Watch Now

FreightWaves Flashback: US may set aside 30% of oil for US ships

1974: Bills of this type have had rough sledding in years past, but the Arab oil squeeze and its implications in the nation’s total economic and transportation picture eased the way for possible passage this year.

Image: Jim Allen (FreightWaves)

FreightWaves Classics articles look at various aspects of the transportation industry’s history. If there are topics that you think would be of interest, please send them to [email protected].

The many industries that make up the world of freight have undergone tremendous change over the past several decades. Each week, FreightWaves explores the archives of American Shipper’s nearly 70-year-old collection of shipping and maritime publications to showcase interesting freight stories of long ago.

In this week’s edition, from the May 1974 issue of American Shipper (virtual pages 44-47), FreightWaves Flashback looks back at the United States’ oil conservation plans shortly after facing severe oil shortages.

A bill reserving up to 30% of U.S. oil imports to American flag ships is slowly making its way through Congress.

Bills of this type have had rough sledding in years past, but the Arab oil squeeze and its implications in the nation’s total economic and transportation picture eased the way for possible passage this year. American labor, plus the U.S. shipbuilding industry, are actively supporting it. Shipowners who use “flags of convenience” to remain competitive on the high seas are actively opposing it. So is the Administration.

The Merchant Marine subcommittee of the House Merchant Marine and Fisheries Committee was divided 13-3 when it approved the proposed legislation (HR-8193) and sent it up to the full committee for action there. The subcommittee tacked on a new title, “Energy Transportation Security Act 1974,” to make its message clear.

The subcommittee defined oil imports as “all those liquid petroleum and liquid products carried in bulk referred to as crude oil, unfinished fuels, gasoline, kerosene, aviation fuels, naptha, cracking stock, distillate heating oil, diesel oil, and residual oil.”

Rising scale

Under the bill, at least 20% of U.S. oil imports would be transported in American ships immediately upon enactment, 25% after June 30, 1975, and 30% after June 30, 1977. By December 1, 1974, the Secretary of Commerce would be required to determine the availability of U.S. flag tankers at fair and reasonable rates to meet the 25% level, and by December 31, 1976, make a similar determination affecting the 30% level.

In a written statement filed with the subcommittee, Michael R. Naess, executive vice president of Zapata Corporation of Houston (which is building more American flag tankers now), said, “Energy self-sufficiency in the United States cannot at reasonable cost be achieved by 1980, or even 1985, and that oil imports will therefore continue, and U.S. flag ships can and must haul their share.”

With restrained demand and continued willingness of the American public to conserve energy, Naess sees a need for imports of 8.6 million barrels of oil per day by 1980 and 5 million barrels per day by 1985. Differing slightly from other estimates of tanker lifting capacity within the framework of HR-8193, he went on to say:

Worth trying for

“Even if we (1) make reasonably optimistic allowance for project independence’s progress, (2) commission a new shipyard bringing us to a total of three yards producing large tankers at full blast for the next five years, and (3) allocate all of our biggest tankers to the Mid-East run (leaving none of our movement from Africa or Southeast Asia), we still fall just short of any 30% proposed requirement applicable to Mid-East imports. The fact that we may fall short of a reasonable goal, however, is a poor reason not to try, and the goal seems reasonable provided our modified forecast of imports is reasonable … .

“With the addition of one further large tanker shipyard and the continued support of the two yards already in existence,” Naess believes, “the U.S. flag VLCC/ULCC fleet could approach a one-third capability by 1980, with some margin of safety in case of better-than-expected increases in domestic suppliers.” On the economic side, Naess added:

Penny a gallon

“Versus a new foreign flag ship, the cost premium for the U.S. flag tankers of comparable size built with construction differential subsidy ranges from 4/100’s of a penny to less than 2/10’s of a cent per gallon. Conclusion: The consumer will never see it at the pump.

“Versus an old foreign flag ship, the same U.S. flag ships need a premium of between 3/4’s of one cent to 1.7 cents per gallon — more significant, but, probably illusory since (1) there is no assurance that market conditions will compel the older ships to pass along their cost savings, (2) the savings, if passed along, gradually dissipate as age increases maintenance cost and downtime and (3) the savings is at a greater environmental risk. …

“If you assume that HR-8193 replaces CDS and the U.S. flag operator therefore does without ODS (Operating Differential Subsidy) and CDS, then the cost premiums escalate drastically. Versus new foreign flag ships, the premium rises thirteen fold over what it was, to 1.6 cents per gallon. And versus old foreign flag ships, the U.S. flag ship needs a startling premium ranging from 2.3 cents to 3.2 cents per gallon. It is for this reason — cost to the customer — that we would so vigorously oppose any effort to enact cargo preference legislation as a substitute for the 1970 act,” Naess said.

If others do it

Predictably, Paul Hall, president of the AFL-CIO Maritime Trades Department and the Seafarer’s International Union (SIU), made a strong pitch for setting aside a large part of American oil business for American ships. It would create many new jobs for his union members.

Hall rejected industry claims that preference legislation would set a bad precedent on the international scene.

“There is no basis to the claim that this legislation would set an international precedent,” he said. “The precedent has been set by other nations time and time again.”

As examples, Hall cited the requirement of Bolivia, a country which is up in the mountains and has no seacoast, that requires that 30% of its trade be carried on its vessels; Chile’s requirement that 50% of all Chilean imports and exports must be carried on Chilean flag vessels; 40% of Morocco’s imports move on Moroccan ships; and 30% of the exports and imports of the United Arab Republic move on its own vessels.

France guarantees the French fleet the equivalent of two-thirds of her oil imports. Japan’s policy is to carry at least 50% of its oil imports. Venezuela requires 50%, as does Ecuador. Spain, Chile and Peru go all the way, requiring 100% of the business for their own ships.”

No U.S. policy

In sharp contrast, “the United States has no requirement or policy at all,” Hall said.

Pointing out inconsistencies within the oil industry itself, Hall said, “I don’t know of any situation when the oil companies have vigorously opposed cargo preference measures in other nations. Where were they when Venezuela, a leading supplier of American oil imports, enacted its cargo preference law? Or when France formulated its? Have they devoted their time and energy to opposing the Arab Maritime Petroleum Transport Company? What the oil companies are really trying to do here is to reserve for themselves — their foreign flag fleet — that share of our oil imports that should be carried by the U.S. Merchant Marine.”

U.S. Chamber’s position

The pocketbook issue found the United States Chamber of Commerce lined up with the Council of European and Japanese National Shipowners Associations opposing the preference legislation.

In a letter to Con. Frank M. Clark (D-Pa.), chairman of the House Subcommittee, the Chamber said that preference legislation would have an adverse effect on “the initiative in world trading relations that the business community of the United States now has attained.”

The European and Japanese shipowners reminded Congress that the proposed legislation “constitutes a non-tariff barrier to world trade,” thus, presumably, violating the historic U.S. position of free trade.

Oil industry view

Speaking for the oil industry, American Petroleum Institute opposed the bill, which would reduce the present practice of transporting about 95% of U.S. import oil in foreign flag vessels, many of which are under American ownership.

The Institute said, “API is convinced that the best way to achieve an expansion of the U.S. Merchant Marine is to pursue programs whereby U.S. vessels can effectively compete with foreign tankers in international trade. Such a program was made available to U.S. tanker operators through the 1970 amendments to the Merchant Marine Act of 1936. … It does, nevertheless, contain restrictions which discriminate against international fleet operators by preventing them from fully utilizing the Act to expand their U.S. flag operations. Modification of the 1970 Act is the most appropriate vehicle for maintaining an orderly expansion of a vigorous and internationally competitive U.S. flag tanker fleet.”

50% duty on repair bills

The changes supported by API are principally concerned with foreign operations in which the ships do not call at a U.S. port at all, restrictions on foreign vessel ownership, and restraints on operation of subsidized vessels in domestic trade. In addition, API would like to see a waiver of the 50% duty on the cost of repairs to American flag ships when the vessels return to a U.S. port.

Administration opposition

When the proposal first came up last Fall, Assistant Secretary of Commerce for Maritime Affairs Robert J. Blackwell was one of the first to say the proposed legislation should be killed.

It would be an admission that the U.S. merchant fleet can never be competitive in the international market place, Blackwell said. Furthermore, current building programs, and expansion planned at Newport News Shipbuilding & Dry Dock in Virginia and Todd Shipyards in Galveston would enable this country to build the ships it needs.

With three big tanker building yards in the U.S., the country could raise its share of oil import cargoes to 20% by 1985, according to Blackwell.

“We (Maritime Administration) have been using 59% of our Construction Differential Subsidy (CDS) appropriations for tanker construction. This equates to an average annual funding rate of $176,000,000. The greater portion of the balance of our funds has been committed for liquified natural gas tankers, another important energy import program.”

The Defense Department added its opposition, saying preference legislation “would encourage similar actions on the part of other nations, particularly those who are major producers or consumers of oil.” The State Department echoed the same sentiments, adding that it would “be counter to our long-established economic policies.”

The arguments were politely listened to, but sub-committee members seemed more convinced by the Arab embargo, and the belief the United States should be self-sufficient in shipping as well as oil.

Click for more content from the American Shipper Archives.

You may also like:

1978: A simple error in measurement

1991: Nissan, Ford test new Autostack system

2001: How much bigger will box ships get?