Shortchanged

Changes to Maritime Security Program could harm other U.S.-flag carriers.    Shipping companies that are not part of the Maritime Security Program (MSP) have expressed concern that their interests may be sacrificed as part of a deal to increase stipends paid to shipowners that are part of the MSP.
   The MSP program provides $186 million to support the operation of 60 ships that are considered militarily useful. In exchange, the shipowners commit to making their vessels available to the U.S. military in times of conflict. These ships were the backbone of military sealift of equipment and supplies for U.S. troops during the wars in Iraq and Afghanistan. They also make up the vast majority of the 80 U.S.-flag ships engaged in foreign commerce.
   In addition to the support from the $3.1 million-per-ship stipend, the MSP vessels, which must compete with lower cost foreign-flag, foreign-crewed ships, rely on “preference cargo” that must be carried on U.S.-flag vessels. This includes military cargo, food aid, and other cargoes that receive U.S. government support such as those goods funded by the U.S. Export-Import Bank.
   With the exit of U.S. troops from Iraq and Afghanistan there has been a sharp decline in preference cargo.
   At an industry forum in April, Russell Bruner, president and chief executive officer of Maersk Line Limited, said preference cargo is down 60 percent from its peak.
   “The current MSP stipend and declining preference cargo are no longer making the math work, leaving our U.S.-flag fleet vulnerable during peacetime,” he explained.
   Sources told American Shipper there are discussions of raising the MSP stipend to $5 million from $3.1 million because the current amount is viewed as insufficient to offset the higher costs of operating a U.S.-flag, American-crewed vessel.
   (Unlike ships engaged in the coastal, or Jones Act trades, U.S.-flag vessels operating in foreign trades can be built in either U.S. or foreign shipyards.)
   While that would be good news for many U.S.-flag vessel operators, one industry source said the plan in the works would obtain the money for the MSP increase from the U.S. food aid program in exchange for allowing the U.S. Agency for International Development to spend 45 percent of its food aid budget on local and regional purchases rather than buying food in the United States.
   U.S.-flag carriers would only be given preference for half of the remaining 55 percent spent on food aid sourced from the United States.
   Ragnar Knutsen, one of the owners of Oyster Bay, N.Y.-based Sealift Inc., warned if such a bargain came to pass, it could reduce the amount of agriculture cargo that would be available to be shipped in U.S.-flag vessels and lead to the flagging-out to foreign registries or even scrapping of some U.S.-flag ships.
   He said that would be another blow to the U.S.-flag ship operators, which saw the share of food aid cargo that must be handled on U.S.-flag ships reduced from 75 percent to 50 percent in 2012.
   A U.S. Maritime Administration spokesman only provided the following statement: “There are ongoing interagency discussions seeking to strengthen the viability of the U.S.-flag commercial fleet and improve the efficiency of U.S. international food assistance.”
   Former USAID Administrator Rajiv Shah was a proponent of local and regional purchases, believing more of the agency’s funds could be used for food and less for transportation. 
   In an example of locally and regionally purchased food aid described on the USAID website, the agency and its partner, the UN’s World Food Program, “provided locally purchased maize meal and beans to internally displaced persons in North and South Kivu affected by the ongoing conflict in the Democratic Republic of the Congo. By purchasing locally, USAID and its partners support Congolese farmers and markets.”
   USAID also provides food aid in the form of cash transfers and food vouchers.
   Although MarAd’s goal is to ensure there are sufficient merchant mariners available to man commercial vessels during war time, those raising the alarm about current talks say it would accomplish the opposite because operators of non-MSP ships could be forced to flag-out their vessels because of a lack of cargo and the mariners that they employ would lose their jobs. 
   While reportedly $15 million might be provided to U.S.-flag carriers that are not part of the MSP program, sources questioned how valuable that amount might be when they have to compete against carriers in the MSP program.
   Knutsen said if there is not enough cargo Sealift might be forced to “flag-out” or scrap two or three of its ships. Other companies with U.S.-flag dry-bulk ships that are not in the MSP program, but handle food aid cargoes, include Liberty, Schuyler, Teras Bulk and various barge carriers.

This article was published in the June 2015 issue of American Shipper.