FMC IS IMPORTANT TO SURVIVAL OF US-FLAG SHIPPING

FMC IS IMPORTANT TO SURVIVAL OF US-FLAG SHIPPING

One of the issues that has cropped up in the aftermath of the Maersk/Sea-Land combination is the question of whether the Federal Maritime Commission still has any business going to bat for foreign-owned, U.S.-flag carriers in disputes with foreign governments.

If the answer is yes, the rationale needs to be clear and convincing. It would not be much of a stretch to envision a politician unsympathetic to the maritime industry questioning loudly why a U.S. agency is stirring up trouble in a foreign land when the primary beneficiaries are companies based in Singapore and Denmark.The only U.S.-flag container lines with global operations are APL Ltd., owned by Neptune Orient Lines of Singapore, and Sea-Land Service Inc., whose international services are being sold to the A.P. Moller group of Denmark, along with many of Sea-Land's terminals.

The last time the FMC flexed its muscles on behalf of U.S. lines was in 1997, when it used its authority to order Japanese container ships shut out of U.S. ports to protest Japan's restrictive port system, creating an international incident.

Hal Creel, chairman of the FMC, addressed the issue of the FMC's advocacy role in August at the Mid-Atlantic Trade Conference in Baltimore. He noted that one of the agency's mandates is to combat foreign rules that create unfavorable conditions for oceanborne trade between the United States and the offending nation.

He also noted that a portion of the FMC's statutory authority is to assist U.S.-flag carriers that face discrimination overseas, regardless of who owns them.

''It is presumptuous and erroneous to conclude that the commission will be less active in this area,'' Creel concluded.

There is no question that the smooth flow of U.S. exports and imports is impeded by restrictive maritime laws in foreign countries.

Yet it is Creel's second point, that the FMC has a mandate to protect U.S.-flag lines, that gets to the heart of the rationale. The agency has this mandate because FMC protection is one way Uncle Sam gives back something to the carriers in return for sacrifices they make on behalf of the U.S. government - financial ones - as a U.S.-flag line.

Tim Rhein, president and chief executive of APL, says that when all the direct financial pluses and minuses of being a U.S.-flag carrier are tallied, the result is a net negative.

APL receives $2.1 million a year in operating subsidies for each of nine ships it has enrolled in the Maritime Security Program. The payments offset only some of the higher costs of paying U.S. crews instead of foreign crews. As part of the deal, APL must provide its ships and systems to the military in the event of war or national emergency.

As a U.S.-flag line, APL is entitled to bid on military cargo and other ''cargo preference'' shipments such as humanitarian aid or U.S.-financed goods that by law must move on U.S.-flag ships.

Rhein said the $2.1 million payments cover only about two-thirds of the differential between a U.S. and foreign-flag ship costs. He said additional costs unique to U.S.-flag lines include U.S. taxes and building and maintaining the ships to the Coast Guard's high standards.

APL and other U.S.-flag lines participate in the Voluntary Intermodal Sealift Agreement, or VISA, under which they make their end-to-end intermodal systems available to the military without receiving any direct payments. Defense Department officials have repeatedly attested to the value of this program.

U.S.-flag lines note that military cargo, one of the chief benefits of U.S.-flag operation, has declined substantially. With the end of the Cold War, U.S. forces have been scaled back overseas, especially in Europe. And because commercial rates determine what the lines can charge the military, continued weakness in commercial rates has caused a corresponding decline in rates for military cargo.

''The preference cargo helps some, but it's not enough to cover the additional costs of U.S.-flag operations,'' Rhein said.

Other U.S.-flag lines have had the same experience; Crowley American Transport chartered its three Sea Wolf-class ships to Lykes Lines in large part because they were too expensive to operate under the U.S. flag, company officials say. Lykes encountered the same cost issues, and the Crowley ships were eventually sold, two of the to American Automar Inc. and one to Sealift Inc.

Rhein offered an important example of why U.S. lines need the FMC. The commission's power to impose retaliatory sanctions bolsters the Maritime Administration in Marad's difficult negotiations with China to loosen its byzantine restrictions on foreign shipping companies. APL and other non-Chinese lines, for example, are required to use an agent affiliated with their Beijing-owned competitors to conduct virtually all their business in China.

''The only people who have an advantage in China are the Chinese. That is why the FMC is important,'' Rhein said.

Maritime services are not covered under the World Trade Organization (and many maritime interests don't want them to be). The ability of U.S.-flag lines to turn to the FMC, therefore, is so critical that if the agency were forced out of this field, APL ''would have to evaluate'' whether to remain a U.S.-flag line when its contract expires, Rhein said.

''Our partnership is with the U.S. government, not just the Navy this week, and the Army next week,'' Rhein said. ''This has to be a package deal.''