U.S.-flag ro/ros keep rolling
Roll-on/roll-off vessel operators look beyond military cargoes to fill their holds.
By Chris Gillis
The timing may not have been ideal, but Liberty Shipping Group still made a splash in late August by entering a new vessel into the tightly held U.S.-flag roll-on/roll-off liner fleet.
The Liberty Pride is the first newly built U.S.-flag ro/ro ship, also known as a Pure Car/Truck Carrier or PCTC, to enter international service in years. A second, to be named the Liberty Promise, will follow this spring.
'We have done a lot of research into this trade,' said Philip J. Shapiro, Liberty's chairman, president and chief executive officer, in a recent interview. 'In the long run, we believe this will be a most promising investment.'
The Lake Success, N.Y.-based carrier has operated U.S.-flag vessels since 1988. In addition to its newest PCTC, Liberty operates a fleet of six U.S.-flag dry bulk vessels and a 2005-built PCTC, the Alliance New York, which is operated under an arrangement with H'egh Autoliners and Alliance Navigation, its U.S. affiliate, and enrolled in the U.S. government's Maritime Security Program through subsidiary Liberty Global Logistics.
Since 2006, Liberty has continued its efforts to expand in the U.S.-flag ro/ro business. In September 2008, the company made an offer to purchase International Shipholding Corp., a Mobile, Ala.-based company that operates a diverse fleet of ships under the Central Gulf and Waterman Steamship Corp. names.
The International Shipholding fleet includes six U.S.-flag and four foreign-flag PCTCs. Citing ISH's 'repeated refusal to engage in a serious dialogue,' Liberty dropped its acquisition offer in January 2009.
Meanwhile, Liberty continued work started in 2007 on the construction of two ro/ro ships in a South Korean shipyard for immediate reflagging from the Marshall Islands to the U.S.-flag registry. Shapiro said Liberty got a break in the shipbuilder's packed schedule when cancellation of a liquefied natural gas vessel order opened two berths.
While hundreds of ro/ros of various sizes ply the seas, there are only about 25 of these commercial vessels operating in the international trades under the U.S. flag.
One of the most important government programs to U.S.-flag ro/ro vessel operators is the 2003 Maritime Security Act, which includes the current Maritime Security Program. MSP provides the government immediate access to 60 modern container, ro/ro, tanker, and heavy-lift vessels. All ships enrolled in MSP are also part of the Voluntary Intermodal Sealift Agreement (VISA), which provides the government with assured access to U.S.-flag assets, specifically the staged, time-phased availability of U.S.-flag commercial carriers' shipping services and intermodal systems.
American Roll-on Roll-off Carrier (ARC) has become the third-largest U.S.-flag vessel operator and the largest ro/ro services provider in the MSP program, with eight ships operating in liner service. ARC operates four of its eight ships in a U.S. East and Gulf coasts/Middle East service, which to date has predominantly been for military freight, said Eric Ebeling, ARC's director of government relations.
In addition to ARC's eight ships and Liberty's one ship in MSP, another major U.S.-flag ro/ro operator in the program is International Shipholding (four under Central Gulf and two through Waterman), which has an agreement with NYK for five ships and Cido for one. Maersk Line Ltd. introduced two MSP ro/ros, the Alliance St. Louis and Alliance Norfolk, in February 2008 through another arrangement with H'egh Autoliners and Alliance Navigation.
In return for making their ships available, MSP provides participants a payment to help offset some of their operations costs. For fiscal years 2006-2008, MSP authorized $156 million annually, followed by $174 million annually for fiscal years 2009-2011, and $186 million a year for fiscal years 2012-2015. In fiscal year 2009, the $174 million offset equates to about $2.9 million for each of the 60 vessels in the MSP fleet.
'That's not a lot of money when you compare it to what these ship operators provide in terms of total service to the U.S. military,' said William Kerrigan, president of KGI, a maritime consulting firm that specializes in ro/ro.
The government does maintain an 'organic' fleet of cargo ships, including ro/ros, particularly for the surge phase of a deployment. However, it's not enough to support sustained supply operations, such as the case with military activities in Iraq and Afghanistan. U.S. government ships cannot call Pakistani ports so the warfighter in Afghanistan is completely reliant on the commercial sector for sealift. The ro/ro vessels in the government's Ready Reserve Fleet (RRF) can also be activated for the surge element, whereas the MSP fleet generally provides for sustained long-term capacity.
In addition, the Military Sealift Command, U.S. Transportation Command's naval component, operates a fleet of 20 large, medium-speed, ro/ros (LMSRs). These ships are 950 feet long and include more than 380,000 square feet of cargo capacity, making them slightly smaller than the Navy's aircraft carriers. Each LMSR has six interior decks capable of carrying a complete Army armor task force, including 58 Abrams tanks and 48 other tracked vehicles, in addition to more than 900 trucks and other wheeled vehicles. These ships can be loaded or unloaded within 96 hours. Most of the LMSRs are in reduced operating status or the pre-positioning fleet.
In the 1980s, the Military Sealift Command converted eight Sea-Land SL-7 containerships into fast sealift ro/ro vessels. Although they carry half as much cargo as the LMSRs, these vessels are capable of transporting from U.S. East Coast ports through the Suez Canal to the Persian Gulf in as many as 18 days, albeit at tremendous cost in fuel consumption. These fast sealift ships (FSS) are now operated by the Maritime Administration as part of the RRF.
A recent Defense Department Inspector General's report, Ship Utilization in Support of the Global War on Terror, questioned the cost effectiveness of TRANSCOM's use of commercial U.S.-flag liner services over government-chartered vessels.
'The USTRANSCOM commercial vessel selection process does not evaluate whether a commercial liner or a government-chartered vessel is the most cost-effective alternative and does not simultaneously consider commercial liner and charter alternatives,' the report said. 'As a result, USTRANSCOM may be spending more to procure commercial liner transportation when less expensive ships may be available for charter.'
However, commercial operators involved with military cargo transport say the IG failed to take into account other cost savings related to using liner services over government-chartered vessels, such as access to commercial terminals, intermodal services and equipment.
'Under a commercial first policy, the military does not just get the ships but also the intermodal services and flexibility that come with it,' ARC's Ebeling said. 'With a charter, MSC may have to wait to fill the ship or return with no load. The military only pays for what it uses with the commercial fleet.'
Replicating the capabilities of commercial carriers involved in MSP would cost the U.S. government an estimated $65 billion. According to the National Defense Transportation Association (NDTA), for the U.S. government to own, maintain and operate a fleet comparable to MSP would cost 12 times greater annually than the commercial sector's ability to provide and maintain the ships.
'TRANSCOM, through MSC and SDDC (Surface Deployment and Distribution Command, the Army component command of TRANSCOM) have a very good relationship with commercial partners,' said Rick Boyle, vice president of U.S.-flag transportation services at Maersk Line Ltd. 'They can bring us in, let us know what their demands are, and how we can meet them.'
However, with U.S. military operations winding down in Iraq and the uncertainty of a major buildup in Afghanistan under the Obama administration, U.S.-flag ro/ro vessel operators are exploring other government cargoes and commercial transport opportunities to keep their holds filled. 'The U.S.-flag ro/ro vessel operators are being very aggressive on the commercial side and seeking cargo preference shipments,' Kerrigan said.
ARC handles flag-impelled cargoes for other government agencies, such as the State Department and Ex-Im Bank as well as foreign military sales.
'We're diversifying our cargoes,' Ebeling said. 'We expect that the Mideast service is in fairly good shape for the remainder of this year and next. Beyond 2010 is difficult to tell due to the volatility of the market.'
The primary U.S. cargo preference laws are guided by the 1904 Cargo Preference Act, Public Resolution 17, the 1954 Cargo Preference Act, and 1985 Food Security Act. The 1904 Act requires all military cargo to be shipped on U.S.-flag vessels, regardless of whether the military has taken title to the materiel. P.R. 17 requires all cargo generated by the Export-Import Bank be shipped on U.S.-flag vessels unless MarAd grants a waiver. The 1954 Act requires that at least half of all U.S. government civilian agency cargo be moved on U.S.-flag ships within strict oversight of the Transportation Department. The 1985 Act amended the 1954 Act to require that at least 75 percent of agricultural products moving under certain U.S. Department of Agriculture and Agency for International Development food aid programs be transported by U.S.-flag ships.
'There are definitely opportunities when you can blend together military and commercial business, plus provide assets that are both suitable and preferable to the government's needs,' Shapiro of Liberty said.