Prepared by MARITIME ADMINISTRATION, Clarence G. Morse, Administrator INTRODUCTION An Economic Survey of Coastwise and Intercoastal Shipping was published by the Maritime Commission in 1959. In summary, this Survey found the fundamental difficulty of our domestic shipping to be an economic squeeze between rising operating costs and inadequate revenues, the latter adversely affected by allegedly inequitable competing inland carrier freight rates. The complex subject of rate-making was discussed at some length, and the major element of operating expense was identified as labor costs, particularly cargohandling expense. There was a ship replacement problem. The costs of new construction had risen considerably above the prices at which the active snips were built or bought from the government. Lack of confidence in the future discouraged new construction at higher costs. It was noted that the problem centered in the dry-cargo trade, particularly in break-bulk operations involvin substantial and increasing cargo-handling costs. A review of the present picture of the coastwise-intercoastal fleet with very minor exception re-emphasizes the problems facing the industry at the time of the 1939 Survey. 1/ There have been changes since 1939 but they have been changes in degree rather than in substance. The government took over all vessels in the coastwise-intercoastal trade during World War II and the inland carriers, principally the railroads, absorbed the domestic traffic formerly carried by sea. After the war, domestic operations were gradually restored with warbuilt ships either bought or chartered from the government. The warbuilt ships which found their way into the bulk trades, especially petroleum, were types which have in general proved competitive in the postwar transportation economy. Those which went to the break-bulk operators were basically standard dry-cargo ships, designed primarily for use in the foreign commerce of the United States and the war effort, and have turned out to be considerably less successful in recovering the prewar traffic than have the bulk carriers. As a result, the break-bulk operators now, as in 1939, are in a considerably less favorable economic situation than is the case of the bulk operators. The deadweight tonnage in the domestic dry-cargo ship fleet has declined about 56 percent as compared with the deadweight tonnage of tankers which has increased by some 32 percent. The prewar passenger ship fleet has vanished from both the coastwise and intercoastal trades. 1/ As used herein, the term "coastwise trade" means trade along the Atlantic, Gulf and Pacific Coasts only. In this respect, it differs from the 1939 Survey, which included under the "coastwise" heading, trade between the continental United States and the noncontiguous American territories of Hawaii, Alaska and Puerto Rico. "Intercoastal trade" means trade moving between east and west by way of the Panama Canal. The noncontiguous trades are not considered in this report because their competitive and operating problems have little relationship to those of the coastwise and intercoastal trades with which we are concerned. Traffic figures indicate that the decline in dry-cargo tonnage has concurred primarily, if not wholly, in the break-bulk dry-cargo trades where rising costs, particularly in loading and discharging the ship, have largely eliminated the so-called "inherent" economic advantages of ocean transport. In short, the crux of the coastwise-intercoastal shipping problem is in the break-bulk dry-cargo trade today as it was before the war. The reestablishment and preservation of this segment of the domestic fleet is of vital national defense importance if the immediate needs of a future grave national emergency are to be met. It is obvious that the ready availability of ships employed in domestic operations may well be a critical factor in any initial military or civil defense operation of the United States occasioned by a future atomic or thermo-nuclear war. Further, an economically sound, low-cost domestic fleet will continue to make important contributions to the economic growth and development of the United States as a whole and a balanced national transportation system in particular. The industry's views on the situation now facing coastwise and intercoastal operators were sought at two conferences held in Washington, D. C., in early 1955, one with the dry-cargo operators and the other with the tanker operators. Subsequently, questionnaires requesting detailed information were sent to the industry participants. The replies to the questionnaires are summarized in the Appendix. Also reproduced verbatim therein are two documents submitted by the Intercoastal Steamship Freight Association and the Marine Exchange, Inc., respectively. These papers represent the composite opinions of their sponsors and authors and provide a comprehensive expression of the industry's attitude on the subjects covered. This study has attempted to avoid repetitious treatment of many problems which have been raised from time to time and it has endeavored to treat the fundamental needs of the industry and of the country on the basis of a long-term solution. What then are the major problems to be overcome so that the coastwiseintercoastal fleet may return to its proper place in the United States transportation complex? Briefly stated, they involve the restoration of the "inherent economy of ocean transportation" element to break-bulk dry-cargo operations. How may this best be accomplished? At present the Maritime Administration has received a number of applications from individuals proposing a solution to this problem, within the framework of existing law, which involve the construction of new types of break-bulk ships incorporating the latest technological features designed to reduce cargo-handling costs and thereby achieving the low-cost relationship once enjoyed by the break-bulk carriers. There is every reason to believe that some or all of these proposed solutions will proceed to successful, i.e., profitable, conclusion. In any event, again as in 1939, the long-range solution appears to be along the lines of private enterprise and know-how proceeding with a vigorous replacement program of their capital equipment so as to offset the higher operating costs of their present units and thus regain a truly competitive position. I. NATIONAL DEFENSE AND ECONOMY Coastwise shipping has been of traditional significance to the economic welfare and the national security of the United States. It was one of the earliest commercial enterprises developed by American colonists and it has played a very important part in the growth and the prosperity of the population of the country, the greater portion of which is located in close proximity to deep-sea shipping. It is also of the greatest importance to national security. Twice during the present century, in World War I and again in World War II, the United States had no alternative except to requisition all of the sea-going vessels operating in the deep-sea continental coastwise and intercoastal trades and the break-bulk ships operating in the Great Lakes trade capable of oceangoing navigation and to place these vessels at the disposal of the military forces transporting troops, equipment, and supplies to the various theaters of war. A. Importance of Coastwise and Intercoastal Shipping in the National Defense. Vessels engaged in the United States coastwise and intercoastal trades are important to the national security in various ways. They provide the country with a substantial amount of transport capacity which is readily available upon the outbreak of hostilities for the outward movement of troops and supplies, they provide United States shipbuilding and ship repair yards with work, and they provide seaports with cargo, thus enabling the ports to construct port facilities which are needed in time of war. Moreover, they are a means for training additional seamen needed in time of national military emergency and are expected to be a natural laboratory for the development of roll-on, roll-off type vessels which are so important to military logistics. 1. Significance of Coastwise and Intercoastal Transport Capacity. Ships engaged in the continental United States deep-sea trades constitute a large proportion of the total United States merchant marine actively engaged in commercial operations. As of July 31, 1955, there were 358 ships with a deadweight capacity of 5,193,000 tons and these vessels constituted about 35 percent of the total number of United States-flag vessels and about 40 percent of the deadweight tonnage so employed. While all types of vessels are indispensable to a large scale military operation, the continental coastwise trades are especially significant to modern military planning since the bulk of the tanker carrying capacity registered in the United States is engaged primarily in those trades. Of the 5,575,000 deadweight tons of American-flag tankers in active operation on July 31, 1955, 4,220,000 tons, or 76 percent, were so operated. Modern warfare places heavy dependence upon petroleum products with which to prosecute land, sea, and air operations, and tankers must be used to transport virtually all of those commodities which are moved by sea. Since only 1,235,000 deadweight tons of tanker shipping were engaged in the foreign trade, of which 702,000 tons were operated in the nearby foreign trades, 1/ it is obvious that the continental United States 1/ A substantial number of United States-flag tankers are operated in the nearby foreign trådes only because they are used in the coastwise trade interchangeably. |