Executive Briefings

The U.S. Merchant Marine Is Foundering. Should We Care?

More than 30 years ago, when I began writing about transportation and logistics, one of the first pieces that I did was about the imminent demise of the U.S. merchant marine. Today, I find myself addressing the same issue. As industries go, this has got to be one of the slowest deaths on record.

The U.S. Merchant Marine Is Foundering. Should We Care?

In light of more recent events, though, you have to wonder whether Congress and the Administration have drilled the final holes in the U.S.-flag fleet's hull.

The crux of the matter - and the key to the industry's survival - is cargo preference. Current law states that 50 percent of U.S. government-generated food aid moving by water must be carried by ships with U.S. registry and crews (assuming such vessels are available at "fair and reasonable rates"). Until last summer, that number was 75 percent for certain key agricultural commodities, under a law that had been in effect since 1985.

The recent cut resulted in the immediate loss of four U.S.-flag ships, according to Lee Kincaid, president of the American Maritime Congress. Today, the U.S. deepsea fleet stands at just under 100 vessels, with another 100 serving the domestic trades under the protection of the Merchant Marine Act of 1920, better known as the Jones Act. (The total doesn't include tugboats, ferries, dredges and other smaller craft.) All signs point to a further dwindling of the fleet, as opponents continue to chip away at preference requirements.

The law is needed for the simple reason that U.S.-registered ships are more expensive to operate, because of higher wages and stricter safety requirements, than their foreign counterparts. The government pays American operators $3.1m a year to keep a ship under the U.S. flag, Kincaid notes. And that amount only makes up about 45 percent of the cost differential. Cargo preference provides the rest.

One hundred percent of materials shipped by the U.S. Department of Defense must travel on American-flag ships, accounting for some 85 percent of the industry's bookings. Between 4 and 5 percent comes from other government-agency cargoes, such as those generated by financing from the Export-Import Bank of the United States. Which leaves about 11 percent of the total to be made up by cargo preference for food aid. That might seem like a relatively small number, but it's essential to keeping afloat a U.S.-flag fleet of meaningful size - one that can be instantly called on in times of war or national emergency.

When containerships began dominating the trades in the 1960s and "˜70s, DOD questioned whether they were of much military value. Now they make up a portion of the Maritime Security Program, which consists of about 60 privately owned commercial ships that are deemed to be "militarily useful." (The collection includes tankers and roll-on/roll-off vessels, the latter of which are essential to moving large wheeled equipment such as tanks.) So DOD, for one, remains a booster of the American merchant marine.

The fleet doesn't appear to have many other friends in government. Neither the Obama Administration nor Congress seems much concerned about its fate, despite the President giving lip service to the notion of a strong merchant marine. Money tells the real story: the U.S. Maritime Administration had a budget in 2010 of around $433m, a pittance compared with the billions earmarked for air, truck and rail projects. This despite the fact that, according to the Navy League of the United States, the existing food-aid program generates 44,000 jobs and $1.9bn in economic output.

Nevertheless, the Administration is considering replacing the Food for Peace Program with a cash-and-voucher system that would allow humanitarian groups to buy food wherever they choose - not necessarily in the U.S. According to Kincaid, the plan could result in the loss of another eight to 10 U.S.-flag ships.

There is some support within Congress for bolstering the merchant marine. H.R. 1678, sponsored by Rep. Elijah Cummings (D-MD), is the latest version of legislation that seeks to reaffirm the cargo-preference requirements for food aid. The proposal died in committee in 2012, and is likely to suffer a similar fate this year: GovTrack gives it a 1-percent chance of being enacted.

Today, says Kincaid, the U.S.-flag fleet is "hanging on by a thread." Attacks seem to come from all directions, including Oxfam, the global poverty-fighting giant. The group argues that U.S. cargo preference laws ought to be scrapped altogether. Although its intentions are noble - squeezing the most out of every dollar spent on food aid makes good sense - Oxfam and similar groups simply don't understand the importance to the U.S. of a viable merchant marine.

The fleet also must withstand efforts to dismantle the Jones Act, which is blamed for "everything from rising gas prices to the Easter Bunny being late," Kincaid said. The controversy over bringing in foreign vessels to help clean up the 2010 Deepwater Horizon oil spill in the Gulf of Mexico was just one skirmish in an ongoing war.

K. Denise Rucker Krepp, a consultant and academic who has been heavily involved in the crafting of transportation, homeland security and energy policy, recently declared that the merchant fleet "will be dead in ten years." Kincaid isn't quite so despairing. "I'm not going to start digging the hole yet," he says. "DOD knows they've got to keep some ships around. They can't fight a war alone. They need the U.S. commercial merchant marine industry."

Still, he's raising the alarm. "This administration has been one of the most unfriendly to the U.S. maritime industry that I've seen in my lifetime," he says.

One possible source of salvation is the Marine Highway Program, intended to fund development of the nation's domestic waterways. "If the economy gets cranked up," says Kincaid, "we'll see massive roadblocks and railroads running at full capacity." U.S.-flag shipping could provide a critical alternative. Unfortunately, the program is likely to be delayed for several years due to battles over the federal budget.

The U.S. merchant marine might not have that long. In the short term, it's going to need a lot more respect from Congress and the President, in the form of money and a renewed commitment to cargo preference laws. Lacking those elements, the fleet is in for one heck of a storm.

Comment on This Article


Keywords: supply chain, supply chain management, U.S. merchant marine, transportation funding, transportation budget, cargo preference laws

In light of more recent events, though, you have to wonder whether Congress and the Administration have drilled the final holes in the U.S.-flag fleet's hull.

The crux of the matter - and the key to the industry's survival - is cargo preference. Current law states that 50 percent of U.S. government-generated food aid moving by water must be carried by ships with U.S. registry and crews (assuming such vessels are available at "fair and reasonable rates"). Until last summer, that number was 75 percent for certain key agricultural commodities, under a law that had been in effect since 1985.

The recent cut resulted in the immediate loss of four U.S.-flag ships, according to Lee Kincaid, president of the American Maritime Congress. Today, the U.S. deepsea fleet stands at just under 100 vessels, with another 100 serving the domestic trades under the protection of the Merchant Marine Act of 1920, better known as the Jones Act. (The total doesn't include tugboats, ferries, dredges and other smaller craft.) All signs point to a further dwindling of the fleet, as opponents continue to chip away at preference requirements.

The law is needed for the simple reason that U.S.-registered ships are more expensive to operate, because of higher wages and stricter safety requirements, than their foreign counterparts. The government pays American operators $3.1m a year to keep a ship under the U.S. flag, Kincaid notes. And that amount only makes up about 45 percent of the cost differential. Cargo preference provides the rest.

One hundred percent of materials shipped by the U.S. Department of Defense must travel on American-flag ships, accounting for some 85 percent of the industry's bookings. Between 4 and 5 percent comes from other government-agency cargoes, such as those generated by financing from the Export-Import Bank of the United States. Which leaves about 11 percent of the total to be made up by cargo preference for food aid. That might seem like a relatively small number, but it's essential to keeping afloat a U.S.-flag fleet of meaningful size - one that can be instantly called on in times of war or national emergency.

When containerships began dominating the trades in the 1960s and "˜70s, DOD questioned whether they were of much military value. Now they make up a portion of the Maritime Security Program, which consists of about 60 privately owned commercial ships that are deemed to be "militarily useful." (The collection includes tankers and roll-on/roll-off vessels, the latter of which are essential to moving large wheeled equipment such as tanks.) So DOD, for one, remains a booster of the American merchant marine.

The fleet doesn't appear to have many other friends in government. Neither the Obama Administration nor Congress seems much concerned about its fate, despite the President giving lip service to the notion of a strong merchant marine. Money tells the real story: the U.S. Maritime Administration had a budget in 2010 of around $433m, a pittance compared with the billions earmarked for air, truck and rail projects. This despite the fact that, according to the Navy League of the United States, the existing food-aid program generates 44,000 jobs and $1.9bn in economic output.

Nevertheless, the Administration is considering replacing the Food for Peace Program with a cash-and-voucher system that would allow humanitarian groups to buy food wherever they choose - not necessarily in the U.S. According to Kincaid, the plan could result in the loss of another eight to 10 U.S.-flag ships.

There is some support within Congress for bolstering the merchant marine. H.R. 1678, sponsored by Rep. Elijah Cummings (D-MD), is the latest version of legislation that seeks to reaffirm the cargo-preference requirements for food aid. The proposal died in committee in 2012, and is likely to suffer a similar fate this year: GovTrack gives it a 1-percent chance of being enacted.

Today, says Kincaid, the U.S.-flag fleet is "hanging on by a thread." Attacks seem to come from all directions, including Oxfam, the global poverty-fighting giant. The group argues that U.S. cargo preference laws ought to be scrapped altogether. Although its intentions are noble - squeezing the most out of every dollar spent on food aid makes good sense - Oxfam and similar groups simply don't understand the importance to the U.S. of a viable merchant marine.

The fleet also must withstand efforts to dismantle the Jones Act, which is blamed for "everything from rising gas prices to the Easter Bunny being late," Kincaid said. The controversy over bringing in foreign vessels to help clean up the 2010 Deepwater Horizon oil spill in the Gulf of Mexico was just one skirmish in an ongoing war.

K. Denise Rucker Krepp, a consultant and academic who has been heavily involved in the crafting of transportation, homeland security and energy policy, recently declared that the merchant fleet "will be dead in ten years." Kincaid isn't quite so despairing. "I'm not going to start digging the hole yet," he says. "DOD knows they've got to keep some ships around. They can't fight a war alone. They need the U.S. commercial merchant marine industry."

Still, he's raising the alarm. "This administration has been one of the most unfriendly to the U.S. maritime industry that I've seen in my lifetime," he says.

One possible source of salvation is the Marine Highway Program, intended to fund development of the nation's domestic waterways. "If the economy gets cranked up," says Kincaid, "we'll see massive roadblocks and railroads running at full capacity." U.S.-flag shipping could provide a critical alternative. Unfortunately, the program is likely to be delayed for several years due to battles over the federal budget.

The U.S. merchant marine might not have that long. In the short term, it's going to need a lot more respect from Congress and the President, in the form of money and a renewed commitment to cargo preference laws. Lacking those elements, the fleet is in for one heck of a storm.

Comment on This Article


Keywords: supply chain, supply chain management, U.S. merchant marine, transportation funding, transportation budget, cargo preference laws

The U.S. Merchant Marine Is Foundering. Should We Care?