US-Flag Shipowner Outlines Strategies to Revive National Fleet
US-flag shipowner Liberty Maritime CEO Philip Shapiro has written a feature for industry newspaper TradeWinds addressing steps the government should take to strengthen its fleet.
The US Maritime Administration (MarAd) has started a welcome and long overdue process of reviewing the US national commercial maritime strategy. For strong supporters of the US merchant marine, like Liberty Maritime, the reaction is clear. It’s about time!
Although the US has always been a maritime nation, it has often struggled, as have other national registries, to maintain a vibrant commercial fleet. The reasons for this are obvious. Many of the attributes of a national registry for developed nations, like having to employ citizens from the registry country, result in higher operational costs than under an open registry.
As a result, the US has deployed a number of supports including the Maritime Security Program (MSP) and US cargo preference laws. And the US government has taken some steps to reduce US operational costs — like making a tonnage tax available for foreign trading vessels.
In doing so, two fundamental principles have applied that are as true today as they were in 1789. The first is that a commercial fleet is essential to US national defence because reliance on the vicissitudes of the foreign commercial market is dangerous. The second principle is that support for a privately owned fleet is far more cost efficient than the maintenance of a government-owned fleet.
Nevertheless, it has become apparent that the current support system is not up to the task. There are a number of reasons for this, including the fact that the amount of reserved US government cargo is decreasing (in large measure due to the drawdowns in Iraq and Afghanistan) and the reservation applicable to international food aid was reduced from 75% to 50% in last year’s Highway Bill legislation.
As part of a new national maritime strategy, we have recommended to MarAd that it renew its focus on cargo reservations or other fleet supports, and on further cost-reduction measures. Both new ideas and a fresh look at some old ideas are needed.
With respect to new cargo opportunities, we have recommended that the US government apply a US-flag shipping requirement to the export of US crude oil. The US shale-oil boom has already increased calls to permit such exports and general exports are almost certain to happen.
US-flag reservation requirement
A US-flag shipping requirement for crude oil exports would not be new. When such exports were permitted from Alaska in 1995, the oil had to be carried in US-flag vessels owned by US citizens, although such vessels can be built outside the US. A similar US-flag reservation requirement should also be considered with respect to the export of refined products as well as LNG and LPG.
The US government should also consider applying a 100% cargo reservation (as it currently does with military cargo preference for example) to all US government-impelled cargoes versus the current 50% requirement that applies with some programmes. MarAd should also redouble its efforts in cargo preference enforcement as there is no excuse for federal government agencies avoiding the letter and spirit of the law.
On the cost side, a fresh look is needed at whether US seamen’s protection measures — many of which were written in the age of sail — continue to have full relevance in the current millennium. US-flag claims and insurance costs are the highest in the world. We certainly can do better consistent with first-world standards for protecting industrial workers.
There are tax issues as well to be addressed. Consideration should be given to making merchant mariners employed on foreign voyages eligible for the US foreign-earned income exclusion like other US citizen expatriates. US citizens working abroad are essentially tax-exempt on the first $90,000 they make overseas. Why should not merchant mariners engaged in foreign trade be similarly treated?
Finally, MarAd needs to do a dramatically better job at keeping the public informed of what it is doing. MarAd cannot promote the US merchant marine by keeping secrets and making decisions that aren’t published. MarAd’s national maritime strategy engagement is a good first step in that direction.
