US Maritime Industry Sees Red Sky Both Morning and Night

The U.S. maritime industry is experiencing two trends — one promising and the other much less so. How the industry and the federal government craft a policy and implement it to harness shipbuilding momentum and aid the ailing Merchant Marine will determine whether the so-called rising tide does indeed lift all boats.

In other words, will the surge in shipbuilding revitalize the maritime industry and provide it with a rallying cry to take to the Hill and the private sector? The likelihood would be greater if the federal government requires U.S.-flag carriers to ship LNG exports, as some in the industry have called for.

The rise in domestic natural gas production, coupled with tighter environmental shipping standards, is billowing through U.S. shipyards, increasing demand for vessels hauling liquefied natural gas and those powered by the energy source. There are currently 347 U.S. shipbuilding contracts — the highest in three decades — and more than 20 are for LNG tankers and LNG-powered container ships, said Acting Maritime Administrator Paul “Chip” Jaenichen, quoting Marine Log, a maritime publication.

Jones Act carrier TOTE Inc. is building the world’s first two LNG-powered container ships for its Sea Star Line service between the U.S. mainland and Puerto Rico. Crowley has also ordered LNG-powered container ships, and Matson has ordered dual-fuel ships for its Hawaii service. Horizon Lines plans to upgrade two steam-turbine vessels with dual-fuel diesel engines.

The other trend is far less encouraging. A lack of government cargo, federal budget cuts and higher operational costs compared to foreign-flag are hitting the Merchant Marine fleet. Military shipments are falling with the winding down of the Iraq and Afghanistan wars, while Congress has reduced the amount of food aid shipments U.S.-flag carriers are guaranteed.

“Overall the current state of the industry is strong,” Jaenichen said yesterday at a Marad symposium.

The symposium, focused on what needs to be done to aid domestic shipping, ports and shipyards, comes after Marad hosted another such event in January aimed at hearing from the industry on how to revive the Merchant Marine.

Jaenichen said creating a maritime strategy will be easy and playfully suggested symposium attendees could draw one up on a back of an envelope in a few hours. The hard part, he said, is implementing the plan.

Some of the changes can come through rulemaking while others will be tied to congressional tax reform, Jaenichen hinted during a Q&A with reporters. The head of Marad stressed at the last symposium that the fleet was at a “tipping point” and there wasn’t time to again allow bickering factions to derail efforts to overhaul U.S. maritime policies.

Jaenichen acknowledged that one of the largest hurdles to keeping and even increasing the U.S.-flag fleet is that its operational costs are higher than those of foreign competitors. Potential ways to shore up that disparity include subsidies and giving U.S.-flag carriers a tax advantage, Jaenichen said. Or a U.S.-flag vessel could be given priority over foreign-flag carriers when calling U.S. ports.

The Merchant Marine could also become more competitive by playing up the better service its vessels and crew provide and urging that they give the U.S. “more control of its supply chain,” he said.

“What I have been told is that shippers will pay a premium if there is actually better service,” Jaenichen said.

Making sure that U.S.-flag vessels get the government cargo guaranteed to them is also key to preserving the Merchant Marine, he told the JOC earlier this year. Marad is translating its new cargo preference rules from legal speak to plain English and will then share with other federal agencies, Jaenichen told reporters this week. Department of Defense cargo, which is systematically handled by U.S. carriers, and freight from other federal agency contribute to the less-than-2-percent share of total U.S. freight shipped on U.S.-flag vessels.

Contact Mark Szakonyi at mszakonyi@joc.com and follow him on Twitter: @szakonyi_joc.

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