Subsidizing the Sealift Fleet

Is it wrong that the U.S. subsidizes container and other liner ships owned by overseas shipping companies? That's the question at the heart of a Nov. 20 New York Times report in which questions are raised about a program to provide ocean capacity for the U.S. military that goes back to the mid-1990s.

Why, some ask, should non-American companies such as Maersk Line, APL and Wallenius Wilhelmsen receive more than $3 million per ship per year to keep vessels under the U.S. flag, where they are operated by American seafarers and are available to the military in times of crisis. ““Somewhere along the way, the purpose of this program has gone off track,” Philip J. Shapiro, owner of Liberty Maritime, was quoted as saying.

The reality is this: The program is a cost-effective, essential tool to provide the military with access to the international liner shipping system, given that no such service is available from American companies. The military, not unlike everyone from Wal-Mart to Cargill, needs access to regular container and related logistics services to keep its supplies and equipment moving around the globe. If it were to rely solely on its own sealift it would require many more vessels than it currently has and they would not be utilized nearly as efficiently as commercial vessels that carry cargo between hundreds of ports for thousands of customers.

In an era of budgetary restraint, it makes no sense. If American shipping companies were available, they would surely be used, as the military requires ships that at the very least are under the control of Americans. Yet such services are not, nor likely will be, available any time soon; the long-term lack of adequate profitability of providing liner services drove U.S. carriers out of the market — APL was sold to the Singaporians in 1997 and Sea-Land was sold to Maersk two years later — and today those operators and every other major carrier continues to grapple, largely unsuccessfully, with the same unfavorable economics.

The current subsidy program was born out of the APL sale to NOL of Singapore. Even then, it was immediately recognized that the military required access to the sealift such companies provided. Thus, a system was devised by then Maritime Administrator Al Herberger allowing the ships to be sold, but requiring the ship operator to be U.S.-based and vetted by the military — complete with security clearances for key staff — and therefore deemed a partner of the military and dependable in times of crisis.

The program is now up for renewal, with a total of $2 billion to be provided through 2025. Shapiro says U.S.-based companies such as his deserve greater access to the subsidies. Perhaps so. But there should be no question as to the value of the program itself. As Herberger told the Times, “I can’t imagine wanting to kill a program recognized as so valuable to the economic security and the national security of this country.”

 

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. Contact him at ptirschwell@joc.com and follow him at twitter.com/PeterTirschwell.

 

 
For the full story: Log In, Register for Free or Subscribe