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Maritime Policy (2)
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Maritime Policy (2)
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James Cicconi's Subject Files
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COVE SHIPPING INC WALL STREET PLAZA, NEW YORK, N.Y. 10005
(212)
422-3355
Telex:
RCA 222007
ITT 424126
Cables: COVESHIPS or MOUNTSHIP
TWX
(710) 581-2467
December 2, 1983
Mr. James Cicconi
Special Assistant to the President
Office of the Chief of Staff
The White House
Washington, D.C. 20500
Dear Mr. Cicconi:
We wish to express our sincere appreciation for
allowing us the opportunity to visit with you last Tuesday,
November 22, 1983 and for being so attentive during the
presentation of our concerns. We would like to present the
following for your consideration:
1.
The U.S. Merchant Marine:
It was clearly expressed during our meeting that our
industry is diverse and complicated and that it makes a
substantial contribution to both our national economy and
our national security. Our industry deserves the support of
the U.S. Government as most nations in the world support
their merchant fleets.
2.
Preservation of the Jones Act:
The Jones Act, a 63 year old cabotage law, is the heart
of the American flag fleet. This Act is the result of 130
years of maritime legislation designed to protect the U.S.
coastal trades, to foster a strong United States flag fleet
and to insure that there will be vessels under the American
Flag to assist the Navy in times of war. The Administration
should want to continue supporting and protecting the
domestic trades consistent with our nations 200 year old
policy.
3.
Modify Government Programs For Increased Carriage By
U.S. Flag Ships Of Government Preference Cargo Upwards
Of 50%
We understand that the law allows increases over 50%.
The cargo allocation policy by various federal government
agencies have been controversial. A tremendous amount of
intra-agency fighting has taken place with the U.S. Merchant
Marine suffering at the end. First of all, there has been
no strict enforcement of the U.S. Flag Cargo Preference
laws. Every interpretation provided by federal agencies of
the law has been against U.S. maritime interests. There is
need for strong, coordinated direction from policy makers.
4.
Construction Differential Subsidy (CDS) Payback:
This proposed rulemaking should be terminated
immediately. DOT has significantly overestimated the
projected benefits to the consumer and to the U.S.
Government, while at the same time it underestimated the
losses to the U.S. Government and the taxpayers. The
potential benefit is only $64 million while the losses to
the government will be $1 billion in defaulting mortgages,
plus $50 million in lost taxes each year. Our nation will
lose 30 - 50 ships which will be scrapped, the replacement
value of which is worth about $4 billion. National Defense
will be weakened by 30 - 50 vessels and, as you can observe
from the attached documents, the military have objected to
the DOT rulemaking. Also, 2,500 American seafaring jobs and
thousands of additional jobs will be lost. Further details
are presented in the attached documents.
5.
Continue Ban On Alaska Oil Exports:
Independently owned unsubsidized U.S. flag tanker
vessels will be heavily affected by discontinuing use of
Alaskan Oil for domestic purposes. Experts advise that only
temporary gains will be enjoyed by the state of Alaska,
federal government and the oil producers because exports
from Alaska will be short-lived. When the international oil
prices reach lower levels, the oil will be purchased from
other sources and not Alaska.
6.
Need for Overall Maritime Policy:
We tried to obtain and forward to you a copy to you of
the publication issued by the Office of Technology
Assessment of the U.S. Congress entitled "An Assessment of
Maritime Trade and Technology". However, the publication is
out of print. It is indeed interesting to observe that
there is such great interest. There has never been lack of
interest. However, there has been a lack of solutions for
U.S. merchant marine problems. We draw your attention to
the summary section of this government publication and
particularly to the heading "Policy Status". It is very
clearly indicated that " the United States has no overall,
coordinated and effective maritime policy that responds to
the major trends and realities confronting the U.S. maritime
industry in the increasingly competitive and complex arena
of world seaborne trade. " It further states "Existing
maritime policies are a patchwork of measures adopted at
various times to address specific needs." Most nations in
the world have long-range plans and policies to protect and
preserve their merchant marine because it is vital for their
economy, and to their national defense.
We urge the Administration to consider these matters
seriously.
We will be very happy to provide you with additional
information. Please feel free to call us.
Very truly yours,
COVE SHIPPING INC.
Andrew N. Garbis
Vice President
ANG:jai
Encl.
CT
COVE SHIPPING INC WALL STREET PLAZA, NEW YORK, N.Y. 10005
(212)
422-3355
Telex:
RCA 222007
ITT 424126
Cables:
COVESHIPS or MOUNTSHIP
TWX
(710) 581-2467
(VIA FEDERAL EXPRESS)
November 2, 1983
Mr. Christopher DeMuth
Administrator for Information and
Regulatory Affairs
Executive Office of the President
Office of Management and Budget
Washington, D.C. 20503
Re: Construction Differential Subsidy (CDS) Payback
Dear Mr. DeMuth:
We wish to thank you very much for your letter of September
15, 1983, copy attached.
In the second paragraph of your letter, you stated that in
addition to benefits accruing consumers and taxpayers, the
government may collect as much as $200 million. This is not true,
as explained hereunder.
1. We wish to provide you herewith with an analysis which
clearly shows that the DOT estimate is grossly exaggerated. It
is our view that initial payback from all vessels will not exceed
$128, 656, 000, as detailed in the attached analysis. Furthermore,
after taking into account the fact that current tax laws allow
accelerated write-offs of CDS payback, a five year write-off
combined with Investment Tax Credit (ITC), will result in a 50%
reduction to the government or $64,328,000 potential benefit.
2. Although DOT states that their study was based on economics,
they have not proven that there would be net monetary benefits
to the government and/or to the consumer.
3. To the contrary, the government stands to lose close
to $1 billion in defaulting Title XI mortgages and close to $50
million in taxes each year if the rule is adopted.
4. Due to the current, depressed market conditions, there
is very little room for cost of transport savings that will benefit
the consumer. Further downward rate movement is impossible.
/
Mr. Christopher DeMuth
November 2, 1983
Page Two
5. If the ruling goes into effect, 30 to 50 ships, vital to
The Department of Defense, will be scrapped (replacement value
about $4 billion) and our entire foreign trade Merchant Marine fleet
will be eliminated.
6. DOT openly admitted that the effect to our National Defense
has not been evaluated. DOD has strongly objected.
7. Our company invested huge amounts of money during
the last few years on the basis of existing laws. This rule, if
adopted, will be devastating to our company.
8. The effect on balance of payments, loss of loans by banks,
and loss of investments by individuals and companies, as well as
the destruction of the maritime capital market have not been carefully
examined by DOT.
9. Evidence has been submitted to the Administration that
the rule could generate a windfall of over $600 million to oil companies
(two of them foreign) and an individual, while thousands of people
will be economically affected and some devastated.
10. Unquestionably this ruling will cause the loss of more
than 2,500 American seafaring jobs and will affect thousands of
jobs in shipyards, ship supply companies, spare suppliers and
equipment manufacturers, office personnel and management of all
of the above.
11. DOT presented the proposed rulemaking without making
the required analysis and findings in respect to the impact of this
rule on the industry. The impact of this rulemaking is certainly
more than $100 million, yet has not been dealt with as such.
Sincerely yours,
COVE SHIPPING INC.
Vice President
ANG:jai
Encl.
CC: James A. Baker, III, Chief of Staff
and Assistant to the President
Department of Transportation (see next page)
Mr. Christopher DeMuth
November 2, 1983
Page Four
Raymond J. Donovan, Secretary of Labor
William P. Clark, Secretary of the Interior
William E. Brock, U.S. Trade Representative
Attorney General William French Smith
Donald T. Regan, Secretary of the Treasury
SEP 20 i983
EXECUTIVE OFFICE OF THE PRESIDENT
THEMA
OFFICE OF MANAGEMENT AND BUDGET
CELLS
WASHINGTON, D.C. 20503
September 15, 1983
Mr. Andrew N. Garbis
Vice President
Cove Maritime Companies, Inc.
Wall Street Plaza
New York, New York 10005
Dear Mr. Garbis:
Jim Baker asked me to respond to your letter concerning the
Department of Transportation's proposed Construction Differential
Subsidy repayment rule. We appreciate hearing your concerns; I
hope you have conveyed them to the Department as well.
As you may know, OMB sent DOT a letter supporting the proposed
rule during the public comment period. Our position was based on
the DOT evaluation, which suggested that the proposal could
benefit American consumers and taxpayers by leading to greater
efficiencies in the shipping industry as well as to the repayment
to the federal government of as much as $200 million. If the
assumptions upon which the evaluation was based are suspect, then
we will have to reevaluate our support for the proposal.
President Reagan's Executive Order 12291 requires that government
agencies issue regulations only after gathering sufficient
information concerning the need for and consequences of proposed
government action. DOT prepared an economic evaluation of the
CDS repayment rule and solicited public comment on its accuracy.
DOT is now analyzing the comments it received and adjusting its
evaluation accordingly. Should the Department decide to issue a
final rule, we will reassess our position based on the record and
evaluation of comments.
Thank you once again for your views. I hope you will continue to
share your thoughts with us on the policies of this
administration in the months and years ahead.
Sincerely,
Unistopher DellaR
Christopher DeMuth
Administrator for Information
and Regulatory Affairs
CDS PAYBACK ANALYSIS
EFFECTIVE 4/30/84*
NOV - 1 1983
CDS
ADJUSTMENT
CDS PAYBACK
UNAMORTIZED
AMORTIZATION
CDS VESSEL
6 MOS. WAIVERS
TOTAL CDS
VLCC' **
DWT
CDS 7/1/83***
TO 3/30/84
REDUCTION
(10 YEARS) ****
REPAYMENT
ARCO INDEPENDENCE
265,000
24,886,000
1,375,000
---
8,800,000
14,721,000
ARCO SPIRIT
265,000
24,781,000
1,375,000
---
8,800,000
14,606,000
265,000
21,028,000
1,272,000
---
8,100,000
11,656,000
MARYLAND
MASSACHUSETTS
265,000
19,401,000
1,228,000
---
18,173,000
WILLIAMSBURG
225,000
12,248,000
1,066,000
---
6,800,000
4,372,000
NEW YORK
265,000
16,187,000
1,038,000
---
8,100,000
7,049,000
225,000
10,163,000
818,000
---
5,100,000
4,245,000
BROOKLYN
128,694,000
8,172,000
46,700,000
74,822,000
PANAMAX
KITTANING
91,000
9,700,000
429,000
---
---
9,291,000
CHESTNUT HILL
91,000
9,000,000
429,000
---
---
8,571,000
AMERICAN HERTIAGE
91,000
9,274,000
403,000
---
---
8,861,000
BEAVER STATE
91,000
9,296,000
403,000
---
---
8,883,000
GOLDEN ENDEAVOR
91,000
9,220,000
484,000
---
---
8,736,000
91,000
9,886,000
---
---
GOLDEN MONARCH
484,000
ROSE CITY*****
91,000
9,195,000
429,000
8,782,000
---
---
WORTH*****
91,000
9,565,000
429,000
9,152,000
---
---
3,491,000
17,934,000
53,744,000 TOTAL CDS PAYBACK
11,663,000
53,744,000
46,700,000
128,656,000 TOTAL PAYBACK -
ALL VESSELS
*
Assumes CDS Payback not implemented before 4/30/84.
DOT estimates total CDS Repayment at $201,000,000.
**
Vessels identified by DOT as CDS Payback candidates.
*** DOT analysis of benefits of rule based on this date.
**** CDS Payments to Treasury if Payback Rule not adopted.
***** Vessels selected for conversion to Hospital Ships for U.S. Navy.
2396L
ATTACHMENT A
SUMMARY
THE ADMINISTRATION'S SUBSIDY PAYBACK RULE
WILL ALLOW OWNERS, OPERATORS AND
CHARTERERS OF CDS VESSELS TO OBTAIN
MASSIVE WINDFALLS
I.
THE RULE COULD GENERATE A WINDFALL OF OVER $600 MILLION
TO AMERICAN AND FOREIGN COMPANIES.
A.
CHARTERERS OF PANAMAX SIZE CDS VESSELS COULD REAP
A WINDFALL OF $308 MILLION BY SUBSTITUTING FOREIGN
FLAG VESSELS FOR U.S. FLAG CDS VESSELS.
(ATTACHMENT A, PGS. 7 THRU 9).
B. FOREIGN CHARTERERS OF TWO U.S. FLAG LARGE TANKERS
COULD AVOID $111 MILLION IN OPERATING LOSSES.
(ATTACHMENT A, PGS. 5 THRU 6).
C.
WHILE THE VALUE OF EXISTING UNSUBSIDIZED TANKERS WILL
DECREASE DRAMATICALLY, THE VALUE OF TWO LARGE SUB-
SIDIZED TANKERS OWNED BY AN OIL COMPANY COULD BE
ENHANCED BY $185 MILLION BY PAYING BACK A PALTRY
AMOUNT OF CDS. (ATTACHMENT A, PGS. 6 THRU 7).
D.
TOTAL WINDFALLS OF AT LEAST $604 MILLION DOLLARS WILL
BE SHARED BY LEO BERGER ET AL $308 MILLION DOLLARS,
PETROFINA $111 MILLION DOLLARS, AND ARCO $185 MILLION
DOLLARS.
II.
THE RULE WILL PERMIT SUCH WINDFALLS UPON REPAYMENT OF
UNAMORTIZED CDS TO THE GOVERNMENT, A FRACTION OF THE
GOVERNMENT'S ORIGINAL CDS INVESTMENT IN THE VESSELS.
III.
THE CDS REPAYMENT TO THE GOVERNMENT WILL BE LESS THAN 25
PERCENT OF THE WINDFALL MADE AVAILABLE TO PRIVATE PARTIES.
IV.
THE RULE WILL FORCE OUT OF BUSINESS 30 TO 50 SMALL TO
MEDIUM SIZE PRODUCT TANKERS, ESSENTIAL IN CASE OF NATIONAL
EMERGENCY. THEIR REPLACEMENT VALUE IS ESTIMATED AT ABOUT
$3 BILLION DOLLARS. THIS RULE WILL ALSO CAUSE ALL OTHER
TANKERS, MEDIUM AND LARGE, INCLUDING MANY NEW BUILDINGS TO
OPERATE AT LEVELS THAT WILL LEAD TO BANKRUPTCY.
V.
WHILE THE RULE INSURES HIGH WINDFALLS AND UNJUST
ENRICHMENT TO A SELECT FEW, ALL NON-GOVERNMENT PARTIES,
IT WEAKENS SERIOUSLY OUR MERCHANT MARINE AND OUR NATIONAL
DEFENSE; CAUSES THE LOSS OF 2500 AMERICAN SEAFARING JOBS;
CREATES OVERTONNAGING IN AN ALREADY DEPRESSED MARKET;
PROVIDES NO SAVINGS TO THE CONSUMERS; CREATES CONDITIONS
CONTRARY TO CONGRESSIONAL POLICY AND LEGISLATIVE HISTORY;
ADVERSELY AFFECTS SHIPYARDS AND ALL RELATED SUPPORT
FUNCTIONS; DESTROYS THE MARITIME CAPITAL MARKET AND
SUBSTANTIALLY INCREASES THE GOVERNMENT'S EXPOSURE ON OVER
$1 BILLION OF TITLE XI GUARANTEES ON EXISTING TANKERS.
FOR MORE DETAILS, SEE ATTACHED.
ATTACHMENT A
EXPLANATORY COMMENTS
ISSUE:
PROPOSED RULEMAKING BY DOT
FOR
REPAYMENT OF CONSTRUCTION DIFFERENTIAL SUBSIDY
(CDS PAYBACK)
The DOT rule would provide huge windfall profits and unjust
enrichment (minimum $600 million ) to one shipowner/operator
and to major foreign and domestic oil companies.
The former Secretary of Transportation, Andrew L. Lewis, on
the day of his resignation, proposed a rule which, if
approved, would have a devastating effect on U.S. Merchant
Marine. It will send to the scrapyard 30 to 50 American
flag tankers, put out of business many companies and have a
damaging impact on our national defense and our economy.
Foreign oil companies, charterers of CDS built vessels,
would be able to terminate their charter commitments by
payment of a termination fee allowing the vessel's owners to
repay CDS and therefore enter the domestic trade.
Furthermore, these foreign charterers would then be able to
charter in (hire) cheaper foreign, flag tonnage, realizing
substantial savings. To obtain these savings the charterer
would pass a substantial portion of these savings to the
shipowner to secure releases from the charters. Thus, the
charterer is relieved of huge economic burden (which equates
to a subsidy for a foreign charterer). The
shipowner/operator receives a huge windfall from the
charterer and, additionally, he gains the opportunity to use
the vessel in the domestic trade.
The -price paid by the shipowner/operator to receive these
advantages is repayment to the Government of the unamortized
balance only of CDS on the vessels estimated at a quarter or
less of the windfall made available to private parties.
In fact, the Administration's proposed rule is offering
another excellent bargain to commercial parties, while
sacrificing our national interest by sending to the
scrapyards the domestic unsubsidized fleet. The benefits
previously mentioned would not have occurred without payment
by the U.S. Government of Construction Differential Subsidy
(approximately 50% of the vessel's cost) in the 1970's to
support the construction of these vessels. It made good
business sense in the early '70's to enter these contracts.
-2-
In fact, it was considered then a good bargain for all
parties including the Government which wanted a foreign
trade American Flag fleet. Now, the charters are no longer
profitable to the users (oil companies). The position of
the U.S. Government as well as the position of the
shipowners are under solid guarantee. The users are
financially secure. The proposed rule gives the oil companies
the opportunity to correct a business mistake into a
sizeable profit.
The Administration, while allowing huge and unjust windfalls
to major oil companies (some foreign) and to the one
shipowner/operator compromises our national security, since
30 to 50 small to medium size product tankers (Jones Act
ships) needed by the Navy would be lost. The replacement
value of these ships is estimated at about $3 billion.
Interestingly, despite its impact on our defense posture,
the DOT proposal was offered without obtaining the views of
either the Department of Defense or the National Security
Council, as evidenced in the dialogue between a member of
the House Subcommittee on Merchant Marine and the DOT
spokesman - Charles Swinburn, Deputy Assistant Secretary for
Policy and International Affairs - during the Subcommittee's
hearings on the proposal on March 3, 1983:
Rep. Shumway: "Have you made studies on the possible impact
of this proposal as far as it relates to our
national defense needs?"
Mr. Swinburn: "The direct answer to that, Mr. Shumway, is
no, we have not. The analysis stopped, if
you will, with the economics."
This lapse, understandably, has caused concern among defense
officials, and has led to letters to DOT Secretary Elizabeth
Dole from Paul Thayer, Deputy Secretary of Defense, and
George A. Sawyer, Assistant Secretary of the Navy. Copies
of these letters are attached hereunder as Attachments A-1
and A-2.
Furthermore, the CDS rule, if enacted, will causes more than
2,500 seagoing jobs to be lost permanently when ships will
be scrapped and creates a climate of instability. This loss
of jobs does not include the thousands of jobs that will be
affected or lost in shipyards, allied and support maritime
industries and office/management personnel. The rulemaking,
if enacted, would virtually close down the domestic
shipyards. This is a devastating position to place our Navy
in. Not only would we not have any shipbuilding capability
during times of war but no repair facilities for combatant
ships.
-3-
In excess of $5 billion of private investment is being
threatened. Domestic trade shipowners/operators made these
investments in good faith and without Government help on the
basis of existing laws.
It is unfair for the Administration to change the rules and
to abandon the goals of existing Merchant Marine
Legislation. This proposed rule is contrary to the
intentions of the Congress when it passed the 1970
amendments to the Merchant Marine Act. Fifty years of
legislation goes down the drain on the last day of a
resigning Secretary?
Should the ground rules be changed so drastically and for so
little reason? Will it ever be possible for the Merchant
Marine community to find investors? Can the Administration
overturn long standing maritime policy without congressional
involvement?
The DOT proposal, instead of answering questions, raises
more questions; instead of solving problems, creates more
problems. The proposal was outdated the day it was issued,
it contains faulty assessment of the number of ships that
would repay their CDS; it overestimates the amount of oil
production in Alaska; it shows lack of understanding of the
Maritime Industry and market place pricing realities; it
refers to shortages of VLCC's (very large crude oil
carriers); and does not take into account physical port
restrictions and natural barriers. It shows every shade of
a "rush-rush-last minute quick fix".
Congressional leadership, responsible for maritime and
defense matters and other legislators, not having the
opportunity to consider the proposed fundamental changes to
our Maritime policy, are strongly objecting to the
rulemaking, as it is demonstrated in the attached letters
(Attachments A-3, A-4, A-5, A-6, and A-7) to the current
Secretary of Transportation, Elizabeth H. Dole.
It is also interesting to note that, during the early March
1983 Congressional hearings, neither the Maritime
Administrator (Admiral H. Shear) nor the Senior Military
Transportation Officer (Admiral Kent Carroll, Head of the
Military Sealift Command) testified. Admiral Carroll was
prohibited from testifying.
-4-
According to DOT, the following vessels are expected to pay
back their CDS:
VESSEL NAME
OWNER/
DWT
UNAMORTIZED
CHARTERER
(1)
CDS (2)
VLCC'S
1) ARCO INDEPENDENCE ATLANTIC
265,000
$24.9 (5)
(3)
RICHFIELD
2) ARCO SPIRIT (3)
ATLANTIC
265,000
$24.8 (5)
RICHFIELD
3) MARYLAND (4)
BOSTON VLCC
265,000
$21.0 (4)
TANKERS/SEATRAIN
4) MASSACHUSETTS (4)
BOSTON VLCC
265,000
$19.4 (4)
TANKERS/SEATRAIN
5) WILLIAMSBURG
PETROFINA
225,000
$12.2
6) NEW YORK (4)
BOSTON VLCC
265,000
$16.2 (4)
TANKERS/SEATRAIN
7) BROOKLYN (3)
PETROFINA
225,000
$10.2
SUBTOTAL VLCC'S
1,775,000
$128.7
PANAMAX'S
8) KITTANING
KEYSTONE
91,000
$ 9.7
9) CHESTNUT HILL
KEYSTONE
91,000
9.0
10) AMERICAN HERITAGEBERGER
91,000
9.2
11) BEAVER STATE
BERGER
91,000
9.2
12) ROSE CITY
BERGER
91,000
9.1
13) WORTH
BERGER
91,000
9.5
14) GOLDEN MONARCH
BERGER
91,000
9.8
15) GOLDEN ENDEAVOR BERGER
91,000
9.1
SUBTOTAL PANAMAX'S
728,000
$74.6
TOTAL VLCC'S & PANAMAX'S
2,503,000
$203.3
(1)
Deadweight Tons
(2) Unamortized construction and reconstruction as
estimated by MARAD (Maritime Administration) as at
July 1, 1983 expressed in millions
(3) Applications for CDS repayment have been filed with
MARAD
(4) Owner opposes CDS Payback
(5) Owner does not support CDS under present conditions.
-5-
It is notable that Boston VLCC Companies, the owners of the
VLCC's MARYLAND, MASSACHUSETTS and NEW YORK, are opposing
the CDS Payback as expressed in a letter to Secretary Dole
(Attachments A-8, A-9, and A-10). It is also noteworthy
that Atlantic Richfield, a major oil company, does not
support the entry under current conditions. Not a single
oil company is in support of DOT. Shell Oil Company's
comments (Attachment A-11) typify the comments of other oil
companies. Therefore, the only VLCC owner who supports CDS
Payback is Petrofina. Why? Because it stands to gain $111
million.
The Petrofina VLCC's - BROOKLYN and WILLIAMSBURG - were
built in 1973 and 1974 and chartered by Petrofina for their
economic lives (25 years). The vessels were operated by
Petrofina for many years in the international trade.
Petrofina, as is the case with most other major oil
companies, has experienced a reduced need for this class of
vessels. Petrofina has scrapped its two owned foreign flag
VLCC's, the FINA CANADA and the FINA BRITTANIA, and is
attempting to reduce its shipping losses further by gaining
full-time domestic trading rights for its two chartered U.S.
Flag VLCC's. It is notable that Petrofina would still be
forced to meet its commitments on four foreign flag VLCC's
on long-term charter.
Due to current low rates, many charterers with long-term
charter commitments are cancelling these charters and paying
large settlements (see Attachment A-12).
Petrofina, as in the case of almost all owners or charterers
of VLCC's, made a very costly commercial mistake in
chartering two vessels for 25 years in a market soon to
enter long-term and substantial overcapacity. The limited
access to the domestic trade currently provides Petrofina
with revenues sufficient to cover its capital and operating
costs for a full year.
At least in the case of the BROOKLYN, the amount of CDS to
be repaid (about $10 million) is so little that the vessel
would have an extraordinary capital cost advantage over all
unsubsidized tankers constructed after 1973.
As an integrated, international oil company, with
potential demand for ANS crude, Petrofina would have an
imposing competitive advantage in securing charters for its
two CDS vessels.
-6-
It is extraordinary that fundamental U.S. maritime policy
would be changed to relieve a foreign charterer of a
commercial mistake made in the early 1970's, at the expense
of billions of dollars worth of tankers, old and new,
large, medium and small, all secured by U.S. investors.
Petrofina's windfall is computed as follows:
ANTICIPATED LOSSES IN FOREIGN TRADE
FIRST 3 YEARS
LAST 12 YEARS
Millions of $
VLCC "BROOKLYN"
Financial Costs
$16.0
-
Lay-up Costs
5.0
$32.0*
Operating Losses
-
-
$21.0
$32.0
Potential Windfall for VLCC "BROOKLYN" from CDS Payback =
$53.0 Million.
ANTICIPATED LOSSES IN FOREIGN TRADE
FIRST 3 YEARS
LAST 13 YEARS
Millions of
$
VLCC "WILLIAMSBURGH"
Financial Costs
$18.0
-
Lay-up Costs
5.0
-
Operating Costs
-
$35.0**
$23.0
$35.0
Potential Windfall for VLCC "WILLIAMSBURGH" from CDS
Payback=
$58.0 Million.
Petrofina's Total Windfall Potential =
$111 Million.
*
These vessels already are benefiting from the right to
trade domestically for six months of any consecutive
twelve month period. The calculations show the volume
of losses likely with no domestic trading at all.
** Losses equal to $1.00/DWT/month, reflecting higher U.S.
operating costs.
Arco (Atlantic Richfield Company) purchased two (2) 265,000
DWT CDS-built VLCC's in 1981 for $15 million in cash and the
swap of three (3) foreign built 150,000 DWT tankers, the
total value of which approximated $50 million, or $25
million per vessel. After CDS payback, the vessels would
have a capital cost of approximately $65 million. Ordered
in 1983 in the U.S., ships with a comparable carrying
capacity would require an investment of at least $225
million ($158 million after allowing for the age of the Arco
vessels).
-7-
CDS payback, therefore, would produce a windfall to Arco of
about $185 million. Even with this prospect, as we stated
previously, Arco does not support the entry of CDS vessels
under present conditions.
These tankers were acquired by Arco from Gulf Oil at a
depressed price (including the swap of three (3) smaller
foreign flag vessels). The value of the two (2)
U.S. ships reflected the limited employment opportunities
available to the two (2) VLCC's in the domestic trade. To
allow these ships into the domestic trade on a permanent
basis after their distress sale would provide a major oil
company with an unplanned and unnecessary windfall profit.
In addition, Arco, with its proprietary cargoes of ANS
(Alaska North Slope) crude oil, can guarantee employment for
its two (2) large vessels at the expense of currently
chartered independent tanker capacity.
As far as VLCC's are concerned, conclusively Petrofina is
the only supporter and possible beneficiary.
Leo Berger is the other major beneficiary. He is principal
of the Berger Group of Companies, also known as Apex Marine.
The six (6) 91,000 DWT Panamax (capable of transiting the
Panama Canal) Tankers operated by Apex Marine represent
another situation producing an unequal competitive condition
after CDS repayment. All of the six (6) ships have
long-term charters with major oil companies. The oil
companies have been experiencing losses from the operation
of the vessels in foreign trade. The option of CDS repayment
would provide the charterers with the possibility of relief
from the unfavorable charter, the benefits of which would be
transferred by the oil companies to Apex.
Aside from the possibility of profitability in the domestic
trade, the unfair competitive advantage of cancelling the
foreign trade charters come from the following factors:
(1) the differential between the time charter rate paid for
the Apex vessel and the present rate available for
modern foreign flag vessels of a comparable size;
(2) the wage escalation payments made by the charterer to
Apex not made for foreign flag vessels under present
market circumstances; and
(3) the fuel cost differential for the Apex steam powered
tankers as compared with more efficient foreign diesel
tankers.
-8-
In sum, the cost advantage of cancelling the charters to
Texaco, for example, would total approximately $15 million
over the remaining three (3) year life of the charters, on
the assumption that Texaco requires any replacement vessels.
The hidden benefits would provide these ships with an
insurmountable competitive advantage. The subsidy program
made these charters possible. Apex would receive the
benefits of the charters in advance, enabling them to
substantially reduce their break even cost. If it fails,
Apex retains the foreign trade charters.
At no cost, the Administration would be granting to a
shipowner the option to collect a windfall gain, skim the
remaining cream from a weakening market or, at the worst,
undercut existing domestic owners sufficiently to gain
access to the domestic trade while retaining at least a
large portion of its charter termination payment.
To quote the President of the American Maritime Association,
this regulation " would benefit principally one shipowner,
Capt. Leo Berger, who has been cushioned against losses in
the world market by his "hell-or-highwater" charters but who
now is eyeing greater profitability."
Estimated Value of CDS Payback Windfall for Panamax Tankers
was computed as follows:
TEXACO CHARTERS (5 SHIPS)
APPROXIMATE
CURRENT
CURRENT
U.S. FLAG
FOREIGN FLAG
CDS/ODS
T/C
$/DWT/MONTH
Time Charter Cost
$4.50
$2.50
Wage Escalation Payment
1.00
-
Fuel Cost Differential
2.00
-
Total
$7.50
Monthly Differential = $5.00/DWT/Month
Annual Differential
= $5.00 X 91,000 DWT X 11.5 Months =
$5.2 Million
-9-
Remaining Ship-Years of Charters:
KITTANING
4 Years
CHESTNUT HILL
4 Years
BEAVER STATE
3 Years
WORTH
3 Years
ROSE CITY
3 Years
Total =
17 Years
Total Windfall =
5.2 Million X 17 Years = $88 Million
Other Charters (5 Ships)
Estimated Average Remaining Life of Charters =
11 Years
Total Remaining Ship-Years of Charters
=
55 Years
Estimated Average Monthly Differential =
$4/DWT/Month
Estimated Total Differential =
$20 Million/Year or
$220 Million
Total Panamax Windfall =
$308 Million
The three (3) applications for CDS repayment now before DOT
(Arco, Petrofina, and Berger) represent specific situations
that prevent fair competition in the domestic trade between
the existing independent unsubsidized vessels and CDS
tonnage. The owners or charterers that represent the three
applications control 10 of the 15 ships enumerated by DOT as
most likely to repay subsidy.
In summary, the windfalls will be shared as follows:
Berger et al
$308,000,000
Petrofina
111,000,000
Arco
185,000,000
TOTAL
$604,000,000
All knowledgeable and affected parties have notified DOT
that an adequate system exists to satisfy DOT's alleged
reasons for the proposed rulemaking.
-10-
The proposed DOT rule, while it makes possible windfall
profits/benefits to a small special interest group, if
enacted, will:
-
Increase unemployment substantially
-
Create overtonnaging of American tankers
-
Seriously affect National Defense
-
Provide NO savings to the consumers
-
Jeopardize Title XI Guarantees (up to $1 billion)
-
Create conditions contrary to Congressional policy and
legislative history
-
Severely affect shipyards and all related support
functions, more unemployment
-
Destroy the maritime capital market and any future
capital investment in American ships
-
Have catastrophic effect on the entire U.S. Merchant
fleet including CDS vessels.
The DOT proposed rule should be rejected.
DEPARTMENT
DIFENSE
THE DEPUTY SECRETARY OF DEFENSE
WASHINGTON, D.C. 20301
E
2 8 MAR 1983
The Honorable Elizabeth Hanford Dole
The Secretary of Transportation
400 7th Street, S. W.
Washington, D. C. 20590
Dear Elizabeth:
The purpose of this letter is to request that the Department
of Transportation not enact the Construction Differential Subsidy
(CDS) Replacement proposal contained in your Notice of Proposed
Rulemaking (NPRM), Federal Register (Volume 48, No. 21, P. 4408,
of 31 January 1983).
Currently, CDS built tankers, as authorized by MARAD
can participate in Jones Act Trade only to a maximum of six
months annually. It is my understanding the proposed rule
would lift all restrictions on Jones Act trading by CDS tankers
whose subsidies had been reimbursed. The effect of this rule
change would be threefold: (1) smaller, militarily useful
tankers would be squeezed out of the domestic trade market
by large tankers supported by the proposed rules; (2) our
depressed shipbuilding industry, which has looked forward to
the business created by the Port and Tanker Safety Act of 1978,
would be deprived of the anticipated work it so badly needs;
and (3) a windfall profit would be provided to a few major
companies with CDS built tankers under charter.
The Navy's specific concern is the detrimental effect of
accelerated small tanker retirements on our ability to resupply
overseas forces in the event of war. Nearly half of our wartime
shipping requirements, in terms of tonnage to be shipped, must
be carried in tankers between 6 and 80 thousand DWT, with coated
tanks to permit carriage of refined product. Larger tankers,
the type supported by the proposed rules, are of limited value
for military deployment and support purposes. As a result of
the changes in petroleum product distribution systems, including
shorter routes, greater use of pipelines, and other inland
surface modes, the commercial requirement for smaller domestic
oceangoing tankers has been steadily reduced. Application of
the technical provisions of the Port and Tanker Safety Act will
further accelerate the retirements of these tankers.
I fear that the proposed ruling to allow large tankers a
greater share of domestic trade will greatly exacerbate an
already dangerous trend toward small tanker extinction. I
have. asked the Assistant Secretary of the Navy, Shipbuilding and
Logistics to provide a more detailed explanation of our concerns.
Your assistance in this matter is greatly appreciated.
Sincerely,
Paul Saul Sayer Thaye
2
DEPARTMENTAL WILLING
DEPARTMENT OF THE NAVY
OFFICE OF THE SECRETARY
WASHINGTON D. C. 20350
AMPIRA
MR 29 1983
MEMORANDUM FOR THE SECRETARY OF TRANSPORTATION
Subj: Construction Differential Subsidy Repayment; Total Repayment
Policy, 46 CFR Part 276; Notice of Proposed Rulemaking
With reference to your notice of Proposed Rulemaking (NPRM), Subject
as above, contained in the Federal Register (Volume 48, Number 21, at page
4408, dated 31 January 1983), the Department of the Navy desires to comment
on the proposed rules.
The Navy has viewed the declining health of the U.S.-flag merchant
marine with grave concern. The major element of this concern has been the
reduced capability of our merchant fleet to support our national defense
requirements under contingency situations, particularly where the U.S. must
act unilaterally and still support our private sector requirements.
We anticipate that nearly one-half of our contingency shipping require-
ments, in terms of tonnage to be shipped, would be in militarily-useful
tankers. A militarily-useful tanker is defined as between 6 and 80 thousand
DWT with coated tanks to permit carriage of refined product. Larger tankers,
the type supported by the proposed rules, are of limited value for military
deployment and support purposes.
Even without the adoption of this proposal, as a result of the changes
in petroleum product distribution systems including shorter routes, greater
use of pipelines, and other inland surface modes, the requirement for smaller
domestic ocean going tankers has been reduced. As a result of the application
of the technical provisions of the Port and Tanker Safety Act of 1978 to these
ships in 1986, the retirements of these tankers will be accelerated beyond the
rate which would normally be anticipated.
This proposal would further enlarge and accelerate that loss with at
least an additional 20 tankers affected. Any deliberate actions taken as a
matter of policy which effectively reduce the number of militarily-useful
tankers in trade will not be helpful to our national defense posture.
An additional adverse national security impact will result from this
proposal. Our depressed shipbuilding industry which has looked forward to the
business created by the Port and Tanker Safety Act will not get the anticipated
work it so badly needs. The Navy's combatant ship and sealift enhancement
programs are not sufficient to maintain the private yards necessary for a diversi-
fied mobilization base. Given the declining private order book, the prospect for
yard conversion work as well as new construction will be inhibited, if not ex-
tinguished, by a rule which would permit unrestricted domestic trade qualification
by Construction Differential Subsidy (CDS) payback.
It appears to Navy that, in addition to adversely affecting our
national security, the proposed CDS payback will result in little, if any,
direct monetary benefit to the government; will be a breach of faith with
the operators in the Jones Act Trades; and will result in a windfall to a
few major companies who presently have CDS built tankers under charter.
As a result of the vessel retirements which would be occasioned by
the CDS payback, Navy understands that MARAD has estimated that the Title XI
loan guarantee exposure of the government could be as high as $440 Million.
If applications for CDS repayment are received for all eligible tankers, the
unamortized Construction Differential Subsidy principle repaid will be $470
Million, plus interest.
The current Jones Act Trade operators who have Title XI exposure would
be defaulting on non-Construction Differential Subsidy vessels. By foregoing
CDS, these operators had acted in good faith, relying upon the operating and
financial protection of the Jones Act. Your former Secretary, Drew Lewis,
speaking for the Administration on 20 May 1982 and 5 August 1982, reaffirmed
support for the sanctity of Jones Act and existing cargo preference laws. And,
the President has affirmed his support for the domestic trades. The proposed
rulemaking would arbitrarily and rapidly reverse this position at a time when
the domestic tanker market is already under great pressure.
In summary, the proposed changes would not assist in national defense,
and in practice would be detrimental because useful-sized clean product ships
would be displaced by less useful large, crude carriers.
Recognizing the dynamic nature of the tanker trades, both in domestic
and international commerce, the Navy recommends that the proposed NPRM continue
the present practice of allowing temporary qualification of limited duration
with full pro-rata CDS payback (including interest), and only in those
situations dictated by tanker undercapacity.
ASSISTANT GEORGE SECTION A. SAWTER 07 THE NAVY
(SHIPBUILLE
DISCRIPTION
NINETY-EIGHTH CONGRESS
CHIEF MARKETY COUNSEL
EDMUND a. WELCH
CHIEF MINORITY COUNSEL
WALTER 8. JONES. N.C. CHAIRMAN
GEORGE J. MANNINA
CIARIO BIAGGI. N.Y.
EDWIN 8. FORSYTHE, NJ
GLENN M. ANDERSON. CALIF.
GENE SNYDER KY.
JOHN B. BRLAUX. LA.
JOEL PRITCHARD. WASH.
U.S. house of Representatives
GERRY L STUDOS. MASS.
DON YOUNG. ALASKA
CARROLL HUSBARD. JR. KY.
NORMAN F. LENT. N.Y.
DON BONKER WASH.
ROBERT W. DAVIS. MICH.
Committee on
NORMAN L D'AMOURS, N.H.
WILLIAM CARNEY. N.Y.
JAMES L OBERSTAR MINN
NORMAN D. SHUMWAY. CALIF.
WILLIAM 1 HUGHES. N.J.
JACK FIELDS. TEX.
Merchant Marine and Fisheries
BARBARA A. MIXULSKL MD.
CLAUDINE SCHNEIDER. ILL
EARL HUTTO. FLA.
HAROLD S. SAWYER MICH.
BRIAN DONNELLY, MASS.
HERBERT M. BATEMAN. VA.
Room 1334, Longworth house Office Building
W. J. (BILLY) TAUZIN. LA.
JOHN R. McKERNAN. JR. MAINE
THOMAS M. FOGUETTA, PA.
WEBB FRANKLIN MISS.
FOFO L F. SUNIA AM. SAMOA
Washington, D.C. 20515
DENNIS M. HERTEL MICH.
ROY DYSON. MD.
WILLIAM D. LIFINSEL FLL
ROBERT A. BORSKL PA.
THOMAS RL CARPER DEL
March 23, 1983
DOUGLAS M. BOSCO. CALIF.
ROBIN TALLON. S.C.
ROBERT LINDSAY THOMAS. GA.
BARBARA BOXER CALIF.
SOLOMON P. ORTIZ TEX.
Hon. Elizabeth H. Dole
Secretary of Transportation
Department of Transportation
Washington, D.C.
Dear Madam Secretary:
In addition to the attached record of the hearing held March
3, 1983 that, with some exception, reflects general opposition to
the proposed rule to permit CDS pay backs, we would express our
particular concern with the proposal.
Of prime interest to us when the Subcommittee on Merchant
Marine ordered this oversight hearing was the broadness of the
rule and the possibility that its scope was in excess of the
delegation of authority granted by the Congress in the Merchant
Marine Act, 1936, as amended. The hearing did not resolve these
questions to our satisfaction, and we therefore continue to raise
as an outstanding issue the wisdom of making such sweeping policy
changes of this type at this time.
By expressing our concern we do not take issue with the
Supreme Court's 1980 opinion in Seatrain Shipbuilding Corp. V.
Shell oil Co. (444 U.S. 572). What we suggest is that the
Court's conclusion in Seatrain be read for precisely what it
said, . the Act empowers the Secretary to approve
full-repayment/permanent release transactions of the type at
issue here." (emphasis added). Balancing the policy interests of
the 1936 Act with the necessity for discretion in the
administration of the Act would necessitate interpreting Seatrain
as permitting payback and release for the Stuyvesant. By
allowing, without distinction, any and all vessels to pay back
without any subsequent review as to impact and effect by the
Secretary would destroy the very discretionary power granted by
-2-
the Congress and reiterated in Seatrain. We also bring to your
attention the opinion by the United States Court of Appeals in
Independent U.S. Tanker Owners Committee V. Drew Lewis (342 F2d
502) in which the Court, applying Seatrain, discussed
:
publication of a permanent rule governing repayment
applications." We view the decisions as urging rulemaking that
would fairly dispose of applications on a case-by-case basis.
Regardless of the many arguments which have been made for or
against the proposed rule, there exists a sincere concern with
the underlying basis for the current rulemaking, the need for
competition in the allegedly lucrative Alaska oil trade. The
Congress is in the process of considering the reauthorization of
the Export Administration Act; at this time, it is not clear if
either Congress or the Administration will choose to endorse
extension of the current statutory requirement that Alaska North
Slope oil not be exported. Obviously, if the restriction on
export of Alaskan oil is eliminated, the underlying basis for the
proposed rule would be seriously compromised.
We also believe it is essential that two other aspects of
this proposal be examined more thoroughly. First, we find that
there is insufficient economic documentation to support DOT's
claim in the Notice of Proposed Rulemaking (Docket No. 78; Notice
No. 4, p. 13) that The proposal is not considered to be
'major' as defined by E.O. 12291 because it would not have an
annual affect on the economy of $100 million or more". Indeed,
Mr. Charles Swinburn, the Deputy Assistant Secretary of
Transportation for Policy and Program Development, at the
Merchant Marine Subcommittee hearing on March 3, 1983, expressed
doubt as to the amount of interest payment that would be returned
to the Government, while a witness representing shipbuilding
asserted that the proposed rule would have an annual negative
impact on the economy of $315 million.
-3-
The second issue of concern to us is the national security
implication of the proposed rule. There is compelling evidence
that smaller tankers would be replaced by the larger CDS-built
ships. It is these smaller tankers that are important to the
military and, therefore, a thorough analysis of the rule's impact
on our national security should be undertaken.
We do not believe we interfere with the right of the
Executive Branch to implement, by way of rulemaking, the programs
we have legislated when we respectfully request that for the
reasons stated in this letter you withdraw the rulemaking.
Walters Jones
Sincerely, EDWIN FORSYTHE
WALTER B. JONES
Ranking Minority Member
More MARIO Chairman Chairman, BIAGGI Bings Merchant
JOHN
Chairman,
John B. BREAUX Fisheries Breaux and
Marine Subcommittee
Wildl ife Conservation and
the Environment Subcommittee
Bol Davis
ROY DYSON
ROBERT W. DAVIS
Member of Congress
Herkest
York Member NORMAN of E. O'aroup Congress D'AMOURS
HERBERT H. BATEMAN
Member of Congress
Chairman, Subcommittee
on Oceanography
Rolin Jallon
ROBIN TALLON
Themis Member THOMAS of M. his Congress FOGLIETTA Sigh
Member of Congress
Claudine Schnuch
CLAUDINE SCHNEIDER
BARBARA A. MIKULSKI
Member of Congress
Member of Congress
Jame Diberator
JOHN R. MCKERNAN, JR
JAMES L. OBERSTAR
Member of Congress
Member of Congress
Brian Member BRIAN DONNELLY of Congress Donnelly
WALTER 8. JONES. N.C. CHAIRMAN
MARIO BR.GGL.NY
EDWIN 8. FORSYTHE N.J.
CLEAN M ANDERSON. CALIF.
GENE SNYDER KY
JOMN 8. BREAUX. LA
JOEL PRITCHARD. WASH.
U.S. house of Representatibes
GE? E. STUMPS MASS.
DON YOUNG. ALASKA
CARROLL HUBBARD. JR. KY.
NORMAN F. LENT. N.Y.
DON BONKER. WASH
ROBERT W. DAVIS. MICH.
Committee on
NORMAN E. D'AMOURS. N.M.
WILLIAM CARNEY. N.Y.
JAMES L OBERSTAR. MINN
NORMAN 0. SHUMWAY, CALIF.
WILLIAM J. HUGHES. NJ.
JACK FIELDS. TEX
Merchant Marine and Fisheries
BARBARA A. MIKULSKL MD.
CLAUDINE SCHNEIDER RL
,
TTO. FLA
HAROLD S. SAWYER MICH.
WNELLY. MASS.
HERBERT H. BATEMAN. VA.
Room 1334, Longworth house Office Building
n TAUZIN, LA.
JOHN RL MCKERNAN. JR. MAINE
M. FOGUETTA PA
WEBS FRANKLIN, MISS.
FORM F. SUNIA AM. SAMOA
Washington, D.C. 20515
DENNIS M. HERTEL MICH.
ROY DYSON. MD.
WILLIAM O. LIPINSKI. FLL
ROBERT A. BORSKL PA.
THOMAS R. CARPER. DEL
May 2, 1983
DOUGLAS M. BOSCO. CALIF.
ROBIN TALLON. S.C.
ROBERT LINDSAY THOMAS. GA.
BARBARA BOXER CALIF.
SOLOMON P. ORTIZ TEX.
The Honorable Elizabeth H. Dole
Secretary of Transportation
400 Seventh Street, S. W.
Washington, D.C. 20590
Dear Madam Secretary:
We are writing to express again our sincere concern about the
Department of Transportation proposed rule that would permit
Construction Differential Subsidy (CDS) paybacks.
As was stated in a March 23 letter to you, signed by fifteen
members of the House Merchant Marine and Fisheries Committee,
there is considerable opposition to the proposed rule. An
apparent majority of the members of the Merchant Marine Sub-
committee question the wisdom of making such a sweeping policy
change and question the rule as being in excess of the authority
granted by the Congress in the Merchant Marine Act of 1936, as
amended.
On Thursday, April 14, the Merchant Marine Subcommittee
held a markup of H.R. 2114, the Maritime Administration
Authorization legislation for fiscal year 1984. At the markup,
Mr. Dyson of Maryland introduced an amendment addressing the
subject of CDS paybacks. A copy of the amendment is enclosed for
your information.
Several members of the Subcommittee, in support of Mr.
Dyson's position, emphasized the possible adverse effect of the
proposed rule on our nation's defense capabilities. They cited
the Deputy Secretary of Defense Paul Thayer's letter to you
asking that the rule not be implemented. We agree with Secretary
Thayer's assessment that the rule would allow large tankers a
The Honorable Elizabeth H. Dole
May 2, 1983
Page 2
greater share of domestic trade, thereby greatly accelerating an
already dangerous trend for defense purposes toward small tanker
extinction. As Secretary Thayer noted in his letter to you,
large tankers, the type that would benefit from the proposed
rule, "are of limited value for military deployment and support
purposes" in time of war.
After agreeing with the Committee leadership's desire to
maintain a "clean" Maritime Administration authorization bill,
Mr. Dyson withdrew his amendment. We have included a copy of the
transcript of the pertinent discussion on this issue which
occurred at the Subcommittee markup of the Authorization Bill.
For the reasons cited in this letter and in the March 23,
1983, letter to you, we urge you to withdraw the rule explicitly
by notice in the Federal Register.
We look forward to your reply on this important matter.
Sincerely,
WattinG.Jons Jones
WALTER B. JONES
EDWIN B. FORSYTHE
Mano MARIO Chairman BIAGGI Beagin
Ranking Minority Member
Roy Dipon ROY DYSON
Chairman, Merchant
Member, Merchant
Marine Subcommittee
Marine Subcommittee
Enclosure
BOB PACKWOOD ORIG. CHAIRMAN
9.4° DOLDWATER ARE
TRNEST F MOLINGS SC
:. MM E DANFORTH MO
RUSSELL # 10MG LA
MARCY LANDON KASSIBAUM CANS
DANIEL K INDUYE MAWAS
LAREY PRESSIER & OAK
WINDELL M FORD. KY.
SLADE GORTON WASH
DONALD W NEGLE a MICK
TID STEVENS ALASKA
, JAMES 1XOM NEBR
DOB RASTIN wis
HOWELL HEALTH ALA
Hnited States Senate
PAUL $ TRUBLE JR. VA.
FRANK R LAUTENBERG. mJ
WILLIAM M DIFFENDERSER CHIEF COUNSEL
RALPH B. EVERETT. MINORITY CHIEF COUNSEL
COMMITTEE ON COMMERCE, SCIENCE,
AND TRANSPORTATION
WASHINGTON, D.C. 20510
May 17, 1983
The Honorable Elizabeth Dole
Secretary, Department of Transportation
400 Seventh Street S.W.
Washington, D.C. 20590
Dear Madame Secretary:
I am writing to express my concerns about the proposal presently
before your Department to allow tank vessels built with subsidy to
engage permanently in coastwise trade if they pay back a portion of
the subsidy they have received. My greatest concern at this point
is that, although ultimately a payback program may be found desirable,
the logic, implications and consequences of this proposal have not
been adequately scrutinized. I would like to raise a few of my concerns
for your attention.
First, it is my understanding that in the very limited number of
previous CDS-payback cases, there were at least three distinguishing
features. The vessels were considered on a case-by-case basis. The
vessels were subject to unique economic distress. And finally, the
vessel paid back the government all or virtually all of the CDS that
went into the vessel. This latter point seems particularly important.
As I understand the present proposal before the Department, `only the
unamortized portion of the subsidy, with interest, would be paid back
to the government. For a vessel that is not new, this means considerably
less than full subsidy repayment. In fact, it appears that if accepted,
this proposal would provide a highly subsidized financing package for
such operators that is unavailable to and highly prejudicial to coastwise
operators. For a vessel of considerable age, this proposal in fact
would create a huge windfall to the vessel owner, by allowing then
into the coastwise trade, without returning any significant benefit
to the U. S. Treasury through a payback. It would seem to me that the
proposal would be more equitable (and true to the press accounts dis-
cussing it) if the government were paid back its full construction-
subsidy with interest in return for the fundamental reversal in ground
rules that would enable such vessels to enter the domestic trade.
There are other concerns I have as well. These points might all
be answered should full subsidy repayment, as discussed above, be
The. Honorable Elizabeth Dole
Page two
May 17, 1983
required, but I believe they are worth your serious consideration as
well.
The proposal before the Department, unlike other CDS payback
proposals is not vessel-specific, but rather a generic change in the
law whose implications are thus very difficult to anticipate. Is this
generic approach a more appropriate way to proceed than a case-by-case
approach?
Finally, if this proposal is accepted by tankers, I can perceive
of no logical reason why it shouldn't be applied to liners, to the
Hawaiian trade, or any other domestic trade plied by U.S. ships. Is
this the intent of the Department? Has the Department examined all the
implications of such a major change in our maritime laws? I suspect
not. If it has, I would certainly like to see the results of such an
examination.
Madame Secretary, this is only a brief look at some of the concerns
that I see rising from this proposal. As I mentioned earlier, a CDS
repayment program may ultimately be a sound idea. I am troubled, however,
by the fact that the proposal as it stands before your Department fails
to answer so many of the questions it raises. I am also troubled by
the fact that it seems to be moving forward without Congress having the
opportunity to consider the full implications of such a fundamental alter-
ation of our maritime laws.
I do not believe that there is any real reason. for the Department
to make a decision on this proposal in the immediate future, and I
hope that you will not make a decision on the proposal until you are
quite confident of the proposal's full impact and implications and until
Congress has had the opportunity to fully discuss the matter with you.
I appreciate your attention to this request.
Sincerely,
SLADE GORTON
United States Senator
SG:cko
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WASHINGTON, D.C. 20315
Ulashington, D.C. 20515
(800) 272-6730
(202) 225-8020
April 28, 1983
The Honorable Elizabeth H. Dole
Cabinet Secretary
U. S. Department of Transportation
Washington, D. C. 20590
Dear Madam Secretary:
As a member of the House Committee on Armed Services, I am concerned
that the Department would promulgate a rule like the CDS payback rule,
published by your predecessor on January 31, 1983, without due con-
sideration to its impact on national security.
As you must know, both the Department of Defense and the Navy
have expressed open opposition to the rule, citing their concern that
implementation of the rule would cost the Navy at least 20 badly
needed small product tankers.
I would appreciate your giving this matter a careful review. Once
done, I am certain that you would withdraw this rule before our na-
tional security capabilities are further limited.
Let me thank you in advance for your attention to this matter.
Sincerely,
Nicholas Mavroules
Member of Congress
EDWARD P. BOLAND
COMMITTEE
SECOND DISTRICT. MASSACHUSETTS
APPROPRIATIONS
Congress of the United States
House of Representatives
Mashington
May 18, 1983
Honorable Elizabeth H. Dole
Secretary of Transportation
Department of Transportation
Dear :
I am writing to express my concern about a rule proposed by your
Department which would permit the reimbursement of construction differential
subsidies (CDS) and allow CDS tankers to engage without restriction, in
trade reserved for non-subsidized vessels.
My concern is specifically that the proposed rule would be detrimental
to our fleet of smaller vessels, which are more suitable to military use
than the larger ships which would benefit from the CDS. pay-back rule. I
understand that Deputy Secretary of Defense Paul Thayer has brought this
concern to your attention. It is anticipated that even without proposals
such as the CDS pay-back rule, our fleet of small, militarily useful
tankers will decline unacceptably in the future. The availability of
small tankers capable of transporting refined petroleum products, as
opposed to large tankers designed to carry crude oil, is essential to
our military preparedness. It would be unwise, in my opinion, to take
steps which would unnecessarily exacerbate this problem.
I am also concerned that the proposed CDS pay-back rule will create
economic dislocations within the shipping industry. CDS supported
tankers will receive a windfall of new business, while small tanker
operators will lose business, as restrictions on larger vessels are
lifted. In my view, this sweeping change in the shipping industry
should be accomplished with due regard to its effects on all sectors of
the economy. Because the Congress has not yet acted to reauthorize the
Export Administration Act, which currently prohibits the exportation of
Alaskan crude oil, the economic impact of the CDS pay-back rule cannot
be predicted accurately.
For these reasons, I suggest that the Department withdraw its
proposal and review the underlying policy carefully in light of national
security and economic interests. Thank you for your cooperation in
this matter.
Sincerely,
EDWARD P. BOLAND
Member of Congress
EPB:sw
VLCC
2460 LEMOINE AVENUE
FORT LEE. N. J. 07024
TELEPHONE
9
(212) 269-1940
BOSTON VLCC TANKERS, INC. MASSACHUS
Twx: 710-991-9575
R/I
INEW YORK
10
VI MARYLAND
May 26, 1983
Honorable Elizabeth H. Dole
Secretary of Transportation
U.S. Department of Transportation
Washington, D.C. 20590
Re: Proposed Rulemaking to Permit Repayments
Of Construction Differential Subsidy,
46 C.F.R. Part 276.
Dear Madam Secretary:
Boston VLCC Tankers, Inc. II ("Boston 11") is the owner of
the VLCC MASSACHUSETTS, a 264, 073 dwt oil carrier which was built
in 1975 at Sparrows Point, Maryland with construction differential
subsidy (CDS).
We have been following with a great deal of concern the proposal
to allow owners of vessels which were built with CDS to repay the
CDS and immediately qualify their vessels for the domestic coastwise
trade, trades which such vessels are prohibited from serving, by
statute and contract, except in limited circumstances.
Boston II respectfully urges that the proposed regulations not
be adopted. At first blush it might seem as though a proposal which
would allow full coastwise privileges to vessels currently limited to
trading only six months per year should be vigorously embraced by
all owners of CDS-built vessels. However, careful study reveals the
dangerous fallacy of this simplistic reasoning.
We will not herein restate the detailed market analysis which
has been fully, and in our judgment accurately, put forth by OSG
Bulk Ships, Inc./Overseas Shipbuilding Group, Inc., except to note
that we share their conclusion that the Administration's proposal,
if adopted, will result in severe overtonnaging of the Alaskan oil
trade, not to mention other coastwise trades which are already
depressed to the point where a substantial percentage of the U.S.
fleet is in lay-up status. The proposed rulemaking itself acknowledges
that there will be extensive overtonnaging.
At best, the proposed regulations will cause disruption in what
is now a stable market, causing economic detriment to the entire U.S.
tanker fleet, including the CDS-built vessels, with the possible limited
exception of a few major oil companies (some foreign) and isolated
individual owners. Boston 11 believes that all owners of CDS-built
Honorable Elizabeth H. Dole
May 26, 1983
Page Two
VLCC's would be forced to elect to repay the subsidy in order to
obtain domestic cargoes. With no long-term foreign commercial
prospects and the elimination of six month waivers, the result can
only be massive overtonnaging, reduced rates and lost revenues.
Any owner who does not repay the CDS under such circumstances
will essentially have an unemployable vessel.
Boston 11 as an owner of a CDS-built vessel, and as an alleged
potential beneficiary of the proposed regulation, strongly opposes
the regulation because of the overtonnaging and market disruption
that will flow from qualifying these vessels for the domestic trades
and the resultant expected decline in the current value of all vessels.
Boston 11 believes that the current system, perhaps with some
modifications after more careful study, consistent with S 506 of the
Merchant Marine Act, 1936, permitting CDS-built vessels over 100,000
Dwt into the Alaskan crude trade for periods of up to six months per year
serves to assure sufficient tonnage to meet cargo demand, while at
the same time precluding overtonnaging and the resultant decline
in the market value of existing vessels. We believe the continuation
of the six-month waiver system is far more beneficial, as well as
protective of all interests.
Sincerely,
BOSTON VLCC TANKERS, INC. 11
Imail Rahi
Samuel Kahn
President
CC: Admiral Harold E. Shear, USN (Ret.),
Maritime Administrator
400 Seventh Street, S.W.
Washington, D.C. 20590
Wendell W. Gunn, Special Assistant to the
President for Policy Development
The White House
1600 Pennsylvania Avenue, N.W.
Washington, D.C. 20500
Honorable Elizabeth H. Dole
May 26, 1983
Page Three
Congressman Mario Biaggi
House of Representatives
Room 2428
Washington, D.C. 20510
Congressman Edwin B. Forsythe
House of Representatives
Room 2210
Washington, D.C. 20510
Congressman Walter B. Jones
House of Representatives
Room 241
Washington, D.C. 20510
Senator Slade Gorton
United States Senate
Washington, D.C. 20510
Docket Clerk
Room 10421
Office of the Secretary
Department of Transportation
400 Seventh Street, S.W.
Washington, D.C. 20590
Peter A. Friedmann, Esq.
Senate Commerce Committee
508 Dirksen Senate Office Building
Washington, D.C. 20510
Shell Oil Company
Two Shell Plaza
P.O. Box 2099
Houston, Texas 77001
March 28, 1983
Docket Clerk, Room 10421
Office of the Secretary
Department of Transportation (DOT)
400 Seventh Street, SW
Washington, DC 20590
Gentlemen:
CONSTRUCTION - DIFFERENTIAL SUBSIDY REPAYMENT; TOTAL REPAYMENT POLICY;
NOTICE OF PROPOSED RULEMAKING
Shell Oil Company appreciates the opportunity to express its' views regarding
the above Notice of Proposed Rulemaking. As a long-term charterer of two
Jones Act ships (B.T. Alaska and B.T. San Diego) and two CDS vessels (U.S.T.
Atlantic and U.S.T. Pacific) Shell has a direct interest in this matter.
Shell is opposed to Total Repayment of CDS for the purpose of entering domestic
trade and in this regard offers the following comments:
1. An adequate mechanism exists for satisfying Alaskan and other oil movements
which exceed the capabilities of Jones Act tonnage. The "temporary waiver"
system has provided an effective and equitable means of balancing the supply
of equipment available to the market. Significantly, this system is also
consistent with long-standing government rules and regulations which have
resulted in unsubidized investments in Jones Act vessels. The existing
system works. There have been no instances of demand not being adequately
met under these rules. Any benefits, then, to be derived from the "Proposed
Rulemaking" would be beyond the requirement for adequate tonnage. In fact,
it is difficult to see what if any, those benefits would be. Rather it
appears that the "Proposed Rulemaking" would merely reward a select few
who may have made unwise (albeit subsidized) investments and, at the same
time, severely penalize those who have adhered to the well-established,
long-standing rules of the Jones Act.
2. While the existing system of 6-month temporary waivers has adequately
provided tonnage in excess of Jones Act supply, the point is made that
the process for carrying this out is cumbersome and requires an excess
of government (Marad) involvement. In this regard, Shell would support
a change in regulations to provide for consecutive 6-month waiver
periods subject to determination that unsubsidized Jones Act tonnage
is not being displaced. A system of this type would lessen the
procedural involvement of Marad. At the same time, it would provide
an improved longer-range planning guide for shippers of Alaskan crude
oil. Most importantly, it would continue to provide an adequate supply
of tonnage without causing an unfair, damaging alteration to the existing
system.
3. In no case, is there justification for CDS repayment on vessels less
than 100,000 DWT. Existing independently owned, unsubsidized vessels
in this size range are more than adequate to meet demand. Repayment,
we believe, would substantially weaken the financial viability of the
independent Jones Act owners with whom Shell does business. We believe
it is in the national interest as well as Shell's to maintain a strong
and viable Jones Act fleet.
4.
The Department of Transportations' Notice of Proposed Rulemaking is a
radical and dramatic departure from well-established, long-standing
rules and regulations. Its effect on Shell and others in industry could
be substantial. No changes of this magnitude should be implemented
without full review and public hearings. Shell strongly urges that public
hearings be scheduled by the Maritime Administration on this important
matter so that the views of all interested parties (including Marad) can
be given full consideration.
Very truly yours,
alan Kime S
Olan Runnels
General Manager Supply and Marine
Operations
26th May 1983 FAIRPLAY
9
= WORLD NEWS
Burmah pays $32m
to cancel two
VLCC charters
BURMAH Oil Tankers of London and
New York-based Universe Tankships
Inc. have agreed to cancel the time-
charters to Burmah of the 269.000 d.w.t.
tankers Universe Burmah and Universe
Explorer. The settlement amounts to
approximately S32 million in lieu of some
six years' future charter hire payments.
Payment was to be made. and the ships
returned to Universe Tankships. during
May.
The Burmah tanker fleet has now been
reduced to a manageable nucleus. Of its
eight crude-oil carriers. the ULCC
Burmah Endeavour is laid up at
Southampton and sister-ship. Burmah
Enterprise. 457,927 d.w.l., has just started
a two-year storage contract with the
Indonesian state oil company,
Pertamina. The remaining six vessels. in
the 56,000 to 138,000 d.w.t. range, are all
trading.
Although the cancellations will result
in an extraordinary charge to the Burmah
group. they will reduce both the off-
balance-sheet shipping commitments and
the current and future trading losses.
The two VLCCs were time-chartered
by Burmah for 15 years from the date of
their delivery from the Japanese shipyard
of Ishikawajima Heavy industries -
Universe Burmah in September. 1973 and
Universe Explorer in March. 1974.
Burmah decided to further reduce its
exposure to the tanker market. not only
because of the high charter-in rate of
these vessels but also because the
continuing surplus of VLCC tonnage will
inevitably depress prospects for this
section of the market in the medium term.
*American Maritime Officer* May 1983
"Maritime policy is not a thing unto itself.
"I cannot say too often or too clearly how
It is or should be an integral part of our
important has been the merchant navy's
overall foreign policy If it is not our
contribution to our effort. Without the
national interest cannot be served and
ships taken up from trade, the operation
protected."
could not have been undertaken, and I
President Ronald Reagan
hope this message is clearly understood
by the British nation."
"Sealift to sustain our warfighting
Adm. Sir John Fieldhouse
capability is inexorably bound to our
Commander-in-Chief. British Fleet and Commander of
Falkland Islands Taskforce
maritime industry Maritime superiority
requires more than Naval ships, since in
war, our U.S. merchant fleet is essentially
"In time of any new national conflict 90%
of the logistics of our armies and NATO's
a naval auxiliary We rely on assets of our
merchant fleet as a source of sealift for
armies must be carried by ships. Our
the deployment and support of our forces.
success will rely on the immediacy of our
We in the Navy support fully a strong,
response in moving men and materiel.
growing merchant marine."
There is no new magic, no easy way to
Admiral Cowhill-Deputy Chief of Navy Operations for
get things from one place to another.
Logistics.
Airlift can't handle more than 10% of the
"The steady decline of our U.S.-flag
job. The Navy and the merchant fleet must
merchant fleet, which is the backbone of
do the job."
Admiral Isaac Kidd. former commander-in-chief. Atlantic
our logistical support, causes the
Fleet, supreme allied commander for NATO
Department of the Navy great concern.
Properly developed, a strong U.S.
"The bald fact is that the United States
merchant marine is indeed a full partner,
has no surge capability in sealift. We
a fourth arm of U.S. national defense. If
would not be able to sustain a serious
neglected-as has too long been the
military operation unless we abandoned
case-it is merely a strategic missing link."
all our commercial trade routes. If we
Secretary of the Navy John Lehman
abandoned these trade lanes we would
"I agree that the United States should
never recover them again."
General H.R. Del Mar President of the National Maritime
have a viable U.S.-flag merchant marine,
Council
manned by U.S. citizens, capable of lifting
a fair and reasonable share of our import-
"A nation's maritime commerce strength
export trade, as well as serving as a naval
in peactime is the most telling indicator
auxiliary in time of need."
of its overall endurance during war."
Secretary of Defense Caspar Weinberger
Admiral Alfred T. Mahan
Sealift Deficiencies Endanger Defense Strategy
By JACK ANDERSON
Unfortunately. the United States has no QE II or enough other civilian ships
WASHINGTON-Naval planners in the backrooms of
to draft for wartime duty. Here's what we have available to rely on in case of a
the Pentagon have their fingers crossed hoping that the
national emergency:
United States doesn't have to fight a conventional war far
The Military Sealift Command Controlled Fleet of 134 government-owned
from home.
ships. Unfortunately. "less than three dozen ships are estimated to be idealty
The reason is simple, if embarrassing: We don't have
suited for sea un of military supplies," according to an internal White House
the ships needed to keep our troops and our allies supplied.
document, which adds. with some understatement, that the fleet's "principal
Top-secret Pentagon assessments make frighteningly
weakness is that it can only carry a small share of the military cargo likely to be
clear how low our sea lift capability has sunk since World
needed."
War II, when the U.S. Navy and merchant marine carried
The National Defense Reserve Fleet of 254 ships that supposedly will be
the military output of American industry to battlefronts around the globe. That,
ready to 8 within three to eight weeks. As of October 1981, 130 of these ships
basically. is what won the war.
were 30 or 40 years old.
The estimates. seen by my associates Donald Goldberg and Date Van Atta,
The U.S.-flag Merchant Marine of 578 privately owned ships. But only 36
also show that the Soviets' ability to supply armies on distant battlefields has
percent of this neet is considered useful for the food and munitions that fighting
been growing as ours has withered away.
forces need.
What makes this woeful lack of transport ability important is that the stocks
The 343-ship "eflectively U.S. controlled" fleet owned by American companies
of munitions now on hand in Western Europe aren't enough to keep a war alive.
or Individuals and registered with foreign countries. But only about 15 of these
As one top-secret Pentagon report puts it: "Both U.S. and allied war reserve
ships are capable of carrying dry cargo, and only 52 of the tankers are suitable
stocks in Europe continue to be inadequate. A high risk' situation exists in NATO
for military use. Furthermore, these foreign-flag ships are manned by non-American
today because a stong Initial defense in NATO cannot be sustained until the
crew, whose enthusiasm for getting shot at in an American was is understandably
supply pipeline, supported by the U.S. industrial base, is established."
suspect.
in other words. the United States is still the "arsenal of democracy" that It
Free world shipping, some 600 ships. About 400 of these might be available,
was in World War Il-but there is no longer a way of shipping the arsenals output
but there's no estimate of how many would actually be militarily useful.
where it's needed.
Some 20,000 ships owned by non-communist nations, capable of carrying
The importance of a sea in capability it was ever in doubt-was made
600 million tons of cargo. But few are likely to come rushing to America's aid-
clear by the Falkland Islands mini-war, which the British won largely because
at least in time to do any good.
they were able to press into service their civilian ships, including the "drafting"
of the Queen Elizabeth II as a troop transport.
Reprinted by permission. Copyright 1983, United Feature Syndicate, Inc.
The Military Looks at Our
Sealift Capabilities Grim!
"Without adequate and reliable sealift, literally none of our military
plans are executable, since more than 90 percent of all wartime cargo will
have to go by sea." Admiral Thomas B. Hayward.
"If the whistle blows this afternoon, do we have the sealift resources to
deploy our combat power outside the United States? I don't think so. Statistics
paint a grim picture." Admiral Kent J. Carroll.
"For all the improvements in technology and shipbuilding, the state of the
merchant marine in our country casts doubt on our capability to supply our
own needs, in peace or war, if ever forced to go it alone." John Lehman,
Secretary of the Navy.
THE NEW YORK TIMES, WEDNESDAY, FEBRUARY 23, 1983
Required Reading
The Merchant Marine
Representative Joseph P. Addabbo,
Democrat of Queens, addressing the
House of Representatives on the
condition of the United States mer-
chant marine. Feb. 17, 1983:
The battle of the Falklands will con-
tinue to be analyzed for months and
years to come. There are lessons to be
learned. Clearly among them is the
vital role of the British merchant ma-
rine.
That is what we must heed and heed
well. We are spending billions of dol-
lars on defense, yet we. continue to
neglect our basic resources of trans-
portation: the merchant marine.
The Februrary issue of "The Officer
Magazine" includes an article under
the byline of Vice Adm. Kent J. Car-
roll, U.S.N., commander, Military
Sealift Command. 1 would call your
attention to the opening paragraphs of
this article:
"It is no exaggeration to say our
country's merchant marine is found-
ering in the worst shipping slump in 50
years. I am worried. The more I see
our merchant fleet decline, the more I
see a blueprint for chaos develop,
especially if this country requires a
deployment of our combat power.
"If the whistle blew today, our own
sea lines of communication might
have to be filled by foreign flag ships.
That does not make sense to me. A
strong merchant marine, just as
much as a strong navy, is the basis of
any nation's seapower."
EXCERPTS FROM
REMARKS BY
ADMIRAL JAMES D. WATKINS
CHIEF OF NAVAL OPERATIONS
MILITARY SEALIFT COMMAND
CHANGE OF COMMAND
NAVY YARD, WASHINGTON, DC
26 MAY 1983
MILITARY SEALIFT: A RENAISSANCE OVERDUE
AS WE ENTERED THE 1950s, AMERICA'S MERCHANT FLEET WAS THE
ENVY OF THE WORLD. WITH SKILLFULLY DESIGNED AND BEAUTIFULLY
BUILT SHIPS, THE UNITED STATES HAD MORE TONNAGE UNDERWAY THAN ANY
OTHER NATION. AND THANKS TO A THRIVING MARITIME INDUSTRY AND A
STRONG, VIGOROUS NAVY, AMERICA HAD BECOME THE SEAPOWER OF THE
CENTURY!
IN THOSE EXCITING TIMES, OUR MERCHANT MARINE WAS IN ITS PRIME
-- FLEXING ITS MUSCLES IN GREAT EXPECTATION OF AMAZING THINGS TO
COME.
BUT THAT WAS 30 YEARS AGO. TODAY AMERICA IS NO LONGER THE
PRE-EMINENT MARITIME POWER IN THE WORLD. AND OUR PROUD, ENORMOUS
AND EFFICIENT FLEET OF PRIVATELY OWNED AND OPERATED SHIPS HAS ALL
BUT DISAPPEARED FROM THE SEAS.
THIRTY YEARS AGO WE HAD MORE THAN 1,400 CIVILIAN SEAGOING
MERCHANT SHIPS. TODAY THERE ARE ABOUT 470, AND OUR MARITIME
RESERVE FLEET HAS DECLINED FROM 1,800 SHIPS TO 220.
THIRTY YEARS AGO THIS COUNTRY'S SHIPS CARRIED 35 PERCENT OF
OUR OCEAN-BORNE FOREIGN COMMERCE. TODAY IT'S LESS THAN FIVE
PERCENT.
THIRTY YEARS AGO WE HAD MORE THAN 70,000 SEAGOING JOBS IN
THE U.S. MARITIME INDUSTRY. TODAY THERE ARE LESS THAN 18,000.
IN LESS THAN 30 YEARS OUR FLEET HAS DECLINED FROM FIRST IN
THE WORLD TO ELEVENTH, WHILE THE SOVIET COMMERCIAL FLEET HAS
SURGED FROM 21st IN THE WORLD TO THIRD.
"SHIPPING," SAID PRIME MINISTER WINSTON CHURCHILL DURING WORLD
WAR II, "WAS AT ONCE THE STRANGLEHOLD AND SOLE FOUNDATION OF OUR
WAR STRATEGY."
ENGLAND AND THE REST OF THE ALLIES PRESSED ANYTHING THAT
COULD FLOAT INTO SERVICE BECAUSE THEY KNEW A CRITICAL SHORTAGE OF
SHIPPING WOULD MEAN AN END TO ALL OFFENSIVE OPERATIONS AND
ESSENTIAL CIVILIAN SERVICES.
KOREA, VIETNAM, AND EVEN THE RECENT FALKLANDS CRISIS, HAVE
PROVEN IT'S NO DIFFERENT TODAY. 'A STRONG MERCHANT MARINE IS
INTEGRAL WITH THE CONCEPT OF A STRONG NAVY. IN FACT, IT'S A
KEYSTONE OF THIS NATION'S BASIC MILITARY STRATEGY.
OUR MERCHANT FLEET MUST NOT ONLY PROVIDE EFFICIENT, ECONOMICAL
AND PROFITABLE COMMERICAL SERVICES IN PEACETIME, BUT IT MUST BE
READY TO CARRY MEN, MATERIEL AND SUPPLIES AS A NAVAL AUXILIARY
FORCE IN TIMES OF EMERGENCY.
THEY SAY AMATEURS TINKER WITH TACTICS AND STRATEGY, BUT
PROFESSIONALS DEAL WITH LOGISTICS. WE CLEARLY SAW THIS DEMONSTRATED
DURING THE FALKLAND ISLANDS CAMPAIGN WHEN GREAT BRITAIN HAD TO
ORGANIZE EVERY SEALIFT RESOURCE AVAILABLE TO SUPPORT AN 8,500 MILE
LOGISTICS PIPELINE, USING EVERY SHIP THAT COULD GET UNDERWAY --
PASSENGER SHIPS, TRANSPORTS, EVEN THE QE2.
THE BRITISH WERE SUCCESSFUL. THEY DID KEEP THE LOGISTICS
PIPELINE OPERATING. HOWEVER, IF THERE HAD BEEN ANOTHER SIMULTANEOUS
EVENT REQUIRING SEALIFT, THEY WOULD HAVE BEEN UNABLE TO SUCCEED.
THEY BARELY KEPT THEIR LOGISTIC LINES OPEN WITH A MERCHANT
FLEET TWICE THE SIZE OF OUR OWN, AND WITHOUT EXCESSIVE LOSSES
FROM HOSTILE ACTION.
IF WE HAD TO CONFRONT A THREAT IN VARIOUS OCEANS AND VARIOUS
LOCALES, WOULD WE BE ASSURED OF VICTORY WITH OUR MERCHANT MARINE OF
TODAY?
ANSWERING THAT QUESTION BRINGS THE NEED FOR A STRONG MARITIME
FLEET INTO SHARP FOCUS: A VIABLE COMMERCIAL MERCHANT MARINE
REMAINS AN ABSOLUTE PRE-REQUISITE TO OUR NATIONAL ECONOMIC
SECURITY AND TO THE DEPLOYMENT OF MILITARY FORCE OUTSIDE OUR
NATIONAL BOUNDARIES. OUR NATION'S DEFENSE CANNOT BE SUCCESSFULLY
CARRIED OUT WITHOUT ADEQUATE AND RELIABLE SEALIFT CAPABILITIES.
BUT SADLY, OUR IMPORTANT SEALIFT BASE HAS DRASTICALLY
DIMINISHED.
LOOK AT THE FACTS, WHILE THE AMERICAN MERCHANT SEAGOING FLEET
HAS DWINDLED TO LESS THAN 500 SHIPS, THE SOVIET FLEET HAS GROWN TO
MORE THAN 2,500. THEY ALL OPERATE UNDER A MASTER PLAN THAT
INTEGRATES MILITARY AND CIVILIAN SHIPPING INTO A POWERFUL TEAM.
THE MOST EFFECTIVE IN THE WORLD.
IT IS VERY CLEAR: RUSSIAN NAVAL AND PARTY LEADERS THOROUGHLY
UNDERSTAND THE IMPORTANCE OF A STRONG MERCHANT FLEET. THE HEAD
OF THE SOVIET NAVY, ADMIRAL GORSHKOV, HAS SAID,
THE SEAPOWER
OF THE SOVIET UNION DEPENDS ON ALL ITS MEANS OF EXPLOITING THE
WORLD'S OCEANS.
TRANSPORT SHIPS AND NAVAL FORCES. .AND ON
SERVING ITS NATIONAL INTERESTS BY COMBINING THEM PROPERLY." THEIR
MERCHANT FLEET IS EVEN INTEGRATED INTO THEIR NAVAL EXERCISES.
THE KEY TO A REVITALIZED STRATEGIC SEALIFT IS A STRONG AND
HEALTHY COMMERCIAL FLEET IN PEACETIME THAT CAN ALSO BE A STRONG
AND HEALTHY NAVAL AUXILIARY DURING HOSTILITIES. IT CANNOT SUCCEED
UNLESS ALL CONCERNED BECOME COMMITTED.
ALTHOUGH IT TOOK OUTSIDE EVENTS -- LIKE THE THREAT TO FREE
WORLD OIL FLOW AND THE SOUTH ATLANTIC CONFLICT -- TO SERVE AS
CATALYSTS FOR ACTION, TO GIVE SEALIFT THE PRIORITY IT DESERVES,
WE MUST NOW LOOK WITHIN FOR OUR STRENGTH.
IF WE CAN ALL PULL TOGETHER -- THE MARITIME ADMINISTRATION,
AMERICAN FLAG SHIP OPERATORS, MARITIME UNIONS, NATIONAL LEADERSHIP
AND OUR NAVY -- WE WILL BRING NEW ORDER OUT OF YESTERDAY'S CHAOS.
WE WILL BREAK FREE OF THE MORASS WITH A NEW, INVIGORATED MERCHANT
MARINE STRENGTH.
WE MUST ALL WORK TOGETHER TO DEVELOP A SERIOUS NATIONAL PLAN
OF CORRECTIVE ACTION. OUR ECONOMIC STRENGTH DEPENDS UPON IT. OUR
MILITARY CAPABILITIES REQUIRE IT.
LET'S ONCE AGAIN MAKE AMERICA'S MERCHANT FLEET THE ENVY OF
THE WORLD!
THANK YOU & GOD BLESS.
AMERICAN INSTITUTION
*
AIMS
*
AMERICAN INSTITUTE OF MERCHANT SHIPPING
10
RCHANT
SHIPPING
April 29, 1983
Docket Clerk
Room 10421
Office of the Secretary
Department of Transportation (DOT)
400 Seventh Street, S.W.
Washington, D.C. 20590
Gentlemen:
The American Institute of Merchant Shipping (AIMS) is a
national trade association representing twenty-nine (29)
U.S. flag shipping companies which own or operate nearly 12
million deadweight tons of tankers and ocean-going bulk
vessels engaged in the domestic and international trades of
the United States.
The purpose of this letter is to submit AIMS comments
on DOT's notice of proposed rulemaking appearing in the
January 31, 1983 Federal Register, which provides for the
total repayment of construction differential subsidy (CDS)
and permanent entry for the vessels concerned into the U.S.
domestic trades. The proposed rulemaking states that the
purpose of this CDS payback approval is to "encourage the
development of an efficient and competitive U.S. flag mer-
chant marine by minimizing government obstacles to the
market place decisions of vessel operators." AIMS members
strongly feel that this radical policy change will have just
the opposite effect and will serve only to drive the existing
operators out of the domestic trades they have operated in
over the years, specifically the Alaskan North Slope (ANS)
trades: Valdez to the U.S. West Coast, Valdez to Panama,
and Panama to the U.S. Gulf and East Coasts. In this
connection, we are constrained to point out the gross in-
equity of drastically changing the rules in midstream. The
existing operators in the domestic trades have made sub-
stantial investments in recent years on a fixed set of
premises and on the basis of established lines of trade.
The DOT proposed rulemaking would totally upset this invest-
ment balance. The mere payback of CDS on an unamortized or
pro-rata basis as proposed can never put the former CDS
recipient and the existing domestic trade operator on an
equal competitive basis since the capital assumptions can
never be equalized, or even equated. Basically then, the
January 31 proposed rulemaking must be discarded because it
will work a completely inequitable result since its thrust
1625 K STREET. N.W.. SUITE 1000
WASHINGTON. D.C. 20006
TELEPHONE (202) 783-6440
TELEX 89-424 AIMSHIP WSH
-2-
is to jeopardize the substantial investments of the existing
ANS operators made in reliance -on the fixed and longstanding
national policy of a subsidized foreign trade and unsubsidized
domestic trade dual U.S. flag fleet. The subsidized operators
made a commitment to the foreign trades with taxpayer assistance,
they cannot now be permitted to shift wholesale into the
domestic trades and disadvantage those operators who have
relied on this policy.
In essence, we believe that the proposed rule should
not be promulgated since it is completely unrestrained in
its mandates. Not only is it wrong, but to change policy
radically as the proposed rulemaking would do, will be
catastrophic for the operators serving the ANS trades. Only
irreparable harm can result from permanently dumping at one
time all the CDS vessels wishing to payback into this already
overtonnaged trade, which has approximately 1.2 million
deadweight tons in layup. The large number of Jones Act
vessels currently tied up clearly demonstrates that existing
tonnage is more than adequate to meet demand. Only in the
Valdez-Panama trade has the capacity of Jones Act vessels
been inadequate, and this deficiency has been alleviated by
the Section 506 waiver mechanism. We recommend that the
Administration drop this proposed regulation and consider
changes in Section 506 waiver mechanisms of the Merchant
Marine Act of 1936, as amended, to deal with a more extensive
shortage of tonnage if it develops in the future.
The basic fact upon which any tanker carriage must be
based is the amount of cargo available. In this area the
DOT proposal-exceeds realistic projections with respect to.
future production of ANS crude in the 1990 time frame. The
DOT proposal posits a cargo availability based on oil pro-
duction increase from the present level of 1.6 million B/D
to 2.0 million B/D by 1990 stabilizing at this level through
1995. AIMS members engaged in the Alaskan North Slope crude
production and movement believe that the DOT proposal con-
siderably overstates ANS production in the 1990 time frame.
ANS crude production is currently about 1.6 million barrels
per day. It is possible for an increase in production to
1.8 million B/D by 1985 or 1986 as more production from the
Kuparuk field comes onstream. Prudhoe Bay production is
then expected to decline, which will far exceed any increase
from other known North Slope reserves. There is little
probability of maintaining even 1.8 million B/D of ANS
production during the latter part of this decade since
significant production from new discoveries will not occur
before 1990 and tertiary recovery programs will not increase
production, but only retard-declines.
As a consequence of these factors, it is far more
likely that production levels of ANS crude in 1990 will be
-3-
below the current 1.6 million B/D rather than the 2.0 million
B/D estimated by DOT in-its proposal. Thus, neither the
industry nor the promulgators of the proposed rule can look
to an increased volume of ANS production to lessen the
impact of unlimited CDS vessel entry into the ANS trades
during the 1985-1990 period. In short, the DOT proposal's
estimates of cargo availability upon which is based the
rationale for- CDS payback vessel entry are erroneous - all
other assumptions in the proposal regarding vessel avail-
ability and capability -- must thus fall with it.
In summary below are just some of the reasons our
members oppose total CDS payback and why the January 31,
1983 proposed rule should be abandoned:
1.
Catastrophic Losses would be inflicted on the entire
domestic tanker industry due to overtonnaging and low
rates.
This would cause reduced tax revenues to the government
and possible Title XI defaults of one billion dollars
(as against probably Payback of about $200 million).
There are 59 unsubsidized tankers built from 1968-1984
(or under construction) with about $978 million Title XI.
The market would be devastated not only by the vessels
that payback but by the other subsidized tankers that
potentially overhang the market.
2.
Unemployment in the seagoing work force would further
increase by an estimated 2,500. The skilled labor pool
would soon disappear, making it impossible to man
reserve vessels for national defense.
3.
National Defense will suffer as the U.S. Merchant Fleet
is reduced by an estimated 2,576,000 dwt, including
modern vessels of the type desired by the Navy for
national defense.
NOTE:
The Navy is currently building fleet oilers for $117
million each and chartering T-5 30,000 dwt tankers that
cost about $70 million each.
It seems a waste for the Government to 'spend such sums
on new ships while simultaneously destroying an existing
fleet of vessels!
NOTE:
The British employed 34 product tankers to support the
10,000 man Falkland's task force. Our support for
100,000 men in the Arabian Gulf would require several
hundred product tankers (including Navy orders).
-4-
4.
Construction Subsidy Payback is less effective than
it appears because it will be deductible for tax
purposes (i.e., depreciated over 5 years). Also,
certain VLCC's are already repaying CDS pro-rata on the
existing 6 month waiver program. Cancellation of
Operating Subsidy Contracts on the 80/90,000 dwt tankers
ensure that those ships will never trade foreign,
thereby sacrificing the benefits of having U.S. flag
vessels participate in international commerce and being
strategically located in case of emergency.
5.
Shipyards would have a smaller U.S. fleet to service,
and due to overtonnaging would lose any future oppor-
tunity for domestic newbuilding. Several yards were
discussing major conversion projects which are now on
the "back burner" due to the payback proposal.
6.
Future Capital Investment in shipping would be destroyed
due to a shattered market and the complete loss of
confidence in stable government policy.
7.
No Savings to the Consumer will be realized since the
delivered price of oil will be equal to other competi-
tive crudes.
8.
Windfall Profits would be experienced by the only two
companies which are pushing very hard for Payback,
having already taken advantage of government subsidy:
a)
American Petrofina - an American subsidiary of a
foreign company that would payback its VLCC's
WILLIAMSBURG and BROOKLYN.
Petrofina is not in financial jeopardy.
Petrofina now is in a better position than if it
had chartered foreign flag ships since it has six
month/year access to Alaska oil.
b)
The Berger Group - an individual whose 8 subsidized
80/90,000 dwt owner/operated tankers could payback.
Two of these vessels, the ULTRAMAR and ULTRASEA,
are controlled by American Ultramar, another
subsidiary of a foreign company.
Mr. Berger's ships have all been involved in longterm
charters. Mr. Berger's company is not in financial
jeopardy.
9.
Seatrain would attempt to payback its subsidy on the
VLCC's NEW YORK, MARYLAND and MASSACHUSETTS. However,
the financial burden of payback, the probable layup of
-5-
their 114,000 unsubsidized MANHATTAN, and rate pressures
on their already sanitized STUYVESANT and BAY RIDGE
would combine to aggravate Seatrain's precarious financial
restructuring. Government guaranteed debt (Title XI
and E.D.A.) at risk includes:
a)
$100 million -- Title XI on the three large VLCC's.
b)
$120 million original Title XI plus about $80
million of other guaranteed notes used to support
the CDS payback of the STUYVESANT and BAY RIDGE.
c) $100 million (approximately) Title XI debt needed
to payback the three VLCC's.
d) Total At Risk - over $400 million.
It is argued that millions of dollars will be returned
to the U.S. Treasury through CDS repayments, and the DOT
rulemaking estimates this CDS recoupment to the Treasury at
$200 million plus interest. We believe that these speculative
savings are largely illusory. If in fact $200 million is
repaid, the resulting tax effects cost the government almost
50% of the money repaid and so tax savings of $90-100 million
will return to the operators. In addition, failures of the
existing unsubsidized vessels may well trigger Title XI loan
guarantees of many hundreds of millions of dollars, as well
as lost personal income tax and corporate tax payments. The
net effect is that over the next five years, the government
may well generate a net loss rather than net income.
Any improvement in the government's Title XI exposure
on the present CDS vessels would be offset by the fact that
Section 1104 (a) (3) clearly permits Title XI guarantees to be
used to finance CDS repayment, and such guarantees would
undoubtedly be requested. Total Government Title XI exposure
will increase, not decrease. Clearly, the Title XI exposure
resulting from the present unsubsidized vessels driven from
the trade will far outweigh any money the Treasury might
realize from CDS payback.
It is stated in the rulemaking that "adoption of the
proposal would be consistent with the policies of the Act."
It is further stated as a basic justification for this
inequitable proposal that an efficient and competitive
domestic merchant marine should be encouraged primarily by
allowing it to compete freely in the commercial market
place. We contend that the proposed rule contravenes the
purposes of the Merchant Marine Act, 1936, as amended.
According to the Act, the responsible government entities
are charged with fostering and developing the merchant
marine with respect to the U.S. foreign trades. The pro-
posed rulemaking and its supporting documents seem to dwell
on the impact of this CDS payback initiative on the domestic
-6-
trades and do not at all analyze the impact of this ques-
tionable procedure on the U.S. flag merchant marine in the
U.S. foreign trades. This clearly contravenes the intent of
the 1936 statute which unmistakably establishes a dual U.S.
flag merchant marine system of subsidized foreign trade and
unsubsidized domestic trade. The proposed rulemaking is
substantially deficient and illegal in ignoring the impli-
cations and impact of the proposed permanent CDS payback on
the subsidized service of the U.S. foreign trades.
It is also deficient and illegal with respect to the
1936 Act mandate regarding the defense requirement for the
U.S. flag merchant marine. This is drawn into focus even
more by the Administration's public and avowed efforts to
improve our military capability overall, and especially
overseas. The withdrawal and reduction of U.S. flag vessels
in our domestic and foreign trades is contrary to this
effort as well as the statutory defense mandates.
The recent experience of the United Kingdom in their
efforts to conduct extensive military operations in the
Falkland Islands, eight thousand miles from England demon-
strated once and for all the necessity of a strong national
flag fleet that can be relied upon in the event of a national
emergency. It is quite clear that this modest U.K. military
operation, small in comparison to our rapid deployment force
concept for the Mid-East, could not have succeeded without
the contributions of the merchant marine components. Every
commentator and authority has noted the absolute contribu-
tion of the commercial fleet to this effort: container
ships, tankers, break bulk, passenger vessels and auxiliary
ships. Despite this warning example, this inadvisable rule
would further drastically reduce the size of our national
fleet. DOD itself has stressed the need for tankers of
50,000 dwt and less to provide support and resupply capability
to our Armed Forces, yet it is this very size vessel that it
is contemplated would be reduced severely in numbers if the
questionable policy under consideration is adopted.
Thus, as mentioned above, we contend that DOT has
completely ignored this crucial factor which is critical to
our national defense capability. The rulemaking conveniently
ignores this vital matter -- another major deficiency. Once
this proven defense capability is foolishly eliminated, it
can only be restored at great cost. For example, the con-
struction costs of these smaller tankers would exceed $75
million per vessel. This would quickly more than counterbalance
the alleged $200 million benefit derived from CDS repayment.
Moreover, in proposing the CDS payback rule, the Depart-
ment of Transportation is not "minimizing government obstacles
to the market place decision of vessel operators to operate
in the domestic trade," as it suggests, but overturning
-7-
longstanding maritime policy in the guise of economic "deregulation."
The "obstacles" to the entry of CDS-built vessels into the
domestic trade are statutory and contractual commitments
upon which domestic operators have relied. CDS and ODS
recipients made a "market place" decision to receive subsidy
and to operate in the foreign trade when it was advantageous
for them to do so. It is not unreasonable to ask them to
live with these commitments during the current downswing in
the foreign market.
Contrary to the Department of Transportation's stated
purpose of removing government interference in the domestic
trade, the proposed rule will have exactly the opposite
effect. If enacted, the rule will create instability in the
domestic trade. The proposed rule obviously precludes new
tankers from being built for our domestic trades for at
least 10 years, threatens reconstruction and repair work,
and makes any kind of domestic vessel financing all but
impossible. If the "ground rules" can change so radically
and for so little reason, it will be impossible for the
merchant marine community to make investment decisions of
any kind for either the domestic or the foreign trade. Far
from removing "obstacles" to the strengthening of the market
position of the U.S. fleet, the proposed rule creates an
environment of alarm, uncertainty and chaos in the U.S.
maritime industry.
Nor would the proposed rule reduce "economic regulations"
as alleged in the rule itself. DOT projects that some 15 of
29 possible vessels will repay operating subsidy and enter
the domestic trade leaving 14 tankers and all existing
liner vessels requiring a continuation of regulatory requirements
as called for by the Merchant Marine Act of 1936, as amended.
In other words, this change resulting from the rulemaking
would not eliminate the necessity of the subsidy mechanism.
The entire administrative-regulatory structure governing the
vessel subsidy system would remain intact for the remaining
subsidized tankers and the operating liner fleet. The
reduction of "economic regulation" would be de minimis to
non-existent.
It is argued in the proposed rule that the total
repayment of CDS and permanent entry into the domestic
trades will force the older, smaller inefficient vessels out
of service. We do not agree with the basic premise of the
rule with respect to the vessels it would force out and.
believe that to some extent the opposite effect will occur.
To begin with, the present market along with the requirements
of the Port and Tanker Safety Act of 1978 are of themselves
cleansing the U.S. Tanker Fleet of the so-called inefficient
and older vessels that are in need of substantial capital
expenditures, because of the legislative requirements.
Therefore, the permitting of subsidized vessels to enter the
domestic trades will impact almost totally on many now
-8-
existing modern vessels which have been constructed within
the -last ten years, a significant number of which are
covered by Title XI guarantees.
The basis of this proposed rule assumes that all modern
tonnage will find employment and that those vessels having a
larger capacity will displace the older and smaller vessels
now trading. It is important to understand, that due to the
existing restrictions in various domestic trades, which
relate to the shore storage, cargo sales, terminal, draft
and length restrictions, and regardless of whatever policy
is adopted, there will continue to be a need for a certain
number of smaller vessels, which in spite of their size, are
the most efficient in these restrictive trades. Moreover,
an older vessel is not necessarily less efficient or less
safe. There are many older vessels that are certainly in
comparable condition to some newer vessels.
The Department's argument that just a few old and small
vessels will be displaced is not a determination of competitive
impact. Congress long ago separated the foreign subsidized
and domestic unsubsidized vessels in order to promote both
trades. The purpose of the competitive impact test is to
protect the domestic trades which the proposed rulemaking
has failed to do. In failing to do so, the Department has
acted in an arbitrary and capricious manner and has abused
its discretion.
The proposed rule unfortunately creates a completely
unstable atmosphere in which the unsubsidized owner would
have to attempt to operate. This uncertain environment will
preclude operators from constructing new tankers for at
least ten years; reduce significantly, if not eliminate, recon-
struction and repair work; lower considerably the capital
value of unsubsidized vessels; and render impossible any
kind of planning for domestic vessel financing. The only
result of this ill-conceived rulemaking will be a climate of
wildly fluctuating rates which will initially fall to lay-up
levels, with every vessel in the domestic trades scrambling
for any possible share in the market. It is obvious that if
the basic ground rules upon which the operators have relied
and invested over all these years can be changed so radically
and for so little reason, it will be impossible for the
merchant marine community to cover its present debt obligations,
let alone make any kind of investment or operating decisions.
Contrary to the avowed purpose of the. proposed rulemaking
to strengthen the domestic fleet, it will impose a climate
of instability, uncertainty and chaos which will be not only.
detrimental to the unsubsidized tanker operators, but will
go a long way toward destroying them. Is this what the
Department of Transportation really wants? Is this the long
awaited and much heralded maritime policy of the Administration?
-9-
The proposed rulemaking is both shortsighted and
deficient in not considering and weighing into the equation,
the Administration's notion of possibly selling Alaskan
North Slope (ANS) oil to Japan. There has been talk of
selling between 300,000 to 800,000 B/D of ANS oil to Japan,
which would displace more than 50 percent of our domestic
fleet in the higher ranges. The inimical impact on the U.S.
domestic tanker fleet from the export of Alaskan oil would
occur absent the payback rule, which will all but destroy
the U.S. domestic tanker fleet on its own. Put another way,
if the Administration and the Congress should go forward
with the export of Alaskan oil, which we oppose, there would
not be enough left for the CDS payback concept to impact
upon. Although the proposed rule is deficient in many
aspects, it is certainly deficient inasmuch as it failed to
analyze the impact of the possible export of ANS oil on the
CDS payback scheme. It is our position, of course, that the
proposed rulemaking should be abandoned. Under no circumstances
should it even be considered until the issue of the export
of ANS oil to Japan is resolved.
A corollary deficiency in the proposed rule is its
failure to consider the effect on the non-ANS trades. The
rulemaking does not analyze the impact on rate structure and
service in the non-ANS trade when smaller vessels are
displaced. The Department's own analysis and admission
indicate that half of the Jones Act tonnage is in the non-
ANS trade.
The far-ranging consequences of the proposed rule are
awesome. It will result in a significant decrease of the
U.S. domestic and foreign merchant fleets, and once these
components are destroyed, it must be realized by the framers
of the rulemaking, they cannot easily be replaced--if at
all. The results of this can only be a severe loss of jobs and
tax revenues. The proposal does not benefit anyone except a
select few shipowners and impacts adversely on many, so that
it is opposed by most of the shipowners and operators, by
most petroleum companies, in whole or in part, by the
maritime labor unions--save one, and by the ship builders.
One of the insidious aspects of the rulemaking is that it
would set a precedent that could extend far beyond the
tanker segment of the industry and could upset the balance
of the entire industry. How long, for example, would it be
until the same proposal is advanced for the liner segment?
The proposal is in fact a radical policy change which
should not be done by a rulemaking. It is in essence
legislating by rulemaking and thus illegal. We submit that
such a sweeping policy change can only be effected by.
legislation. If laws and basic policy governing the U.S.
flag merchant marine are to be changed, it can only be done
by the Congress.
-10-
The proposed rule is clearly illegal since it does not
comply in any way with the numerous regulatory provisions
mandated by Executive Order No. 12291 (February 17, 1981,
46 F.R. 13193). E. O. 12291 specifies in its preamble that
its purpose is "to reduce the burden of existing and future
regulations, increase agency accountability for regulatory
actions, provide for presidential oversight of the regulatory
process, minimize duplication and conflict of regulations,
and insure well reasoned regulations." All of this should
govern the January 31 rulemaking. Unfortunately, nowhere
does the rulemaking give recognition to the mandates of the
Executive Order, which states that:
# (b) 'Major Rule' means any regulation that is likely
to result in:
(1) an annual effect on the economy of $100 million
or more;
(2) A major increase in costs or prices for consumers,
individual industries, Federal, State, or local
government agencies or geographic regions; or
(3) Significant adverse effects on competition,
employment, investment, productivity, innovation,
or on the ability of United States based enter-
prises to compete with foreign-based enterprises
in domestic or export markets."
Clearly the January 31 proposed rulemaking will impact
on the economy much in excess of $100 million and probably
also falls within the purview of the other standards for
inclusion as a "major rule" as set out in Subsection (b).
The record of the hearing of March 3, 1983, held by the
Merchant Marine Subcommittee of the House Merchant Marine
and Fisheries Committee, shows many ways in which the
proposed rule would affect the economy in excess of $100
million such as the amount of interest payment that would
be returned to the Government, the amount of Title XI defaults
that would occur, and the business and employment dislocations
that would result.
Since the proposed rulemaking does not comply with the
many prescriptions and standards of E.O. 12291, such as the
preparation and consideration of a "Regulatory Impact
Analysis," the rulemaking under consideration is, we believe,
invalid and illegal.
We would hope that the Department would consign this
divisive and destructive proposed rule to regulatory limbo,
devote its considerable energies and talents to more positive
initiatives, and consider changes in existing legislation to
deal with tonnage shortages if they develop in the future.
-11-
If this questionable rule were to be adopted it would
cause serious economic damage to the unsubsidized domestic
operators in the ANS trades, breach existing and traditional
maritime policy which the unsubsidized operators have
relied on in making very substantial investments in their
domestic fleets, and would not assist in national defense
but would in practice be detrimental to the nation's defense
capability.
As pointed out, the proposed rule has serious flaws and
glaring omissions in its economic analyses, does violence to
many of the major provisions of the Merchant Marine Act,
1936, as amended, is unfair, ill-conceived, untimely and
would accomplish nothing more than introduce uncertainty and
chaos into an already faltering U.S. flag merchant fleet.
Sincerely,
W. M. Benkert
President
The Intrnal of Commerce
AND COMMERCIAL
NEW YORK, WEDNESDAY, JUNE 15, 1983
Subsidy Refunds Viewed
Harmful to Government
By ROBERT F. MORISON
with "large cancellation payments to
Journal of Commerce Staff
the owners."
WASHINGTON - A non-subsi-
The federal government, he added,
dized tanker operator believes the
should be aware that a primary
Department of Transportation is
beneficiary of the policy (refunding)
wrong from beginning to end in its
would realize a much larger profit
proposal to allow tanker operators
from the cancellation of the charter
with vessels built using federal subsi-
than could ever be realized from its
dies to repay this aid in return for
observance.
being admitted to domestic trades.
"This' cancellation payment, de-
While the DOT analysis underlying
posited in tax-deferred funds and
its proposal envisages $200 million or
used to repay Title XI (government-
more coming back to the govern-
insured ship mortgages) debt at the
ment, Jack Goldstein, vice president
end of the life of the vessel, would
and economist for Overseas Shiphold-
create an unsurmountable competi-
ing Group Inc., insists the govern-
tive advantage" for those operators
ment instead "would suffer substan-
paying back their subsidies, he added.
tial economic losses as a result-of the
In Mr. Goldstein's view, the pro-
rule."
posed rule, so worrisome to the
This would occur, he told a break-
established non-subsidized tanker op-
fast meeting Tuesday of the Propeller
erators in the Alaskan-Lower 48
Club here, because of tax write-offs of
states trade, also "contradicts" Presi-
such sums, threats of losses of $800
dent Reagan's endorsement of the
million to $900 million in govern-
Jones Act protection for non-subsi-
ment-backed mortgages on compet-
dized domestic carriers.
ing non-subsidized ships, and loss of
He also claimed that the rule
federal income tax revenues from
would have adverse national defense
fidled crewmen.
consequences, and is "based upon a
In short, he argued, "this does not
collection of misstatements, impres-
appear to be an advantageous deal to
sions, and assorted visions of the
the federal government."
tanker market that do not reflect
Mr. Goldstein also claimed the
reality."
He rapped DOT's proposal for
most active proponents of the rules
anticipating that only the old, small-
among 15 or so subsidy-built tank-
er, and less efficient tankers would be
ships have their ships under charter.
"bumped" out of the trade by admis-
Implementation of the rules would
sion of the subsidy-built tankships.
result in possible "massive windfall
"You can't bump out vessels that
profits - at no economic risks" as
have already been bumped," he
these long-term charters in the de-
added, explaining that 52 to 126 older
pressed foreign trade are liquidated
tankers already have been idled and
claiming that modern, larger, non-
subsidy-built vessels, too, would be
threatened.
As for freeing Alaskan oil for sale
to Japan - tied to making up such
volume by imports from Mexico with
U.S.-flag preference attached - Mr.
Goldstein said that "wouldn't help
very much"
Subsidy Refunds Held
He also rejected the argument that
Harmful to Government
admitting the bigger, more modern
subsidy-built tankships to the trade as
a benefit to consumers, has an
absurdity" and would have "no effect
on consumer costs."
ATTACHMENT "B"
COVE CHARTERING INC WALL STREET PLAZA, NEW YORK, N.Y. 10005
(212)
422-3355
Tetex
RCA 222007
ITT 424126
Cables: COVESHIPS or MOUNTSHIP
TWX: (710) 581-2467
JUNE 17, 1983
VESSEL LAY-UP - TANKERS
DEADWEIGHT TONS
(IN THOUSANDS)
VESSEL
OWNER
LOCATION
LAID-UP SINCE
17
LOMPOC
UNION
PORTLAND
FEB. 1981
24
SCORPIO
HESS
ORANGE, TX.
JUNE 1981
24
CAPRICORN
HESS
ORANGE, TX.
JUNE 1981
24
PISCES
HESS
ORANGE, TX.
JUNE 1981
26
RED RIVER
SABINE
PORT ARTHUR
APRIL 1982
26
COVE SPIRIT
COVE SHIP
MOBILE
APRIL 1982
24
MARINE TEXAS
MTL
BEAUMONT, TX.
APRIL 1982
20
MONA
LASC
BALTIMORE
MAY 18, 1982
26
BRAZOS
CORCO (TC)
PORT ARTHUR
MAY 1982
27
TEXACO KANSAS
TEXACO
PORT ARTHUR
JUNE 1982
27
MEADOWBROOK
KEYSTONE
SAN FRANCISCO
JULY 1982
51
OVERSEAS ANCHORAGE
MOC
JACKSONVILLE
JULY 1982
29
MONMOUTH
KEYSTONE
ORANGE, TX.
AUG. 1982
31
ARCO ENDEAVOR
ARCO
ORANGE, TX.
AUG. 1982
38
OVERSEAS ULLA
MOC
JACKSONVILLE
AUG. 1982
33
SAROULA
PRUDENTIAL
ORANGE, TX.
AUG. 1982
20
SUZANNE
LASC
SAN FRANCISCO
OCT. 1982
38
OVERSEAS ALEUTIAN
MOC
JACKSONVILLE
NOV. 1982
31
GULF SOLAR
GULF
PORT ARTHUR
JAN. 1983
- 2 -
DEADWEIGHT TONS
(IN THOUSANDS)
VESSEL
OWNER
LOCATION
LAID-UP SINCE
27
TRINITY
SABINE
PORT ARTHUR
MAR. 1983
30
MEDINA
SABINE
PORT ARTHUR
MAR. 1983
30
COVE COMMUNICATOR
COVE
MOBILE
APRIL 1983
39
FREDERICKSBERG
HESS
ST. CROIX
MAR. 1983
39
CHARLESTON
HESS
ST. CROIX
MAR. 1983
29
COVE RANGER
COVE
PHILADELPHIA
MAR. 1983
30
DINA
L.A. STEAMSHIP
NEW HAVEN
MAR. 1983
27
BORDEAUX
TRINIDAD
TAMPA
MAR. 1983
27
AMERICAN TRADER
AMERICAN TRADING
TAMPA
APRIL 1983
49
MT. WASHINGTON
VICTORY
PORT ARTHUR
MAY 1983
62
GOLDEN GATE
KEYSTONE
SAN FRANCISCO
APRIL 1983
27
HOUSTON
APEX
PORTLAND
MAY 1983
26
TEXACO MASSACHUSETTS
TEXACO
PORT ARTHUR
APRIL 1983
34
AMERICAN OSPREY
AM. FOREIGN
PORT ARTHUR
MAY 1983
49
OVERSEAS JOYCE
MOC
JACKSONVILLE
MAY 1983
31
COVE NAVIGATOR
COVE
MOBILE
MAY 1983
28
SABINE
SABINE
MAY 1983
25
FRIO
SABINE
PORT ARTHUR
MAY 1983
27
SAN JACINTO
APEX
PORT ARTHUR
JUNE 1983
25
COVE TIDE
COVE
MOBILE
JUNE 1983
26
TEXACO MONTANA
TEXACO
PORT ARTHUR
MAY 1983
40
TOTAL VESSELS LAID-UP - TANKERS
ATTACHMENT C
CDS PAYBACK
SUPPLEMENTAL LIST OF DOCUMENTS IN OPPOSITION TO CDS PAYBACK:
C-1
ARCO TRANSPORTATION COMPANY LETTER 4/27/83
C-2
SENATOR RUSSEL LONG
LETTER 3/25/83
SENATOR J. BENNETT JOHNSTON LETTER 3/25/83
SENATOR WENDELL H. FORD
LETTER 3/25/83
SENATOR PAUL TRIBLE
LETTER 3/25/83
SENATOR JOHN WARNER
LETTER 3/25/83
SENATOR THAD COCHRAN
LETTER 3/25/03
C-3
SENATOR J. BENNETT JOHNSON LETTER 3/22/03
C-4
CONGRESSMAN ROBERT L. LIVINGSTON LETTER 2/23/83
ARCO Transportation Company
ATTACHMENT C-1
515 South Flower Street
Los Angeles, California 90071
Telephone 213 486 6019
H.E. Bond
President
April 27, 1983
The Honorable Elizabeth H. Dole
Secretary of Transportation
Department of Transportation
Washington, D.C. 20500
Dear Madam Secretary:
I wish to express my opposition to the proposed rule to
permit repayment of the subsidies granted Construction
Differential Subsidy ships. Permitting any and all
vessels to repay the construction subsidy would have a
devastating impact on the Jones Act fleet in the United
States.
Contrary to publicly expressed opinions, the Alaskan oil
trade is not "lucrative". Ships in this service are
making rates of return that are generally less than other
investment opportunities of oil companies. Flooding the
market with these previously subsidized ships would be
unfair to the many companies who have invested in Jones
Act vessels under the existing rules.
Very truly yours,
7HS Band
ATTACHMENT C-2
United States Senate
WASHINGTON, D.C. 20510
March 25, 1983
The Honorable Elizabeth H. Dole
Secretary of Transportation
400 Seventh Street, S.W.
Washington, D.C. 20590
Dear Madam Secretary:
We are greatly concerned by the Department of
Transportation's proposed regulations on payback of construc-
tion differential subsidies ("CDS"). The proposed regulations
would establish a new policy which would adversely affect
our nation's economy and security.
According to the January 31, 1983 notice, the objectives
of this proposal are to: (a) replace smaller tankers in the
Alaskan North Slope oil trade with larger CDS-built ships
presumed to be more efficient; (b) reduce the cost of trans-
porting Alaskan oil; and (c) benefit the government financially
by recapturing CDS funds and reducing exposure under Title XI
ship mortgage guarantees. We question whether the proposal
will accomplish these objectives.
The "bumping" of smaller ships in favor of larger ones
will not increase efficiency because many of the smaller
ships are the newest, most efficient tankers available.
Similarly, there is no assurance that the use of larger
ships will lower the cost of transporting the oil; it may
simply raise the profits of the ship's operators.
The supposed financial benefit to the government is
equally illusory. Instead of increasing revenues to the
Treasury or reducing Title XI risks, it merely shifts money
from one pocket to another by allowing new Title XI guaran-
tees to be issued to repay CDS. It also may result in the
default of other Title XI loans on the many smaller ships
whose future operation is jeopardized by this proposal.
Furthermore, it is apparent that the significant,
adverse effects on the shipbuilding and ship operating
industries, as well as our national security, have not even
been studied in the preparation of this proposal. These
issues concern us greatly.
The Honorable Elizabeth H. Dole
March 25, 1983
Page 2
As you are no doubt aware, President Reagan's Executive
Order 12291 requires extensive economic analysis of any
proposed regulation which is likely to affect the economy by
at least $100 million annually. In a recent hearing before
a Committee of the House of Representatives, Deputy Assistant
Secretary Swinburn testified that these regulations would
"cut off" shipbuilding for the affected trades. This alone
would result in a loss of over $250 million per year to
shipbuilders. At least another $50 million per year would
be lost to each involved ship operator. We urge you to
follow the guidelines of Executive Order 12291, and conduct
a complete analysis of these regulations before they are
implemented.,
Secretary Swinburn's testimony contained the startling
admission that no review of the effect on our nation's
security had been done. This proposal's certain adverse
effects on the many smaller vessels which may be retired and
which may be vital to the national security, must be thorough-
1y studied and reviewed by the Department of Defense before
these regulations take effect.
In view of these obvious problems with this proposal,
we urge you to withdraw the proposed rule and appoint an
interagency task force to study the far reaching economic
and national security implications of this proposal.
Sincerely,
Kussece Russell Long Long
Paul Trible
John John Warner Warner
J.
Bennett Johnston
Audull Jord
Wendell H. Ford
Thad Cochran
Hawill Howell Heflin
JOHNSTON
ATTACHMENT C-3
Mnited States Senate
WASHINGTON, D.C. 20510
March 22, 1983
The Honorable Elizabeth Hanford Dole
Secretary of Transportation
400 Seventh Street
Suite 10200 Nassif Building
Washington, D.C. 20590
Dear Madam Secretary:
I am writing to express my concern about the proposed rule your agency
issued in January to allow a blanket payback of construction differential
subsidies (CDS) by vessels desirous to enter the Domestic Jones Act Trade.
I was very surprised to learn that your predecessor invoked formal
administration rulemaking process as the initial and sole mechanism to
receive comments by the public, industry, labor and other key parts of the
executive branch as well on such a radical change in policy. I understand
Deputy Assistant Secretary Charles Swinburn candidly admitted in testimony
March 3 before Chairman Biaggi's Subcommittee on the Merchant Marine:
"The analysis stopped, if you will, with the economics. It did not get into
the defense needs questions of those smaller ships." That a purported
Departmental analysis of this issue failed to seek Department of Defense
comments on such a profound issue prior to initiating anything as formal
as administrative rulemaking process wholly taints the current process.
Even if the Department of Defense is able to file comments sometime prior
to the close of the April 1 comment period, I and many others concerned
with our defense readiness are precluded from considering our own comments
in light of those of the Department of Defense. This Administration has
rightly prided itself on development of policy which requires interagency
complexity and expertise by careful and coordinated cabinet council or
interagency consideration. The process currently employed by your Department
on this proposed rule fails to meet your own usual stated standards. And,
of course, the Department of Defense is just one agency of the executive
branch whose views should have been sought and whose comments I would also
like to review to make my own informed comment.
The issues and analysis required for a significant policy impacting
the domestic tankers trade are not simple; rather, quite complex. I
see no reason for rushing through a truncated, shortcircuited process that
precludes meaningful analysis and input.
From what I have seen and heard thus far, I am inclined to raise my strong
objection to the finalization of such a proposed rule. I am concerned with
the harmful impact on the domestic shipping industry; I question whether the
method proposed for the CDS payback does in fact out the non-subsidized shipping
The Honorable Elizabeth Hanford Dole
Page -2-
March 22, 1983
on an equal competitive footing with the former subsidized shipping; I am
immensely concerned with the national security implications of the proposed
rule; I question the outcome and effect of what Mr. Swinburn admitted in his
testimony was a related issue - the sale of Alaskan oil to Japan; I am not
pursuaded that there really is an actual increase of revenues to the Treasury
since new Title XI guarantees will be issued to repay CDS and the real
possibility of default by non-subsidized ships driven from the domestic trade
by the entry of the CDS vessels (Mr. Swinburn testified that it never occurred
to him that the recent built ships might be adversely affected); I
am concerned about the loss of jobs if the number of vessels likely to be
driven from the domestic fleet is as great as industry predicts; and I am
concerned about the disincentive this proposal has for proposed new buildings
in the domestic fleet. These and other questions concern me greatly, and the
analysis and data needed to supply answers must come from many perspectives
other than the Policy Office of the Department of Transportation.
For these reasons, I strongly urge that you structure a new interagency
evaluation process that includes input from all relevant quarters of the
government and private sector, public hearings, and an opportunity for all
of us to review and comment on that input before finalizing any Rule allowing
blanket payback of CDS. It would seem that the most appropriate agency to con-
duct such an evaluation is the Maritime Administration, as the agency in the
Executive Branch and within your Department with the delegated expertise and
specialization to undertake the conduct of súch a study.
I welcome your prompt reply.
With warm regards, I am
Sincerel
J. Bennett Johnston
United States Senator
WASHINGTON OFFICE
ROSERT L LIVINGSTON
ATTACHMENT C-4
Room 306
18ʳ DISTRICT, LOURSIANA
CAMNON House Office BULDENS
APPROPRIATIONS COMMITTEE
WASHINGTON, D.C. 20515
BUSCOMMITTEES
(202) 223-3018
FOREIGN OPERATIONS
DISTRICT OFFICE
PR, HEALTH. HUMAN SERVICES,
642 F. EDWARD HONORT Buildess
AND EDUCATION
$10 SOUTH STREET
Congress of the United States
New ORLEANS, LOUISIANA 70130
(504) 580-2753
Pouse of Representatives
Mashington, D.C. 20515
February 23, 1983
The Honorable Elizabeth Dole
Secretary of Transportation
400 Seventh Street, S.W.
Washington, D. C. 20590
Dear Madam Secretary:
As a follow-up to my conversation with Admiral Harold
Shear, I am writing to express my grave concerns regarding
your Department's proposed rulemaking published January 31
to allow repayment of construction-differential subsidies and
ultimate re-entry of CDS vessels into domestic trade.
This proposal is a serious departure from past policy
where CDS vessels have only been permitted to enter the domestic
trades on a case-by-case basis for up to six montha a year.
Only on two occasions of which I am aware have these vessels
been allowed permanent entry strictly because U.S. flag un-
subsidized vessels were unavailable at the time.
Adoption of this new policy will result in the admission
of numerous CDS vessels into the already over tonnaged domestic
trade routes. It is presently estimated that the domestic
trades already have an existing surplus of vessels which total
over 2.5 million deadweight tons. As a result, the permanent
entry of CDS vessels into the domestic trades will mean the.
scrapping and layoff of numerous lower deadweight tonnage
vessels already in the domestic trades, including those in the
20,000 to 35,000 deadweight range. In addition to the hardship
placed on present domestic trade operators, the 20,000 to 35,000
deadweight vessels are the very vessels that our Navy depends
upon for use in the event of a national emergency.
The.Honorable Elizabeth Dole
February 23, 1983
Page Two
While I am opposed to the Department's new proposals,
I request that you not consider adopting any proposed rule
along these lines until Congressional hearings have been held
on this issue and the entire domestic trades matter.
Thanking you in advance for your consideration, I remain
Sincerely,
ROBERT L. LIVINGSTON
Member of Congress
RLL:pcj
CC: Honorable Walter Jones
Admiral Harold E. Shear
ATTACHMENT D
The Imurnal of Commerce
AND COMMERCIAL
NEW YORK, WEDNESDAY, JUNE, 22, 1983
New Tanker for Ingram
May Be Last of Its Kind
By MAUREEN ROBB
Journal of Commerce Staff
SAN DIEGO - The last ship scheduled to be built for the independently
owned U.S. tanker fleet was christened Tuesday, and maritime interests
claimed that it may be the last such vessel ever ordered from a U.S. shipyard.
National Steel and Shipbuilding Co. has just completed the 658-foot Hunter
Armistead for Ingram, which plans to offer the tanker for hire to the oil
industry and the Military Sealift Command
But the American Maritime Association, a Washington lobbying group
that represents many U.S. tanker owners, issued a statement claiming that a
Transportation Department proposal to allow subsidized U.S.-flag vessel
operators to pay back their subsidies and enter the domestic trade would put a
number of unsubsidized tankers out of businesses.
Under the Merchant Marine Act, only unsubsidized ships can operate in
U.S. domestic trades.
Ingram's new diesel-powered ship, which can carry up to 300,000 barrels of
petroleum products, will be particularly suited to carry Alaskan and
Californian oil to domestic markets, according to the company.
Of Ingram's 33 tankers operating worldwide, four are used in this
country's domestic markets The four are known as independent tankers, or.
those not owned by an oil company.
While Ingram itself is not a member of the American Maritime
Association, It does belong to a related group, the American Balk Ships
Operators Committee, which takes a similar position on the DOT proposal
According to the American Maritime Association, operators of indepen-
dent unsubsidized tankers could be forced to default on some $1 billion of
government guaranteed loans if the proposal takes effect.
Among other things, the DOT has "grossly overestimated" future Alaskan
oil production figures, the group charged
While the agency assumes that 1985 production will come to 2 million
barrels per day and projects. a demand for .6.4 million deadweight tons of
shipping capacity by that time, Alaskan oil producers themselves disagree with
these predictions, the maritime group claimed
THE WHITE HOUSE
WASHINGTON
December 8, 1983
MEMORANDUM FOR JIM CICCONI
FROM:
DANA ROHRABACHER DR
Subject:
Jumbo Barge Carrier
Demonstration tests will be conducted of the Jumbo
Barge Carrier design at 1 p.m. on December 15th and
16th at the David Taylor Naval Ship Research
Development Center in Bethesda, Maryland.
A quick lunch will be hosted by the designer, Ben
Tornqvist, at the Capitol Hill Club at 11:30 a.m. both
days. Immediately after lunch, transportation, if
needed, will be provided to and from the test facility.
Confirm with me if you will be attending the lunch, the
demonstration test, or both. My number is 456-7951.
ADC call Dana's office
and interested in This idea,
pl regret. am still
very enough but can't to break Thanks do this. away Tell long him thanks.
te
From small river ports via JBC to small or large oversea ports
The JBC concept was designed and developed by
Capt. Bengt W. Törnqvist, Sweden. He has previously
designed many of the first RO/RO ships and automo-
bile carriers for Wallenius Line and the fleet of vessels
currently operated by Atlantic Container Line. Many
combination vessels for bulk and container cargo in-
cluding the BORO ships are also of his design.
The JBC is based on the trapetzoidal hull form for
which patents have been obtained in USA, France
and England and for which patents are pending in
other shipbuilding countries.
Patents are also pending for the JBC system in
all shipbuilding parts of the world.
World marketing rights for the Jumbo Barge Car-
rier System have as of January 1982 been secured by
JUMBO BARGE SHIPPING & COMMERCE LTD.
200 Park Avenue, Suite 4402. NEW YORK, N.Y. 10166, USA
Phone: 212-687-1549. Telex: 66200 JBC 662 000 JBC
We will be pleased to provide further information
about JBC, license holders and sales agents.
The Chrysler Bldg.
405 Lexington Ave.
JUMBO BARGE CARRIER
JBC-the new concept in deep sea transportation
Float on
Float off
Complete exchange of eight laden barges
within eight hours.
Large ship economy
Small ship versatility
Lower bunker cost per cargo mile
Port time reduced to a minimum
Stevedoring and terminal costs reduced
Fewer ballast voyages
Flexible cargo combinations
Multipurpose
The overall result of these features adds up to higher
profits and more competitive freight rates.
Eight fully laden arriving barges can be floated off
and eight departing barges, also fully laden, can be
floated on in a total time of about eight hours.
The eight arriving barges may then be towed to
the desired terminal and unloaded in the most practi-
cal way during normal working hours.
to
Proposed main particulars
Length over all
408 m=1,340 feet
Breadth moulded
75 m= 246 feet
Breadth at bottom
42-58 m=138-190 feet
Draught during navigation
10- 13 m= 33- 43 feet
Draught during loading and
unloading operations
21-25 m= 69- 82 feet
Main machinery diesels
30,000-120,000 BHP
Speed in service
15-24 knots
The stability and safety obtained thanks to the
IIII -
trapezoidal hull form shown below also per-
mits even a large superstructure for passen-
ger and passenger cars.
Midships sections!
B
Basic type of barge=10,000/22,000 DWT
Length-90 m
Width-32 m
Draft-6.0/9.5 m
5 basic barge types providing multiple cargo combinations
Bulk cargo
Grain/Coal/Steel
Oil/Pipes
Grain/Steel/Oil
Oil in bulk
Lift on/Lift off
Lift on/Lift off
&
RO/RO barge
barge
RO/RO barge
The possibilities of cargo combinations
are only as limited as the imagination
of the shipper.
The flexibility allows the basic
barge to cater for virtually any combi-
nation of cargo loads.
Container barge
Grain/Steel/Oil
Lift on/Lift off
Bulk barge
1030 TEU
The JRC concept offers entirely new dimensions in creative shipping!
JBC
Jumbo Barge Shipping & Commerce Ltd.
INTRODUCTION:
Rising costs have precipitated a radical re-appraisal of ship
utilization, within which the size and type of vessel are
primary considerations. The need for even more economical and
versatile operation in the future is apparent to everyone
engaged in this industry.
It affects all sectors of shipping, covering conventional cargoes,
dry and liquid bulks, and containerized operations.
In the long history of shipping, the container revolution has
changed this industry faster than anything before, including the
transition from sail to steam.
Today, it is estimated that only about half of the potential for
containerized operation has been realized, so there is considerable
scope for future growth, even during periods of world trade
stagnation.
While the Jumbo Barge Carrier concept is suitable for all types of
cargo - including Ro-Ro (trailers and cars) and bulk, we would
like to present our initial thoughts against the background of
containerized shipping on the North Atlantic and, most of all,
considering the many possibilities of combined container traffic
between North European ports and U.S. East Coast ports with bulk
cargoes of grain, coal, steel and forest products in one or more
of the barges.
Currently, about 20,000 boxes are being shipped every week in each
direction, and the traffic is still slowly increasing. The
traffic is very much concentrated on the ports of New York and
Rotterdam. New York is presently offering about 40 sailings per
month to Rotterdam with general cargo and containers.
The lines operating on the North Atlantic route give at least a
weekly service to the major ports, with ships having a capacity of
700 to 2,000 boxes-
The ACL Group has recently ordered five larger combination ships
for containers and Roll-on/Roll-off cargo. They have a capacity
of 2350 TEU plus about 800 cars. The U.S. Line has ordered 14
ships in Korea, which ships are pure container carriers with a
capacity of 4200 TEU. The speed of the ACL ship as well as the
U.S. Line ship is reported to be about 18 knots in service.
The obvious solution for reliable and economical liner services on
this route seems to be larger ships. Larger ships will, however,
meet many difficulties in the existing port installations. Large
ships will also be more sensitive to strikes. The time for
loading and unloading, say, 3,600 boxes will also be out of
proportion in this trade, with an estimated 35%-50% of the ship's
life being spent in port.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 2 -
A study in order to arrive at the most suitable and economical
vessel and transport system for the trade (and the North Atlantic
liner trade is considered to be the most competitive in the
world!) has to take many complex factors into account. Apart
from cargo potential, the various types of cargo, the present
freight rates, frequency of sailings, ports of direct call, and
type of feeder service, the following cost factors have also to
be taken into careful consideration:
a) bunker prices and speed
b) stevedoring costs and time
c) crew and maintenance costs
During the past twelve years bunker prices have increased from
$15.- - per ton for heavy diesel fuel to approximately $200. - at
present. Light diesel fuel has increased from $20.- to $350.-
per ton in the same period. It may well be that, by the end of
this decade, we are faced with a price for heavy diesel fuel of
$400. - to $500.- - per ton. If the 1970 fuel bill for a container
vessel amounted to $30,000 for a round voyage, it is today $350,000,
and by, say, 1988, it may well exceed $1 million for the same
voyage.
When it comes to the stevedoring costs, the most important
consideration today is to slash time in port. Regardless of the
number of stevedoring people employed, every effort is made to get
the ship out of port as fast as possible, and on scheduled time.
When the vessel is delayed due to any one of many possible reasons,
it is sometimes difficult and always expensive to obtain
stevedores to work overtime. In order to catch up on lost time,
the vessel may then have to increase speed between ports,
resulting in still higher fuel costs. When overtime is worked, the
already high loading and unloading costs are getting still higher.
Better utilization of expensive capital equipment by ports can be
achieved with a Jumbo Barge service, by more flexible scheduling of
working arrangements on its berths.
With increasing wages and shorter on-board working hours, and the
fact that each ship has to have a double crew, the operating costs are
escalating year by year. The same goes for repair and maintenance
costs, all on top of the largestsingle operating cost factor, bunkers.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 3 -
AN ALTERNATIVE CONCEPT: THE JUMBO BARGE CARRIER
In order to meet the requirements just stated, to solve the problems
and give a reliable, economic transportation service for the North
Atlantic trade, consider the following:
Two large barge carriers of a new design - JUMBO BARGE CARRIERS -
are built. More detailed particulars are given in the attached
brochure. The carriers, called JBC Ships, are estimated to cost
between $85 and $100,000, 000 per vessel depending on where the ships
are built and which speed is required. The JBC Ship for this
particular trade with a service speed of 24 knots could carry 8
barges with an average capacity each of 1000 TEU containers or a
total of 8000 units. In the event that such large quantities of
containers are not available, two or more of the barges could carry
bulk cargoes of grain or coal one way and steel or forest products
on the return voyage. One of the barges could also be built for
carrying Roll-on/Roll-off cargo in combination with containers
and/or bulk parcels. With such a fast vessel calling on New York
and Rotterdam the round-trip, with a safe margin, can be done in
14 days. Two JBC Ships can consequently give a weekly service to
the ports mentioned.
Loading and unloading of the barges to be carried out in sheltered
waters in the Roads outside the ports. The barges are floated on
or off the U-shaped JBC Ship when she is lying at anchor partly
submerged. After the barges are floated off, they are towed to the
normal berth and unloaded/loaded as any conventional vessel. This
operation can, however, be spread over a full week, and can be
carried out during normal working hours.
The barges are constructed to permit towage from, for example,
New York to Baltimore, or from Rotterdam to Antwerp, London or
Le Havre. Longer distances, such as Hamburg, Bremen and Scandinavian
ports, might be served by feeder vessels if so required.
Barges can be built in different lengths, or with different container
capacity, to suit the requirements of particular ports. The barges
can also be built to carry Ro-Ro cargo such as trailers and cars,
and/or containers. With one set of barges on board each JBC Ship
and one set on each side of the Atlantic a total of 32 barges is
required for the system. Each barge is estimated to cost $5 million.
Two vessels and 32 barges and some barges in reserve plus costs
during building time are calculated to amount to about $400 million.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 4 -
Various barge-carrying systems are currently in operation. We
have the LASH and SEABEE systems, as well as BACAT. They have
drastically reduced time in ports. They are, however, working
with rather small barges suitable for break-bulk cargoes. The
largest carrier can load 28 barges, each carrying 800 tons of
cargo. The barges have a rather limited volume capacity and could
not be economical or practical for loading large numbers of
containers or Ro-Ro cargo.
Compared to conventional vessels of maximum size for this trade,
the Jumbo Barge Carrier system offers substantial savings in
bunkers and crew costs, as well as significant reductions during
loading and unloading operations. JBC Ships spend 90% of their
time at sea, transporting cargo, and even though large quantities
of containers are loaded/unloaded, the time in or outside the
ports is only between 10% and 15%. The barge investment cost may
be said to be high, but the fact that the barges also serve as
warehouses, resulting in less storage area required in the port,
should be considered.
Stevedoring costs are also likely to be reduced, as operations
can be carried out during normal working hours. Barges are
available for a full week for loading/unloading.
The most interesting and attractive aspect comes from the
flexibility that the barge system offers, as practically all kinds
of cargo can be loaded. Some barges may be loaded with normal
general cargo, as containers, trailers and cars, while the
remaining barges can be used for bulk cargoes such as grain, steel,
coal, scrap, forest products or oil. Each barge is planned to
have a dead-weight of 12,500 tons at a draft of 6 meters. in trades
where fast service is required.
In trades where bulk cargoes play a vital role and the dead-weight
of the JBC is increased to say, about 220,000 tons, and the speed
is reduced to about 20 knots, the barges can have a dead-weight of
22,500 tons at a draft of about 10.5 meters (35 feet).
During periods when, for one reason or another, normal general
cargo traffic is declining, barges can be loaded with bulk cargoes.
The overall result is more economic, and attractive, as it will be
possible to contract for bulk cargoes over long periods. The
extra cost for loading and unloading barges with bulk is marginal,
and so is the time for floating them on and off.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 5 -
When studying the bulk market in various trades, it is interesting
to note that, for bulk cargoes in Liberty size (i.e., about 10,000
tons), and up to 30,000 tons, the freight rates are substantially
better than for cargoes of 50,000 to 200,000 tons. The reasons
for this are obvious. In many ports with restricted draft,
industry has to pay premium rates for the smaller ships needed,
and a similar "penalty" exists where loading/unloading is slow.
For products like grain, scrap and timber, where the required
stevedoring time is often long, the Jumbo Barge Carrier system
is particularly suited.
The supporting calculations show that in certain trades, with all
barges loaded with bulk cargoes, the JBC Ship can even return in
ballast, and the round-trip result is still satisfactory.
In many trades where it is practically impossible to obtain return
cargoes of 50,000 tons or more, the Jumbo Barge Carrier may, with
its in-built flexibility, be able to secure different kinds of
cargoes that can be moved by this system.
What is said about the North Atlantic is valid for practically all
of the major trades where containers are moving and can be combined
with bulk cargoes in one or both directions. As proved by the
enclosed calculations, it is also obvious that from or to draft-
restricted ports the JBC system offers a very competitive
alternative to small-size bulk ships.
In the brochure describing the JBC concept the proposed dimensions
and particulars give a dead-weight between 130,000 tons and 220,000
tons, draft between 35 and 45 feet and speed between 16 and 24 knots.
It goes without saying that the particulars can vary with trade and
cargo requirements.
Even if the required draft for a 220,000 DW ton JBC Ship is as much
as about 90 feet, such deep and rather small required spots are
available today without dredging on the Roads and/or the rivers in
sheltered waters in or outside most of the major ports of the world.
Consequently, expensive dredging of ports and channels can be
avoided.
The JBC concept has so far technically gained approval by three
major shipyards -- by Lloyd's Register, by Det Norske Veritas and it
has also been checked by the U.S. Maritime Administration and the
U.S. Coast Guard.
November 1982
JBC
Jumbo Barge Shipping & Commerce Ltd.
The JBC concept is aimed to give the most economical overseas
transport for a variety of import and export goods.
It gives a large-scale carrier's economy, but the barges -- which
can load as much as, say, 50,000 tons each -- can reach draft-
restricted ports. The barges have a draft of maximum 40 feet,
enabling them to reach practically all American ports as well as
the many restricted draft ports in the rest of the world.
Besides the big load, the turn-around time in ports is one of the
key factors to the JBC concept. Unloading of about 200,000 tons
and loading of 200,000 tons of cargo can be carried out in less
than 8 hours.
The concept is entirely new and the barges carried are much bigger
than the Seabee, Lash, BACAT or CAPRICOAL Systems, which latter
systems allow maximum 2000 tons of cargo in each barge. The JBC
barges are floated on or off, not lifted. The barges are then
towed to nearby terminals or to other ports.
The concept has so far gained approval by three major shipyards,
by Lloyd's Register, by Det Norske Veritas and it has also been
checked by the U.S. Maritime Administration and the U.S. Coast
Guard.
The JBC concept is particularly suitable for North America and
its major trade routes. The U.S. yearly exports 150 million tons
of grain, 100 million tons of coal, 50,000 automobiles and large
quantities of refined oil products and petrol chemicals in bulk,
several thousand units of large road-building machinery and general
cargo in about 3 million containers (in the North Atlantic trade
alone about 1 million containers and also about 1 million containers
to the Far East).
The U.S. yearly imports about 6 million tons of steel from the Far
East area and also about 6 million tons from Europe. Furthermore,
the general cargo import consists of 3 million, of which 1 million
containers are from Europe and also about 1 million containers
from the Far East. Automobile import averages about 3 million.
If the UNCTAD Liner Code could be enforced or accepted, the U.S.
could have access to 40% of the above-mentioned cargo quantities
providing the U.S. Merchant Marine can offer regular, reliable and
competitive shipping facilities and freight rates.
The JBC concept can bring about that the U.S. Merchant Marine can
again play a vital role on the oceans. The operation must, however,
start in time before the low-cost flag operators have built out the
JBC System. No other single country can in its export or import to
the USA, say in the European/Atlantic trade, have access to 40% of the
cargo flow. The flag of convenience operators are certainly going to
have some problems when meeting the competition of the JBC vessels.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 2 -
Based on the breakdown of the above-mentioned figures in relation
to the U.S. East Coast and Northern Europe, a rough estimate of
required ships gives the following result:
Eastbound
Grain
Coal
Cars
Containers
Total Per Year
30,000,000
tons
30,000,000 tons
20,000
1,000,000 TEU
Per Year 40%
12,000,000
tons
12,000,000
tons
8,000
400,000 TEU
Per Week 40%
240,000 tons
240,000 tons
160
8,000 TEU
Westbound
Steel
Lumber, etc.
Cars
Containers
Total Per Year
4,000,000 tons
--
200,000
1,000,000 TEU
Per Year 40%
1,600,000 tons
80,000
400,000 TEU
Per Week 40%
32,000 tons
--
1,600
8,000 TEU
Presume we load the weekly "U.S. part" in 5 JBC vessels, each vessel then
to have the following amount of cargo:
Eastbound
Westbound
48,000 tons grain
6,400 tons steel
48,000 tons coal
320 cars
32 cars
1,600 TEU containers
1,600 TEU containers
+ lumber
+ chemicals
The round-trip freight on fio basis then to be:
96,000 tons grain/coal
@ $12.-/ton
=
$1,152,000
32 U.S. cars
@ $250.
=
8,000
1,600 containers
@ $700.
=
1,120,000
6,400 tons steel
@ $20.-/ton
=
128,000
320
European cars
@ $150.
=
48,000
1,600 containers
@ $700.
=
1,120,000
$3,576,000
Even with the above-mentioned freight rates which are very low and
competitive, a JBC built in the U.S. and operated under U.S. flag
will be able to more than break even and consequently should be in a
very good position to obtain more than 40% of the cargo available.
Most probably some of the ships should do the round-trip in two weeks
and some in three weeks meaning that in this particular trade about
12/13 ships should be required to carry the above-listed cargo based
on two or three-week service.
JBC
Jumbo Barge Shipping & Commerce Ltd.
- 3 -
Similar calculations for other major trades, and also based on
40% U.S. participation in the dry cargo field, indicate that
about 80 JBC vessels should be required.
Based on such a number of ships and considering that a very
large part of this type of ship is just one big simple-to-build
steel construction without pipes and heating coils, it should
be possible to build the vessel in U.S. shipyards at competitive
prices. In the wake of such a building program the following is
bound to occur:
-- A strong U.S. Merchant Marine in peace-
time as well as in wartime.
-- The U.S. steel industry would receive
orders for many million tons of steel.
-- The many industries' suppliers related to
the shipping industry would receive new
orders.
-- The U.S. export as well as the U.S.
import industry would be more competitive
by lower freight rates.
-- More than 100,000 new jobs would be
created.
-- The U.S. industrial image would be
restored.
BWT:kar
August 1982
JBC
Jumbo Barge Shipping & Commerce Ltd.
SUMMARY
"We must develop and undertake a maritime policy that
will (1) demonstrate our understanding of the impor-
tance of the seas to America's future; (2) re-establish
the U.S. flag commercial fleet as an effective economic
instrument capable of supporting U.S. interests abroad;
and (3) demonstrate America's control of the seas
in the face of any challenges.
A specific naval-maritime policy must be developed that
will
provide a unified direction for all government
programs affecting maritime interests of the United
States. he must ensure that there is active cooperation
between the Navy and the Merchant Marine and the
governmental departments responsible for each."
- Ronald Reagan
September 22, 1980
AT a time when pressures are on world
Wallenius Lines completely and subse/b
shipbuilders 10 cut back capacity and there
quently formed Trans Motorship Term-
is an equal pressure on owners 10 slep up
inals, a terminal operation company
new building orders, Bengt Tornqvist is
which now owns car/cargo terminals in
proposing new ship design concepts which
Bremen, Copenhagen, Helsinki and
he believes will increase owners' profits,
Sodertälje.
increase world scrapping rates, and cause
A side-shoot of Tornqvist's interests
a healthy demand for newbuildings.
developed in 1961 in the formation of the
The nucleus of his proposals are his
Swedish company of Seasafe, manu-
BOROLINER. TANKLINER, BULK-
facturing container and cargo lashings in
LINER, PARO and JUMBO ship systems
addition 10 other general cargo handling
which capitalise on their ability to carry
equipment.
two-way combinations of cargoes. Thus
Unrelenting in his approach to develop
Tornqvist's proposals for eliminating
more financially profitable integrated
ballast voyages could, he claims. bring
transport systems and realising the need for
benefits to shipowners in the region of 13
Captain
a corporate approach to the problem,
per cent for some of his concepts. a good
Tornqvist formed Transport Trading A/B
enough reason for any shipowner to con-
in 1976. As transportation is the world's
sider a newbuilding even at today's high
Tornqvist:
largest industry, his beliefs are that this
bank rates.
industry offers many possibilities for intro-
Born in the small town of Vaermland in
ducing technical improvements and econ-
Sweden in May 1915 amidst a war-torn
omical solutions. The main aim of Trans-
Europe, he first went 10 sea at the age of
port Trading will therefore be to continue
17 at the height of the European depression.
His first voyages were on the sailing ships
Looking
10 develop new ideas in the field of trans-
portation. The company also acts as a
which were still a common sight at this
broker for the sale and purchase of second-
time and during this period he 100h part
in a grain race from Australia in one of
beyond the
hand tonnage and for the contracting of
newbuildings.
the many sailing vessels trading on this
Two BOROLINERS have so far been
route-the last stronghold of major sail
built. the "Bellman" (The Motor Ship,
trades-before the Second World War.
BORO
December 1977) and the "Taube", both by
His ship came second arriving at Falmouth
Kawasaki, of Japan. Considerable interest
after 107 days at sea.
was aroused by these new vessels which are
Following his apprenticeship and time as
a mate Tornqvist obtained his master's
liner
jointly owned by Scandinavian Motorships
A/B and Cie. Gen. Transbalique. Many
ticket in 1938. his first position as an
criticised the design on the problems of
officer being on a small tanker for the
Start with e conventional nut:
organising the intricate cargo combin-
Wallenius Lines. In 1941 his vessel was
ations, and that it would be difficult to co-
sold by Wallenius to Swedish Chicago
water
cutaway the black
ordinate the necessary quantities of cargoes
Lines. Remaining with the ship and joining
line
portions
for the vessel to survive. In operation,
the new company he became a captain in
however, one of the BOROLINERS,
1943 and following his military service he
after initially operating between Scandin-
became superintendent of newbuildings.
put these portions
avia and Northern Europe carrying paper
Returning to Wallenius Lines in 1953 at
as snown
products one way and returning with a
same displacement
a more senior level he outlined a new trans-
same speed
cargo of cars and processed oil from
port system for the growing trade of motor
very much increased
Rotterdam, has now switched to the
car transport based on the roll-on/roll-off
stability
Pacific carrying vegetable oil westbound
principle. The first newbuildings of the
to Japan and returning with cars and manu-
concept were Great Lakes vessels, which,
factured goods to the U.S.A.
through the new system, permitted the
build B light parage
or warehouse of
carrying of considerably more vehicles
this form
than with conventional vessels and still left
space for other cargoes. Extending this
Middle East promise
principle to ocean-going vessels Wallenius
Tornqvist then pointed out that of all
Lines became the largest car shipping
the world's sea routes a BOROLINER
company in the world.
put this building on
fleet could advantageously be operated
By 1961 Tornqvist's thoughts began 10
the hull with the
between the Europe/Middle East,
move in the direction of more integrated
increased stability
Japan/Middle East and Japan/South-
transport shipping systems and as a result,
east Asia routes. Today, dry cargoes,
retaining connections with Wallenius,
containers, cars, sundries and heavy-
formed Scandinavian Motorships to co-
We have the BORO LINER
lift items account for the bulk of freight
ordinate specialised car/cargo shipment
to the Middle East and Southeast Asia
erminals and also to act as general world-
Fig 1. Basic principles of the BOROLINER ship,
routes, with oil and empty containers
showing the trapezoidal hull form.
wide agents for Wallenius.
for most part in the opposite direction.
Quickly realising the growing importance
all over the world and current forecasts
Thus he suggested a BOROLINER
of container shipments in the mid-1960s
suggest that this type of Γo-Γo and container
could overcome the tremendous costs of
he was responsible for the foundation of
ship will have increasing importance in
ballast voyages on these specific routes.
the Atlantic Container Line (ACL). a
years to come.
Challenged on the subject of the rela-
company formed by Cunard, Wallenius,
At the same time as Atlantic Container
tively small size of the "Bellman" he
and Scandinavian Motorships. For this
Line, Tornqvist was also involved in the
quickly indicated that the vessel is capable
company Captain Tornqvist designed a
formulation of Compagnie Generale Trans-
of loading 2 to 2.5 times as much freight
totally new type of vessel capable of
baltique, a 35 per cent Wallenius and 65
as any conventional liner of a similar size.
loading many different combinations of
per cent Compagnie Generale Maritime-
From the naval architect's point of view
cargoes such as cars, trailers, and con-
owned company specialising inro-rovessels.
the BOROLINER concept is a sound one
lainers. This type of vessel has subsequently
Following the death of Mr. Wallenius in
in many ways. Firstly the trapezoidal hull
educed fuel consumption or increased
Bulk Carrier
peed for a specific engine installation.
Tanker
(forest products)
"BORO" Liner
econdly the angular shape of the hull
Length b.p.
125 m
150 m
142 m
reates a greatly increased stability situa-
Breadth
18 m
20 m
32.2 E
ion and subsequently the third benefit is
Cubic capacity
-
13 000 m3
27 000 m³
Tons d.w.
10 000
10 000
10 000
he tremendous possible increase in cargo
Draught
9.5 m
7.9 m
7.6m
arrying volume for that same displace-
Gear
-
2 gantry cranes
Ro-Ro
nent. This third point is of particular
Speed (knots)
15
15
15
importance in today's high volume low unit
Output (bhp)
8 000
8 000
10 000
Price (Sw.Kr.)
57 000 000
57 000 000
75 000 000
weight cargoes.
Voyage calculation
Oil
10 000 tons x 54 = 540 000
9 000 tons X 54 = 486 000
BOROLINER principles
Forest products
-
-
10 000 tons X 64 = 640 000
10 000 tons x 64 = 640 000
Fig. 1 shows simply and clearly the prin-
Cars
-
-
-
-
700 cars X 210 = 147
iple of Tornqvist's conceptual design,
Gross freight
540 000
640 000
1 273 000
Seveloping a conventional rectangular
Costs
midship section to that of a trapezoid and
Daily vessel
hen adding a large garage on top of the
10 days X 14 000 = 140 000
12 days X 14 000 = 168 000
14 days x 16 000 = 224 000
Bunkers
8 days x 30 tons
8 days x 30 tons
10 days X 36 tons
ncreased stability hull. Fig. 2c and asso-
X Sw.Kr. 375
= 90 000
X Sw.Kr. 375
=
90 000
x Sw.Kr. 375
= 135 000
ciated table illustrates a direct comparison
Ports
2 x 10 000
= 20 000
4 X 10 000
= 40 000
6 x 12 000
= 72 000
with a modern Γo-Γo ship of 9 000 tonnes
Kiel canal dues
2 x 6 000
= 12 000
2x 6 000
= 12 000
2 x 8,000
= 16 000
16% X 57 M X 10.
16% X 57 M X 12
16% X 75 M 14
d.w. Any shipowner applying his financial
Capital
= 261 000 =
= 313 000
= 480 000
knowledge to the tabulated information
350
350
350
will quickly see the potential of this concept
Extras
= 17 000
= 17 000
= 23 000
even when allowing for additional building
Total costs
= = 540 000
= 640 000
= 950 000
costs of approximately 20 per cent (mainly
Profit/voyage
Nil
Nil
= 323 000
due to increased steel costs of the large
Profit/year
Nil
Nil
= 8 075 000
garage). Other benefits of the concept
If reducing the oil freight to Sw.Kr.25, and the forest products to Sw.Kr. 58, the result will be break even.
are the elimination of the lower Γo-Γo hold
with its inherent poor access problems
able increased cargo capacity of his hull
The Motor Ship. Recently a Sw. Kr. 600
and its utilisation for more easily handled
form without capsize.
million order for three 40 000 tonne d.w.
fluid or bulk cargoes.
Further developments of the concept
vessels for the N. Europe/Persian Gulf
Taken to task on the stability of his
have been proposed such as the TANK-
route at the Swedish Götaverken Arendal
designs, Tornqvist quickly offers to
LINER and BULKLINER, a small
yard were cancelled due to the lack of
display a portable model and tank to any
example of which is illustrated in Fig. 2b.
Government assistance but Tornqvist
interested persons. Firstly he offers to
The same advantages seen here are also
remains optimistic about their construction
demonstrate the loading capabilities of a
possible with much larger vessels of 20 000
elsewhere; certainly he is confident of their
conventional hull shape to the point of
tonnes or 40 000 tonnes d.w., for which
suitability to this route carrying southward
capsize and then, altering the model as per
detailed design drawings are now available
cargo mixes such as 750 containers, 100
Fig. 1 continues to demonstrate the remark-
and will be illustrated in a future issue of
trailers, 1 000 cars and 10 000 tonnes of
steel, bagged cement or the like, and
30 000 tonnes of oil plus returning con-
tainers and trailers northwards.
@{
New designs under study
Currently under development are two
Fig. 2a (left). Tornqvist's 1950s proposal to build
new extensions of the BOROLINER hull
===
special car carriers (left) with improved capacity
compared with a conventional vessel of the time
configuration, namely the PARO and
@@@
(right).
JUMBO ships which for the moment re-
Fig. 2b (below left). Comparison between an
main confidential to those parties retaining
11 000 tonne d.w. forest products carrier (left) of
540 000 ft3 and a BORO tank or bulk liner (right) of
Tornqvist's services. Whatever form these
the same size and 950 000 ft'.
new designs take, one thing is for sure,
Fig. 2c (below right). Comparison between a
they will by no means be conventional
modern ro-ro ship (left) of 9 000 tonne d.w. 11 780
and certainly controversial.
trailer metres) and 8 BOROLINER for the same
trade and of the same size (2 430 trailer metres).
Captain Tornqvist readily admits that
his designs have a few extra problems to
conventional ships. To the naval architect
or shipbuilder they are easily surmountable
but to the conservative shipowner or
BORO tankliner
charterer Tornqvist believes that his designs
no
BORO bulkliner
propose a number of major upheavals.
For too long he believes, shipowners have
been relying on expanding world trade
and the protection of conference rates.
They must now change with the times and
no longer rely on specific trades but to
direct their thoughts to more complex and
highly integrated transport systems
embodying road, rail, and sea modes
backed by better transhipment terminals.
Transport is the world's largest industry
and as such should be the world leader in
technological systems and above all in
more organised and sophisticated cargo
organisation.
December 5, 1983
MEBA POLICY RECOMMENDATIONS STILL UNFULFILLED
BY THE REAGAN ADMINISTRATION*
MEBA RECOMMENDATIONS
ADMINISTRATION ACTION
I. Recommended a clear.
NO unified package by the
coherent maritime policy of
Administration. Two phases
interrelated efforts to be
announced: a third, on the
introduced and unified
way since the summer of
as a package in a
1982 has yet to be seen.
Presidential declaration.
Little follow-up action:
existing program of pro-
motional measures dismantled
with no substitute to
replace it.
II. Supported widespread
NO mention of bilaterals in
pursuit of bilateral
either Phase I or Phase II.
agreements.
No constructive cargo policy.
III. Supported ratification of
Administration officially
the UNCTAD Liner Code.
opposes ratification of the
UNCTAD Code.
IV. Supported requirements for
No Administration action.
U.S.-flag carriage of a
percentage of foreign-
manufactured automobiles
to encourge construction
of militarily-useful
RO/RO vessels.
V. Proposed that Coast Guard
No Administration action.
should temporarily grant
exceptions from certain
vessel standards that
hinder reflagging; docu-
mentation should be tied
to meeting standards of
ship classification societies.
* (excludes Administration proposals or Administration-
backed proposals that have yet to receive Congressional
approval)
PAGE TWO
MEBA RECOMMENDATIONS
ADMINISTRATION ACTION
VI. Favored removal of Title XI
Ceiling retained: in FY 1984
Ship Loan Guarantees ceiling.
$900 million of which $300
million is reserved for
military-useful ships.
VII.
Supported repeal of
No Administration action.
Subpart F of the Internal
Revenue Code and subsequent
permission for U.S.-controlled
foreign corporations to deposit
income from foreign shipping
operations into a fund for
foreign building of U.S.-flag
ships.
VIII.
Supported incentives through
No Administration action.
the tax system for U.S. shippers
who ship on U.S.-flag vessels.
IX. Proposed income tax reductions
No action, although Adminis-
and pension assistance for mer-
tration debated this proposal
chant seamen sailing on ocean-
during internal Phase I and
going ships, possibly linked to
Phase III discussions.
participation in the U.S. Navy
Reserve.
X. Supported buyouts of out-
To terminate subsidies ahead
standing ODS contracts only
of their planned expiration
if MARAD examines, on a case-
dates, the Administration has
by-case basis, with approval
begun to buy-out existing sub-
contingent upon fleet expansion
sidies. Its policies regard-
opportunities.
ing buyouts have not been
well-defined: they have had
inadequate guidelines: and
they will result in a net loss
of U.S.-flag ships.
PAGE THREE
MEBA RECOMMENDATIONS
ADMINISTRATION ACTION
XI. Supported civilian contract
So far, there is no CIVMAN
manning of Navy fleet support
program, except to claim
vessels.
credit for already-planned
use of civilian contract
mariners or to deliberately
juggle figures (the Navy) to
make it look like there has
been progress in CIVMAN
XII. Favored creation of a series
No Administration action.
of tax-exempt shipping bonds,
guaranteed by the government,
targeted on a special class of
national defense merchant vessels
constructed with military features
and applicability in mind, to be
operated by private shipping
companies.
XIII. Supported extensive use of
For budgeting reasons and
merchant ship military enhance-
lack of emphasis, this pro-
ment features to enable merchant
gram is virtually moribund.
ships to be able to take up
quickly defense roles in wartime.