NO EASY CHOICES FOR MARAD IN MATSON CASE

NO EASY CHOICES FOR MARAD IN MATSON CASE

In his year-and-a-half-long tenure as head of the Maritime Administration, Clyde Hart Jr. has no doubt been faced with easier decisions than the one now on his desk about Matson Navigation Co.

Matson has asked Hart for permission to transfer two of its subsidy-built ships now deployed in a joint trans-Pacific service with APL Ltd. into a new solo service it would operate between the West Coast and Hawaii. Matson is the oldest liner carrier in the domestic market, and domestic carriers such as Matson are the backbone of the U.S. deepwater merchant fleet now that all the major American international container-ship lines have been sold to foreign companies. Protecting and promoting the U.S. merchant marine is central to Hart's mission as head of Marad.

Yet neither option in this case - approving Matson's request or denying it - offers Hart an easy opportunity to act squarely in the best interests of the American merchant marine.

All the issue seems to do is expose thinly veiled tensions among domestic carriers and weaknesses in American shipping policy.

Matson needs the vessels for a Hawaii service largely because its existing Hawaii fleet is getting old.

The high cost of building ships in the United States, a requirement if the ships are to be used in domestic trade lanes, has dissuaded Matson and other carriers from replenishing their fleets.

Matson's R.J. Pfeiffer, delivered in 1992, was the last container vessel built in the United States. Its publicly disclosed price of $129 million - and it was said to have cost many millions more - was more than twice what a similar-sized ship would cost on the world market.

Totem Ocean Trailer Express recently placed orders for two roll-on, roll-off ships for the West Coast-Alaska trades at $150 million each. Those ships have many unique, environmentally friendly features that raised the price, but ro-ro ships of similar size are ordered today on the world market for $70 million to $80 million.

Instead of building new ships, carriers have responded to their need for additional tonnage by turning to older ships built in the United States with Construction Differential Subsidy before CDS was discontinued in 1981.

These subsidy-built ships were intended strictly for use in international trade. To prevent them from competing unfairly with unsubsidized ships, they are restricted from operating domestically until they become 25 years of age.

Carriers have sidestepped that restriction by including foreign port calls in the ships' itineraries, arguing that places them in bona-fide international trade routes.

Many of the CDS-built ships have turned 25 and are free to operate domestically. But there are 10 vessels still out there that haven't, two of which are the ones Matson seeks to use for its new Hawaii service. In this case, Matson would get around the restriction by including a port call in British Columbia, a move other Jones Act carriers call a ploy to circumvent the law.

''The de-facto unfettered use of CDS-built vessels in the domestic trades is one of the most serious impediments to the construction of new vessels for these trades,'' wrote William Gotimer Jr., general counsel to Kadampanattu Corp. the parent of Trailer Bridge Inc., in a filing with Marad opposing the Matson request.

Trailer Bridge operates tugs and container barges between Florida and Puerto Rico and along the Atlantic Coast. Gotimer said Matson's request ''continues more than a decade of machinations to permit CDS-built vessels to effectively serve the purely domestic trade through the use of sham foreign voyages.''

The question of how much foreign cargo constitutes a bona-fide foreign voyage has never been adequately answered. In 1992, a federal court rejected a Marad rule requiring that at least 25 percent of the cargo be foreign for a CDS-built vessel to qualify to carry domestic cargo. The court said the domestic portion of a voyage must be ''incidental'' to a foreign voyage, and ordered Marad to devise a new standard, something the agency has yet to do.

Competitors say Matson has admitted that 85 percent of the cargo carried in the new service would be domestic in origin - hardly ''incidental'' to a foreign voyage.

Behind the war of words in comments filed with Marad lie harsh commercial realities. Ships that qualify for domestic service, even old ones, are precious commodities because there are so few of them, and because fewer are being built.

Trailer Bridge says it anticipates Matson will transfer two ships now in the Hawaii trade that would be rendered redundant by the CDS vessels to the Puerto Rico trade, where they would become direct competitors for a finite, slow-growing cargo base. Crowley joins Trailer Bridge in this concern.

What should Hart do? Promoting a deepwater U.S.-flag fleet must be one of his concerns. Permitting the voyages would buy time for Matson in ordering new ships. There are indications new U.S.-built vessels may become cheaper as time goes on. Yet approval could invite a lawsuit from competing carriers citing unfair competition.

Permitting the service would help several West Coast shippers - U.S. and Canadian-based - that would benefit from a direct service to Hawaii. Denying the application would keep potential competition out of Puerto Rico, but could force Matson into a hasty shipbuilding decision.

The root cause of this predicament is shipbuilding. U.S. yards turn out high-quality, innovative and acceptably priced tug and barge vessels for the domestic trades. But when it comes to deepwater ships, U.S. policy has failed to deliver.