million for each of the 60 ships. And, the 2011 authorization will increase the MSP to $186 million until it expires in 2015.

In 1975, the world’s fleet consisted of 22,872 commercial ships and by 2008 the amount grew to 52,944 ships, which is a 221 percent increase. Meanwhile, during the same period of time, the US merchant marine fleet declined 89 percent. And, by 2009, the US fleet transported only 1.5 percent of US imports and exports transported by water aboard registered ships to the US.

Another way of sketching the decline is when the Comptroller General of the US said in a 1981 report that US flags declined from 1,065 ships in 1959 to 576 in 1979, and that foreign trade transported by US ships declined from 10.2 percent to 4.4 percent during the same period. This is remarkable a decline of US maritime influence considering that at the end of World War II the US merchant marine fleet stood at more than 2,000 vessels.

Recently, MARAD reported that the US merchant fleet consisted of 94 ships; 50 container vessels; 23 roll-on-roll-off; nine dry bulk carriers; eight multi-purpose ships (including five heavy lift ships); and four tankers. And the average age of the US fleet in foreign commerce is 15 years and all of these ships were built overseas.

Additionally, the 94 US flagged ships provide 1,880 billets for US mariners, which employs about 3,760 mariners. The UN Conference on Trade and Development reported in 2009, the US is ranked 21st in the world in terms of registered tonnage, which is about one-percent of the world total. And, the majority of these ships operate in the domestic coastwise trade.

Costs of Operating US Flagged Vessels

Foreign lobbyists and anti-Jones Act proponents often say the US Merchant Marine cannot compete in global commerce due to construction and mariner costs. But, how can the US industry compete when foreign countries offer health care and benefits to its citizens while US maritime companies bear those costs? Furthermore, many countries do not tax income from shipping operations of their flag companies. Consequently, the advantages of foreign operators are lower corporate taxes and predictable liabilities each year.

Check this out; US ship operators are liable for a 50 percent duty on maintenance and repairs performed on their vessels at overseas yards. This tariff was enacted in 1866, and the Tariff Act of 1930 set the duty for today’s level. Foreign operators are not subjected to such a tax, and there are those in the business that have suggested US flags working in foreign trades not be subjected to the tax.

Administrator Masuda said at the hearing yesterday that MARAD is committed to the American Marine Highways (AMH) and building new ships in US shipyards. But, both Cummings and Masuda understand it was only strategic positioning for the record, because there are no funds for the maritime industry, which make Cargo Preferences even more precious to US flags. Considering US GDP for 2009 was $1.4 trillion and the American Marine Highway program got $7 million in funding and Title XI gets $3.5 million says volumes about the government’s commitment to the industry. How can Cummings’ committee and the Administrator do anything constructive for the industry with their hands tied behind their backs? And, that’s why Cummings is valiantly trying to get US flags every penny he can find.

A Real American Economic Recovery Plan

President Obama and DOT Secretary LaHood need only look to America’s vast coastline to find the real quick answer to the US economic recovery. US waterways are renewable, and the port infrastructure is already in place. With 10 percent of Americans unemployed there are plenty of potential workers to operate a marine highway system. While Representatives Cummings, Oberstar (D-MN), and Taylor (D-MS) continue to champion the US maritime industry, their musings only fall on deft ears.

Remove the Harbor Maintenance Tax, because it’s just plain stupid to double tax containers moving within US ports. Really fund the American Marine Highways with $1 billion per year for the next five years to build more ships that will call medium to small US ports. Increase funding for Title XI to $1 billion, because more loans mean increased revenues for government coffers. Obama wants to rebuild the American infrastructure, and nothing could be faster than funding the US maritime and shipyards industries.

Investments in wind and solar will take years, if not decades. Like it or not, the US will be reliant on fossil fuels for the near term—that’s my lifetime. Continually reinvesting in the roadway and highway infrastructure only promotes more oil usage, and increased pollution and congestion. America’s future growth and wealth can be found just offshore, but Capitol Hill is gridlocked and full of lobbyists and special interest. And, no one can see vast oceans and inland rivers beyond the concrete jungle of cities and highways.