Page 13: of Maritime Reporter Magazine (November 15, 1973)

Shipbuilding Commission's Intensive Three-Year Study

Reaffirms Productive Capability Of U.S. Shipyards

The Commission on American

Shipbuilding, concluding three years of intensive study here and abroad, has found that the U.S. shipbuilding industry, given "the opportunity to build ships in se- ries" and "a reasonable stability in its orderbook," is "fully capable of equaling the productive efficien- cy in any foreign shipbuilding in- dustry for the construction of simi- lar ships."

Created by the Merchant Act of 1970 and appointed by the Presi- dent, the Commission has submit- ted its detailed findings and rec- ommendations to President Nixon and the leaders of the Congress.

The necessity for a firm national policy for the U.S. merchant ma- rine and the shipbuilding industry, properly and effectively implement- ed in all parts and at all levels of the Government, was reaffirmed.

In particular, this policy holds that shipbuilding and ship repair are essential components of a merchant marine, which should be strong enough to support the national de- fense and the development of U.S. trade in world markets.

Chartered principally to "review the status of the American ship- building industry, its problems and its progress toward increasing its productivity and reducing produc- tion costs," the Commission gave the industry high marks on ship- yard operations and technology, capital improvements, productiv- ity, and labor-management rela- tions. "Barring any major inter- national dislocation," it further ex- pressed belief that U.S. shipbuild- ers will, as required by the 1970

Act, meet the construction subsidy goal of 35 percent in Fiscal '76, compared with the 50 percent level of three years ago.

To assure availability of ships capable of carrying the required quantities of imported fuels, the

Commission recommended a series of coordinated actions which would form, as well as stimulate, con- struction of said ships in U.S. yards: (1) A "preference" or "quota" reservation to assure a share of the cargoes of imported fuels for "effi- cient and competitive" vessels built and registered in the U.S. (2) Continuance of subsidy pro- grams to cover the difference be- tween foreign and U.S. costs for

U.S. construction of vessels needed to carry a "preference" or "quota" reservation for U.S.-flag ships in the transport of petroleum and gas imports. (3) Tax-deferred transfer to the

United States of funds earned by

U.S. corporations from earnings on sales of ships flying a foreign flag, provided that the funds be used, in accordance with Maritime Admini- stration regulations, to finance con- struction of ships in U.S. shipyards for U.S. registry. (4) Imposition of penalties on importers and exporters who use state-owned shipping at rates con- sistently below a fair market value determined by the Federal Mari- time Commission, so that their freight rates in effect would be equal to those charged by U.S.- •built, U.S.-operated ships. (5) A system of settling labor disputes in the maritime industries "without resort to strike action." (6) Government encouragement of and support for research, stan- dardization, and exchange of tech- nical information within the indus- try without risk of penalties under the antitrust laws. (7) Retention of present provi- sions of cargo preference and pro- visions for financing construction and operation of U.S. vessels.

Two members of the Commis- sion submitted statements taking exception to certain of its recom- mendations. One of the two, al- though in agreement with many of the findings, did not consider it ap- propriate to sign the report.

W.H. Krome George, the ab- staining member, questioned the wisdom of a petroleum quota sys- tem, saying that he felt it was not needed in view of the present and prospective high level of activity in the U.S. shipyards, and further that it will impose an unnecessary burden on U.S. taxpayers to pro- vide the required level of Federal subsidy, and finally that such a quota would inevitably encourage other countries, and particularly

OPEC nations, to impose similar flag restrictions. Mr. George sug- gested that the effectiveness of the

Merchant Marine Act of 1970 would be better improved • by amending those sections of the Act which require that vessels receiv- ing operating subsidies must oper- ate in U.S.-foreign commerce. Mr.

George stated that he felt that this discouraged international tanker owners from building in the U.S. because of the inflexibility which this requirement imposes on tanker scheduling. Finally, Mr. George stated that he felt that American shipowners would be encouraged to build ships in the U.S. under the subsidy provisions of the 1970 Act if the so-called "Grandfather

Clause" was removed. This clause prohibits the granting of operating subsidies unless the recipient agrees, in effect, not to expand his foreign-flag fleet and to eliminate it within 20 years thereafter.

Arthur M. Becker signed the re- port but offered the judgment that

U.S. shipyards would compete suc- cessfully with foreign yards, de- spite the wage differential,' if Gov- ernment aid to ships built, for U.S. citizens were extended to ships built in the United States for na- tions of other countries. He argued that a system of cargo preference should be arrived at only through negotiation with foreign countries and should contain proper safe- guards to require the beneficiaries to construct new vessels. The pro- posal for freight-rate equalization, he said, was inconsistent with U.S.

Government payment of operating- differential subsidies to U.S. ships.

Finally, he proposed modifying the definition of U.S. citizenship as ap- plied to corporations under exist- ing maritime statutes so that great- er foreign participation and capital would be available to the U.S. mar- itime industry.

Other Commission members are:

Rear Adm. Albert G. Mumma,

USN (ret.), chairman; Charles A.

Black, national secretary-treasurer,

Marine Engineers Beneficial As- sociation ; Andrew E. Gibson, pres- ident, Interstate Oil Transport Co,;

John T. Gilbride, president, Todd

Shipyards Corporation, and Stan- ley Powell Jr., chairman, Ship

Funding International.

The conclusions and recommen- dations of the 'Commission appear in the first of a three-volume re- port. Analyses of data in support of the recommendations appear in volume two. The third volume con- tains reports of studies by indepen- dent consultants who provided much of the data which the mem- bers and staff of the Commission used in developing the information in volume two.

Edwin M. Hood, president of the

Shipbuilders Council of America, had the following comments to make on the Commission's report: "The report which the 'Commis- sion on American Shipbuilding has submitted to President Nixon and leaders of the Congress objectively separates fact from fiction. It will be enthusiastically applauded by

U.S. shipbuilders. "Against a background of un- founded criticisms which have re- curred with regularity for some years, it is refreshing to have this timely appraisal of conditions and trends affecting the private ship- building industry of the United

States. The distinguished members of the Commission have obviously devoted considerable time and an- alysis to the complex of govern- mental, marketing, technological, operations, statutory, environmen- tal and manpower influences that bear on shipbuilding in this coun- try as well as abroad. "Our industry is particularly en- couraged by the Commission's fa- vorable assessment of 'progress and productivity' within the Amer- ican shipyard industry. These rele- vant observations from the Com- mission's report merit repetition: "'Many of the critical allegations about the shipbuilding industry are myths. The visits to U.S. yards have convinced the Commission that shipyard managements have done much in a difficult environ- ment. Major investments have been made in new equipment and facil- ities in anticipation of a future mar- ket. Also, there is little evidence to suggest that improvement in la- bor-management relations in the industry, which actually have been good, would materially increase individual worker productivity which, in itself, is as high as any in the world. " 'What is needed is a well-estab- lished market. This market, to as- sist the shipbuilding industry in improving productivity and at- tracting investments, must be sta- ble and characterized by series construction. If this market is to be attained, it must be, as in other countries, the result of a sustained, positive national policy. Adherence to such a policy by all branches of the Government would encourage such shipowners and operators as the major U.S.-owned oil compa- nies to build U.S.-flag vessels.' "We are also encouraged by the

Commission's attention to the im- portance of ship financing. Backup study of 'Ship Construction and

Acquisition Financing' by the First

National Bank of Chicago con- cludes : 'U.S. Ship Financing Pack- age is substantially better than any alternative financing available for the construction and acquisition of foreign-built ships.' First 'Chicago recommends: 'The Maritime Ad- ministration in conjunction with

U.S. shipyards should undertake a promotional program to educate potential ship buyers on the eco- nomic advantages of the U.S. Ship

Financing Package.' "This recommendation, in addi- tion to others advanced by the

Commission, will be actively sup- ported by our industry. "We, as well as policy-makers and the Congress, will also want to give thoughtful consideration to this statement in the Commission's report: 'With respect to capacity for constructing commercial-type ships for noncombatant needs in a sustained conflict, the industry has presently, at the maximum, only one-third of the required output capacity according to a recent study by the Maritime Admini- stration.' "

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