Shipping requires a large quantity and variety of economic resources to compete. Thus, virtually every maritime nation, regardless of the size of its merchant fleet, offers some form of direct or indirect assistance to its maritime industries. Promotion of U.S.-flag shipping services in the U.S. foreign and domestic trades is a basic fundamental of American maritime policies.
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Jones Act ImpactSection 27 of the Merchant Marine Act of 1920, known as the Jones Act, stipulates that operations in the United States coastwise trade, intercoastal and noncontiguous trades (including Alaska, Hawaii, and Puerto Rico) are to be reserved for U.S.-built and U.S.-owned ships manned by U.S. citizens.
The Passenger Vessel Services Act of 1886 (46 U.S.C. Sec. 289) prohibits the transport of passengers between ports or places in the United States by a “foreign vessel” under penalty of $798. The fine is the responsibility of the vessel operator, not the passenger. Exemptions to this rule include the U.S. Virgin Islands which are not covered by U.S. cabotage policy unless otherwise declared by presidential proclamation, an allowance for foreign vessels to transport passengers between Puerto Rico and other U.S. points if no eligible U.S. vessel offers such service and “cruise to nowhere” which depart a U.S. port and return to the same port without touching another port, U.S. or foreign and when a foreign vessel carrying passengers between U.S. ports calls at a distant foreign port between U.S. port calls.
The Act of December 27, 1950 provides for an administrative waiver whenever such waiver would be in the best interest of the national defense. In enacting the Coast Guard Authorization Act of 1998, the 105th Congress further established an administrative process for Jones Act waivers. The Secretary of Transportation, under certain conditions, is authorized to issue certificates of documentation with an endorsement for employment in the coastwise trade to certain small passenger vessels and uninspected passenger vessels carrying no more than 12 passengers for hire. The waiver, which is subject to notice and public comment, may not be granted if it would adversely affect U.S. shipbuilders or the coastwise trade business of any person who employs U.S.-built vessels. This administrative process is not applicable to larger passenger vessels and to cargo vessels. Any other waivers of the Act must be obtained legislatively.
On October 8, 1996, the Maritime Security Act (P.L. 104-239) was signed into law after it was overwhelmingly adopted by the House of Representatives and the Senate. This measure establishes the Maritime Security Program (MSP) supporting in the international shipping trades a fleet of militarily useful U.S.-flag commercial vessels crewed by American citizens. Participating vessel operators are required to make their ships and other commercial transportation resources available to the Department of Defense during times of war or national emergency.
The 108th Congress adopted the Maritime Security Act of 2003, contained in the FY 2004 National Defense Authorization Act (P.L. 108-136), which extends the MSP for an additional 10 years, subject to annual appropriations, beyond its September 30, 2005 expiration date. The new MSP increases the number of participants from 47 ships to 60 ships and increases the annual readiness payment to ship operators. On January 3, 2013, the President signed into law the National Defense Authorization Act of 2013 legislation which includes the renewal of the Maritime Security Program (MSP) at 60 ships through fiscal year 2025. Under the newly signed law, MSP funding is authorized for a third 10-year period, beginning in fiscal year 2015, at the current 60-ship level of $186 million in fiscal years 2012-2018, $210 million in fiscal years 2019-2021 and $222 million in fiscal years 2022-2025. Under the Maritime Security Act of 1996, this funding must be approved each year as a direct appropriation.
This program, officially known as the “Federal Ship Financing Guarantee Program”, was established under Title XI of the Merchant Marine Act of 1936. Its initial purpose was to assist U.S.-flag operators in obtaining private capital to build ships in American shipyards for both the U.S. foreign and the U.S. domestic trades. The government, through the Maritime Administration, guarantees payment of the underlying debt obligations, permitting the shipowner to obtain long-term financing at favorable interest rates. The U.S. government insures or guarantees full payment to the lender of the unpaid principal and interest of the mortgage obligation in the event of default by the vessel owners. Since it is a guarantee program, funds for the guaranteed debt obligations are obtained in the private sector. The main sources for such funds include banks, pension funds, life insurance companies, and notes or bonds sold to the general public.
Guarantees on the obligations are eligible to be granted for up to 87 1/2 percent of the vessel’s actual cost, as defined in Title XI regulations. Moreover, vessels eligible for Title XI guarantees are required to be of a design satisfactory to MarAd and includes passenger vessels, cargo vessels, tankers, tugs, towboats, dredges, barges, floating dry docks, oceanographic research vessels, and drilling rigs. The 103rd Congress enacted legislation amending the Title XI program to allow guarantees for vessels built for the export market. The legislation also authorized guarantees for shipyard modernization and improvement.
The Title XI program is self-sustaining. The Credit Reform Act of 1990 mandates that the Maritime Administration may only approve Title XI guarantees to the extent appropriations have been obtained to cover the estimated cost of the project to the government, as well as the administrative expenses of the entire program. The current portfolio is $1.7 billion in Title XI outstanding loan guarantees and 39 individual loan guarantee contracts, covering approximately 250 vessels (including drill rigs, tankers, barges, containerships, roll-on/roll-off vessels, fast ferries, passenger vessels, supply vessels, and tugs) to foster efficiency, competitive operations, and quality ship construction, repair and reconstruction. The President’s FY2015 budget requests $3.1 million for administration of the loan portfolio to ensure agency compliance with the Federal Credit Reform Act requirements, borrower compliance with loan terms, and to process new loan applications. However, the administration did not request any new funds for the program itself. The current Title XI subsidy balance for new loan applicants is $73 million. This will support approximately $735 million in shipyard projects assuming average risk category subsidy rates.
The Merchant Marine Act of 1970 established the Capital Construction Fund program. The program assists operators in accumulating capital to build, acquire, and reconstruct vessels through the deferral of Federal income taxes on certain deposits as defined in Section 607 of the Act, as amended (e.g. from vessel operations, proceeds from the sale or loss of vessels, and vessel depreciation). The CCF program enables operators to build vessels in U.S. shipyards for the U.S. foreign trade, Great Lakes, noncontiguous domestic trade (e.g. between the West Coast and Hawaii), and the fisheries of the United States. It aids in the construction, reconstruction, or acquisition of a wide variety of vessels, including containerships, tankers, bulk carriers, tugs, barges, supply vessels, ferries, and passenger vessels.
Preference for national-flag ships to move national cargoes in international trade is a policy pursued by many maritime nations. The Maritime Administration maintains on its website, http://www.marad.dot.gov, a listing of U.S.-flag vessels eligible to transport preference cargoes as well as a listing of carriers with contact information. Preference cargoes account for thousands of mariner jobs and a larger number of shoreside maritime and transportation-related jobs. In a five year period through 2011 the cargo preference programs generated over 70 million revenue tons of cargo and over $9 billion of ocean freight revenue for international trading U.S.-flag vessels. These cargoes represent from 7 percent to more than 50 percent of some U.S. carrier’s annual revenues and are vital to retaining vessels under the U.S.-flag. U.S. cargo policies include the following:
Maritime bilateralism may be defined as agreements between two countries to reserve the carriage of specific cargoes to a designated number of participants, principally but not always, national-flag fleets. They are legal instruments of the participating governments, specifying the commercial rights and the responsibilities of the national-flag fleets of each country in their bilateral trade. Maritime bilateral agreements may involve revenue pooling agreements and sharing, on an agreed basis, the movement of specific commodities in the ships of the two trading partners.
