NINETY-SIXTH CONGRESS JOHN M. MURPHY, N.Y., CHAIRMAN THOMAS L ASHLEY, ONIO E (KIRA) DE LA GARZA, TEX. GERRY E. STUDDS, MASS, JOE WYATT, TEX, MIKE LOWRY, WASH. EARL HUTTO, FLA. EDWARD J. STACK, FLA BRIAN DONNELLY, MASS, CHIEF OF STAFF CARL L. PERIAN CHIEF COUNSEL ERNEST J. CORRADO CHIEF CLEAK FRANCES STILL MINORITY COUNSEL JACK &. BANDS I would like to thank you for your thought provoking proposals Before outlining my views on specific aspects of your proposals With respect to your first proposal--the simplification of With respect to section 804 of the 1936 Act, the Omnibus bill incorporates the change you have suggested. The Committee has also agreed that section 607 of the 1936 Act should be modified to allow CCF funds to be used to construct vessels for the domestic trades. I heartily agree with your statement that "the cargo preference program, like the Russian grain subsidy, has protected inefficient tonnage," and that an incentive should be provided to replace obsolescent ships as a condition of participation in preference programs. I will try to incorporate the incentives and/or obligations in the Omnibus bill that you suggest. Your suggestion that parcel cargoes of dry bulks should be limited to not less than 10,000 tons, requires more study and I hope to get some input on this issue during the hearngs. While the thrust of the Omnibus bill is not to protect one segment of the fleet from another, your proposal recognizes the significant differences between construction costs, operating costs, and methods of operations for liners and bulk carriers. I would appreciate more specific information to clearly justify this exception. Your suggestions that subsidy programs be limited to "independent" operators and that charters to industrial concerns be limited to not more than half the statutory life of the vessel are not entirely persuasive. It seems contrary to the goal of an efficient U.S. merchant marine to place restrictions on either independent operators or industrial corporations, but I will be glad to look at the question further if you feel I have not fully grasped your arguments. The problem of fuel costs and slow speed diesels versus steam turbines raises a very interesting and difficult problem. It is interesting because unfortunately it is the predictable consequence of the shortsighted and protectionist measures which have worked their way into the 1936 Act to the detriment of the U.S. merchant marine. The very restric-tive buy-American provisions in the 1936 Act for subsidized construction have not only resulted in the inability of the U.S. fleet to take advantage of state-of-the-art foreign technology and compete but have also added significantly to the costs of new construction, have resulted in delays in delivery, and have resulted in U.S. vessels having to settle for inferior components not only affecting their profitability but also their safely. The Omnibus bill reduces some of the rent onerous restrictions and should help to avoid fucre problems as, those faced by owners of vessels with steam turbines, delays in delivery, cost overruns, etc. However, the Omnibus bili amendments do not address the possible immediate need for a fuel differential subsidy or a one time subsidy to finance the conversion of steam-turbine vessels to diesel powered vessels. Before I can give you a specific answer to your proposals, however, I need more information. We need to know the cost of continued operations, the cost of conversion, the fuel savings which may result, and labor cost reductions resulting from lower manning requirements in automated diesel engine rooms, etc. If you would provide more detailed analysis of this problem, it could give us the basis to appropriately change the statutory language. Again, I would like to thank you for your proposals. I would like to personally invite you to testify on your proposals and/or to stop by if you are in Washington for a discussion of the overall situation or any specific problems of your choice. PNMCC/rlt Sincerely, Pote Paul N. McCloskey, Jr. Thank you for your letter concerning the Bulk Subsidy Program which our organization developed in order to make a contribution to the current maritime legislative process. I am attaching a copy of your letter to this for your ready reference and will attempt to respond to each of the inquiries which you presented to me. You first asked whether treating liner operators the same man- You next observe that you agree with our proposal to replace You next state that you agree with our suggestion that no obsolete vessel should be entitled to the benefits of the cargo preference laws unless it's owner has a binding commitment to replace it. And you state that you "hope that the Committee will follow [our] suggestion in this regard." Our proposal would implement this idea by recommending amendments to the cargo preference law, Section 901 (b)(1), to define "privately owned United States-flag commercial vessel" to exclude vessels over twenty years old unless there is a binding commitment to replace such vessels with a new ones. I would think if the Committee agrees with this concept the cargo preference law should be appropriately amended. Next you indicate that the options presented in the Omnibus bill for bringing foreign-built vessels into the U.S. fleet would remain. We do not think this solves the problem and we believe that U.S.-flag operators and U.S.-shipbuilders are partners in the effort to build a viable U.S.-flag fleet and U.S.-shipbuilding capability. Indeed, in the past a number of important technological advances in ship operation have been developed, cooperatively between the shipyards and the ship operators often also involving research performed by the Maritime Administration. Many technological advances such as significantly reduced crew compliments, automated engine rooms, containerization, the bulbous bow, the new kinds of propellers, LASH/Seabee vessels, have been developed in this fashion. They probably could not have been accomplished working with foreign yards because of the disparity of interest, the reluctance of the Maritime Administration to assist foreign yards and the communications problems involved. There are of course other reasons for preserving and developing a strong U.S.-shipbuilding capability. You next observe that, although you appreciate the initial capital cost disadvantage which we have attempted to solve with a limited cargo reservation program, you would prefer to give the new fleet the necessary initial help through "a more direct and controllable mechanism" for example, the purchase of foreign-built vessels, amendments to the tax code or direct subsidy. As I just indicated, our views on the transfer of foreign-built tonnage to U.S.-flag to operate with subsidy because it adversely affects the U.S.-shipbuilding base. But in any event, the purchase of new foreign-flag tonnage has the same approximate capital cost disadvantage as new U.S.-flag tonnage built with an honest CDS payment. The purchase of older foreign-flag ships for documentation under the U.S.-flag would not serve a major objective of upgrading and improving the U.S.-flag fleet with the latest improvements and technology. Tax benefits would be helpful in generating capital for new ships, but they are more useful if the vessel is capable of earning taxable income, which because of the initial capital cost discrepancy, in its early years it would not be. |