HOUSE OF REPRESENTATIVES, SEAPOWER SUBCOMMITTEE, Washington, D.C., Thursday, September 19, 1974. The subcommittee met, pursuant to recess, at 10 a.m., in room 2212, Rayburn House Office Building, the Honorable Charles E. Bennett, (chairman of the subcommittee) presiding. Mr. BENNETT. The subcommittee is pleased to have Mr. Robert J. Blackwell, Assistant Secretary of Commerce for Maritime Affairs. You may proceed. Mr. BLACKWELL. Good morning, Mr. Chairman, members of the subcommittee. I am pleased to appear before you today on behalf of the Maritime Administration. For the sake of time, I will present a condensed version of my full testimony, submitted to the subcommittee earlier this week. However, I do request that my full written statement be inserted in the record. Mr. BENNETT. Without objection, it is so ordered. STATEMENT OF ROBERT J. BLACKWELL, ASSISTANT SECRETARY OF COMMERCE FOR MARITIME AFFAIRS, DEPARTMENT OF COMMERCE Mr. Chairman and members of the subcommittee, thank you for inviting me to appear here today on behalf of the Maritime Administration. I appreciate this opportunity to testify on our maritime program, its relationship to American seapower, and, specifically, on the primary issue before this committee: the capability of U.S. shipbuilding, both Government owned and private. Shipbuilding is the key element in the successful attainment of the goals of the maritime program, and I shall begin my statement with a description of the relevant aspects of that program. I. DESCRIPTION OF MARITIME ADMINISTRATION PROGRAM AS IT AFFECTS SHIPYARDS A. STATUTORY RESPONSIBILITY The basic statutory responsibility and authority of MarAd for the development of the merchant marine is contained in the Merchant Marine Act, 1936. Title I of that act sets forth a declaration of national policy, containing the two broad thrusts of our mission: the national defense and development of our foreign and domestic commerce. This title reads, in whole, as follows: It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign commerce of the United States and (1187) to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne commerce at all times, (b) capable of serving as a naval and military auxiliary in time of war or national emergency, (c) owned and operated under the United States flag by citizens of the United States insofar as may be practicable, (d) composed of the best-equipped, safest, and most suitable types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel, and (e) supplemented by efficient facilities for shipbuilding and ship repair. It is hereby declared to be the policy of the United States to foster the development and encourage the maintenance of such a merchant marine. The 1936 act was premised upon a long-range shipbuilding program designed to provide 500 new ships within a 10-year period. Before the program was well started, however, World War II broke out in Europe. Ships were in tremendous demand, and the number of ships built increased rapidly. For example, from 1942 through 1945, United States shipyards built 5.592 merchant ships, of which 2,701 were Liberty ships, 414 were the faster Victory type, 651 were tankers, 517 were standard cargo ships, and the remaining 1,409 were primarily military types. At the end of World War II this Nation had the largest and most modern merchant fleet in the world-totaling 4,446 ships. In 1946, U.S.-flag ships carried 57 percent of U.S. trade. In the years following, however, there was a steady decline of the Nation's maritime seapower with little new commercial shipbuilding. In contrast to the mounting obsolescence and reduction of our American commercial fleet, the fleets of other nations such as Norway, the United Kingdom, and Japan became progressively larger, faster, and more competitive. In the period 1960-69, while U.S. foreign trade export/import tonnage increased by more than 50 percent-from 278 to 428 million tons-the percentage carried by the American-flag fleet fell from 11 to 5 percent. By mid-1970, the U.S. commercial active fleet numbered only 819 vessels, more than two-thirds of which were at least 25 years old and nearing the end of their economic life. It became apparent in 1969 that by the end of the decade of the 1970's, unless corrective measures were promptly instituted, our foreign trade fleet would be reduced to only about 200 ships capable of handling less than 3 percent of our waterborne foreign commerce. Against this background the administration announced a reaffirmation of the national requirement for a strong and modern merchant marine and efficient facilities for shipbuilding and repair. A new maritime program, providing Government impetus to make the U.S. maritime industry more competitive and to restore the United States to the rank of a first-class maritime power, was signed into law as the Merchant Marine Act of 1970. When the enabling legislation came before the Senate and the House of Representatives, only two dissenting votes were cast-attesting to the overwhelming support of the entire Congress for revitalizing the merchant marine element of our seapower. B. BASIC CHANGES IN THE MARITIME PROGRAM FOR THE 1970'S The most significant aspects of the maritime program for the 1970's affecting commercial shipbuilding are as follows: A program to rebuild the merchant fleet with ships of advanced design with improved competitiveness to be built with Federal assistance over a 10-year period. Emphasis is being placed on the development of ships of standardized design and the introduction of series production techniques in order to lower unit costs. Construction subsidies are being paid directly to the ship builders rather than to the shipowners. This direct payment system encourages shipbuilders to improve designs, reduce delays and minimize costs. New contracting techniques are being encouraged. In a major departure from past practices, negotiated contracts are permitted. Additionally, multi-year procurement, whereby the Government's share of the cost is funded over the longer term of the construction period rather than appropriated in full in a single year, is being utilized. All types of bulk carriers are, for the first time, eligible for operating and construction subsidy. Before the 1970 act, tankers, for instance, were ineligible for Government assistance. A greatly expanded and revised Federal ship mortgage insurance program has been introduced. This program is designed to encourage private financing of the increased levels of new ship construction. Initially, the authorization level for this program was extended from $1 billion to $3 billion in the 1970 act. It has since been extended to $5 billion and a study is being made of recommending a further increase in the authorized ceiling. A new capital construction (CCF) program has been introduced that permits tax deferral of ordinary income to finance replacement fleets. The Maritime Administration's research and development activities have been expanded and reoriented to place priorities on near-term projects aimed at improving the competitiveness of the U.S. shipbuilding industry. Emphasis has been placed on the translation of current technological advances into practical applications. Greater emphasis is also placed on Government and industry cooperative and cost-shared research and development programs. Finally, a descending scale of construction-differential subsidy (CDS) rates were set as the targeted goals to challenge the shipbuilding industry to produce additional American ships with a reduced percentage of costs subsidized by the Government. The Government's continuance of its commitment for a long-term shipbuilding program is directly tied into the achievement of the reduced CDS rates. Previously, the subsidy rate averaged more than one-half of the domestic cost of each new ship. The goal for fiscal year 1971 was first established at 45 percent of the domestic price, and further annual reductions of 2 percent are targeted until the construction subsidy rate level drops to 35 percent by fiscal year 1976. C. RESULTS ACHIEVED UNDER THE MARITIME PROGRAM FOR THE 1970'S I believe that considerable progress has been made in advancing the objectives of the maritime program. Subsidized shipbuilding orders of $3.1 billion have been generated by the 1970 act; $2 billion of which are private funds. These comprise 59 new ships of 6.3 million deadweight tons and the conversion of 16 existing ships into modernized containerships. In addition, our Federal ship mortgage insurance program has stimulated additional construction contracts not involving subsidy. As a result, the domestic shipbuilding industry today has underway the greatest peacetime shipbuilding boom in its history. As of July 1, 1974, 94 merchant ships valued at $4.2 billion and aggregating 7.9 mil lion deadweight tons were under construction or on order.1 This backlog in terms of value is four times as large as the orderbook just prior to the passage of the 1970 act and represents over 200,000 man-years of employment for shipyard workers and employees of the marine supply industry. The new merchant ship construction work is spread out among a number of U.S. shipyards. A tabulation of the subsidized awards shows the following: Thus far, most of this work is still in the construction stages with 11 deliveries to date: 6 LASH at Avondale, 1 VLCC at Seatrain, and 2 tankers and 2 OBO's at NASSCO. All of the 16 conversions have also been delivered: 3 at Triple "A" machine shop, 4 at ToddSan Pedro, 5 at Todd-Seattle, and 4 at Todd-Galveston. Although a limited number of new ships have been delivered under the Merchant Marine Act of 1970, aggressive market development efforts are beginning to show an increased level of U.S.-flag carriage. Most of the increase is in bulk trades, with the United States continuing to maintain its leadership in the dollar value of liner cargo carried (28 percent). Our preliminary review of 1973 calendar results indicates that the overall U.S.-flag carriage share has moved up to 6.4 percent in 1973 from 4.5 percent in 1969, during a period where the total U.S. foreign trade has grown from 426 to 623 million tons. The U.S. share of its total foreign trade tonnage increased to 40 million tons. This represents the highest U.S.-flag carriage of tonnage since 1957, thus arresting a 15-year period of decline. Significantly, the majority of the new orders give the U.S. shipbuilding industry a reentry into the bulk market. Forty-six of the 59 subsidized vessels ordered to date under the 1970 act are bulk carriers of energy fuels. Thus, a new direction has been given to the original program plans. Ships such as the LNG ships and the supertankers were not envisioned when the 1970 act was drafted. These new vessels are much larger and more sophisticated than the ships planned when the Merchant Marine Act of 1970 was passed. However, this new emphasis given to the construction of energy carriers has proven to be appropriate in view of the Nation's mounting demands for imported fuels. 1 Two LASH ships which have been tendered for delivery by the shipyard have yet to be accepted by the owner. These vessels are not included in the total of 94. They were awarded prior to the 1970 act. In addition to the awards for subsidized construction, orders for 7 additional LNG ships and 15 standard design tankers, none involving subsidy, have also been generated by our title XI mortgage guarantee program. With 16 of the highly specialized LNG ships under contract, the United States is the world's leader in cryogenic ship construction. Furthermore, American yards also are the leading producers of oil drilling rigs, with orders for over 45 rigs valued at an estimated $750 million-of which 19 will be built with the aid of title XI financing guarantees. These oil drilling rigs also will play a key role in assisting the Nation in alleviating its energy shortage. With regard to achievement of the targeted goals for reduced CDS rates, the shipbuilding industry has effectively been meeting this challenge. The industry has kept the CDS rate within or below the prescribed goals for all of the shipbuilding contracts issued since the new program has been in force. In fact, subsidy rates have been as low as approximately 33 percent for some types of tankers at NASSCO, San Diego, and at Todd, San Pedro, Calif. On the LNG contracts, the first two orders, for three ships each at General Dynamics and Newport News, carried subsidy rates of about 25 percent. The third contract, also for three ships, awarded to Avondale, required only a 16.5-percent subsidy. Although the recent devaluations of the U.S. dollar have had some impact upon the CDS rates, by increasing the relative cost of foreignbuilt ships and thereby reducing the gap between domestic and foreign costs, increased capital improvements, improved marketing efforts and the emphasis on series production have been significant factors in meeting the lower CDS rate goals delineated in the 1970 act. In recent years, American shipbuilders have invested an estimated $371 million for shipyard improvements. It is projected that capital expenditures of another $342 million will be made over the next few years for new or improved facilities. The marketing efforts of U.S. shipbuilders have been heavily geared to series construction of standardized ship designs. The Avondale Shipyard in New Orleans and National Steel at San Diego have been the most successful to date in developing series production runs. The Avondale yard has been handling orders for 20 LASH vessels and the NASSCO yard orders for 19 tankers concentrated in the 89,700 and 38,300 deadweight ton sizes. Todd at San Pedro has contracts for 8 tankers of the NASSCO 89,700 design and 4 in the 35,000 deadweight ton size. Thus, series production of the 89,700 deadweight ton tanker has been achieved at two yards. General Dynamics at Quincy has contracts for 8 LNG carriers of 125,000 cubic meters capacity, and other U.S. shipyards have production runs of 3 to 5 ships of standard type designs. These factors all point to successful results, and I think that the overall record which I have described of increased commercial construction activity, coupled with the proven ability to meet the targeted reduced subsidy rates, all attest to the significant program made to date in rebuilding the U.S. merchant fleet. |