Supporting the Flag Fleet

Supporting the Flag Fleet

Copyright 2002, Traffic World Magazine

The critical importance of maritime ship and port security is finally getting attention and rightfully so. Our harbors and seaports remain a focus of concern as they offer very tempting targets of opportunity for terrorism. Ships flying the American flag with reliable, responsive U.S.-citizen crews are more important today than ever before. Their value - commercially, economically and militarily - in today's uncertain and dangerous world cannot be underestimated.

Should President Bush order a full national emergency activation, U.S. mariners would crew the Defense Department's gray-hulled sealift vessels - all fueled and ready to sail on 96 hours' notice. These ships provide crucial support for any large-scale military operation. They also would crew the 75 ships in the Ready Reserve Fleet, most of which are maintained in a high state of readiness by private-sector U.S.-flag operators. U.S.-flag ocean carriers with vessels enrolled in the Maritime Security Program would provide the sustaining support to ship the Armed Forces supplies and equipment with the same technological infrastructure that would be next to impossible for the Defense Department to replicate.

The U.S. Merchant Marine provides a ready, trained, reliable source of logistics capability and seafaring personnel to do the job that simply cannot be delegated to any other nation and that, for cost reasons alone, cannot be assumed entirely by the U.S. military. Studies show that it would cost the Defense Department an astronomical $9 billion to replace the current commercial sealift capacity provided by our industry.

We all saw in the news the yellow packets of MRE rations airlifted to the Afghan refugees. Clearly there was a military requirement and a humanitarian urgency to get the food there as quickly as possible. These two-pound packets of food were airlifted for $7.34 each but cost only $4 each to produce. They could be shipped for only 15 cents each on a U.S.-flag vessel. Military planners estimate that in any major land operation, 95 percent of the equipment and follow-on support will go by sea.

There is an enormous economic dimension to national security as well. We must always be represented on the high seas. Never should U.S. exporters and importers be without an American-flag presence in this volatile world. If there were no U.S.-flag presence on our sea lanes, others would be able to dictate ocean transportation costs and maybe even whether the freight moved at all.

I am enthusiastic about working in support of legislation that was introduced by Congressman Jim Oberstar in the last session that reforms U.S. tax law for U.S.-flag vessels in two important ways. First, the bill modifies the tax code to resemble the tonnage tax - a flat tax based on a vessel's displacement - similar to what has been adopted in a number of European nations, such as Great Britain, Germany and Norway, with seemingly successful results. Second, the tax code would be modified to exempt from federal taxes the income earned by U.S. seafarers sailing on U.S.-flag commercial vessels in the international trades. Nearly every other U.S. citizen who works overseas currently enjoys this tax-exempt status.

Owners of vessels registered under other flags either pay far less in taxes or no taxes at all. It is the same for their crews. To put our fleet on a more competitive footing, it is a must that we see a change in the method of taxing both ships and our seafarers.

The Maritime Security Program will be on our agenda. The current program expires in 2005 and we cannot wait until the last minute to get a new or "follow-on" program enacted. The MSP program itself already has proven its value by providing a measure of stability for vessel operators and saving the Defense Department billions of dollars.

Cargo preference laws provide a vital base of guaranteed cargo without which most U.S. shipowners in the international trades would not be able keep their ships under U.S.-flag for long. These laws require a percentage of shipments on U.S.-flag vessels whenever freight moves as a result of a program, policy or financing by the federal government. These laws do not apply to commercial cargoes but to Defense Department cargoes, State Department household goods, and cargoes moving under overseas food aid programs administered by the Department of Agriculture.

Our legislative agenda is not to expand cargo preference. Rather, we focus on seeing that cargo preference laws are not eroded or eliminated bit by bit, and that government agencies implement these laws as Congress intended.

We have been working to reverse a very harmful ship repair rule published earlier this year by the U.S. Customs Service. The Vessel Repair Statute requires a 50 percent ad valorem duty on nonemergency repairs to U.S.-flag vessels performed in foreign shipyards. To our amazement, Customs put out a rule that also makes virtually all supplies and parts used in routine repairs performed by crew members while the vessel is on the high seas subject to this 50 percent duty. This includes items down to the last nut, bolt and pint of grease.

This rule puts our ships at an even greater disadvantage to foreign vessel competition since no other nation in the world has a comparable duty. We have no recourse now but to go to Congress to get this awful regulation wiped off the books.

-- Tosi is president of the American Maritime Congress. This commentary is adapted from a speech to the Transportation Table at the National Press Club in Washington, D.C.