U.S. SHIPBUILDING OUTLOOK Maritime Policy—1980-1985

When the Administration assumed office in 1981, the shipbuilding industry understood that it would be challenged to meet the performance and cost objectives of an expanded naval construction program. Further, the shipbuilding industry knew that performing the backlog of commercial and Navy work, on hand in 1981, would demonstrate that the industry's ongoing investment in facilities and new production methods and processes provided lower shipbuilding costs and more rapid shop deliveries.

The industry was poised to build badly needed new navel vessels and to respond to all requirements to build commercial vessels.

That the Administration placed highest shipbuilding priority on naval combatant vessels in its 1981 and 1982 budgets was understood and strongly supported by the industry.

The industry did not agree, however, that the series of decisions that resulted in the near abandonment of commercial domestic shipbuilding were based on sound analyses of the requirements of national security. In our view, it is a responsibility of industry to highlight errors or misjudgments in national policy development when they occur.

As indicated in the Message from the Chairman (following this article), we believe that our industry has acted responsibly and effectively to the demands of a changing business environment and that the Administration has made good progress in enhancing our naval war fighting capabilities at costs that are fiscally sound.

Today, however, the status of the overall maritime capability of the nation is much less sound than that of the Navy. During the Presidential campaign in 1980, then-candidate Ronald Reagan issued a statement entitled "A Program for the Development of an Effective Maritime Strategy." The President's statement included the following definitive program: "We must develop and undertake a maritime policy that will (1) demonstrate our understanding of the importance of the seas to America's future; (2) reestablish the U.S.- flag commercial fleet as an effective economic instrument capable of supporting U.S. interests abroad; and (3) demonstrate America's control of the seas in the face of any challenges.

"A specific naval-maritime program must be developed that will: "1. Provide a unified direction for all government programs affecting maritime interests of the United States. We must insure that there is active cooperation between the Navy and the Merchant Marine and the government departments responsible for each. We must see that long-range building programs for naval and merchant ships are established and carried out without falling victim to petty bureaucratic jealousy.

This is the role of the President, and I shall see that our maritime policy is coordinated to insure that it achieves the objectives we set for it.

"2. Insure that our vital shipbuilding mobilization base is preserved.

It is essential that sufficient naval and commercial shipbuilding be undertaken to maintain the irreplaceable shipbuilding mobilization base. Without this nucleus of trained workers and established production facilities, we can never hope to meet any future challenge to our security.

"3. Improve utilization of our military resources by increasing commercial participation in support functions. The Navy today is facing a critical shortage of trained personnel.

With the commercial industry assuming increased responsibility for many auxiliary functions, substantial cost savings can be achieved and a large reserve of manpower can be released to provide crews for a growing naval fleet. This is an example of the means by which we can increase defense mobilization without adding burden to the taxpayer.

"4. Recognize the challenges created by cargo policies of other nations. The United States has traditionally espoused free trade. However, the international shipping trade is laced with a network of foreign governmental preferences and priorities designed to strengthen foreign fleets, often at the expense of U.S. maritime interests. We must be prepared to respond constructively for our own interests to the restrictive shipping policies of other nations. A major goal of the United States must be to insure that American- flag ships carry an equitable portion of our trade consistent with the legitimate aspirations and policies of our trading partners.

"5. Restore the cost competitiveness of the U.S.-flag operators in the international marketplace. It has been American policy since 1936 for the additional costs of building and operating U.S.-flag ships to be borne by a system of subsidies to help insure the competitiveness of American importers and exporters.

But our parity system failed in the mid-1970s because most foreign governments moved to protect their own vital maritime interests after the shipping collapse of the mid- 1970s. We must now take corrective action to make certain our merchant fleet and our shipbuilding industry survive and grow.

"6. Revitalize our domestic water transportation system. The inland water transportation system provides an economic and energy-efficient method of moving goods and commodities of the nation between all parts of our country. It also provides a vital link in our international trading effort by tying the ports of our four seacoasts, which includes our Great Lakes, to the producing heartland of the nation. Again we are paying a high price for the absence of any coherent national policy.

"7. Reduce the severe regulatory environment that inhibits American competitiveness. As foreign competition on the maritime scene has increased, so have the operational and regulatory restrictions on U.S.

shipping and shipbuilding. Many of these restrictions increase costs and, in some cases, simply prevent our ships from competing with foreign ships. There is rarely, if ever, any commensurate benefit from these restrictions. Accordingly, we will carefully and rapidly review the effect of these restrictions, and sponsor appropriate actions.

"In carrying out these expansive programs, a coordinated effort will be undertaken to create new jobs for American seamen, shipyard workers, and the thousands of workers in related industries. These maritime industries, which are vital to our national well-being, in the past have had an outstanding record of providing not only employment but the training to enable minorities and the disadvantaged to obtain continued advancement.

"This seven-point program will be carefully developed and it will be carried out. We cannot expect others— either allies or adversaries—to respect our interests if we show no respect or concern for them ourselves.

The failure to develop and carry out an effective naval and maritime program will deny the use of the seas to the United States and eventually, to the Free World." Is the seven-point program in place and functioning? To deny that nothing has been done would be incorrect. A major naval shipbuilding program has been undertaken, as was indicated, and civilian manning of naval vessels has increased.

But what of the promised enhancement of the merchant fleet and the shipbuilding industry? Has sufficient progress been made? It has not in the view of the Congress.

As also indicated in the Message from the Chairman, Congress enacted on October 19, 1984, Public Law 98-525, the Department of Defense Authorization Act, 1985, legislation that created a Commission on Merchant Marine and Defense to study the problems of the maritime industry. The defined tasks of the Commission are as follows: "The Commission shall study problems relating to transportation of cargo and personnel for national defense purposes in time of war and national emergency, the capability of the United States merchant marine to meet the need for such transportation, and the adequacy of the shipbuilding mobilization base of the United States to meet the needs of naval and merchant ship construction in time of war or national emergency. Based on the results of the study, the Commission shall make such specific recommendations, including recommendations for legislative actions, action by the executive branch, and action by the private sector, as the Commission considers appropriate to foster and maintain a United States merchant marine capable of meeting national security requirements. The recommendations of the Commission shall be provided in the reports of the Commission due on September 30, 1985, and September 30, 1986 . . ." Following enactment of the legislation, the Office of Management and Budget held that no Commission could be created without specific funding. On August 15, 1985, the Congress provided funding for the Commission as part of the supplemental appropriations for Fiscal Year 1985. Yet, five months later the Administration has failed to name Commissioners and create the Commission.

Should it therefore be concluded that the Administration believes that it has fulfilled either the mandate of the Congress in defining the tasks to be performed by the Commission or that the seven-point program defined by the President in 1980 has been put in place?

As we have previously stated, the program of the Administration has been to enact the Shipping Act of 1984 as the centerpiece of maritime legislation and to continue to seek enactment of foreign building privileges for ship operators with operating- differential subsidy contracts, the elimination of ad valorem duties levied on foreign repair of U.S.-flag vessels, and the immediate eligibility of foreign-built, U.S.-flag vessels to carry preference cargoes. All legislation designed to provide support for the shipbuilding industry has been consistently opposed, including "Build and Charter." Further, the implementation of the construction differential subsidy payback, proposed tax legislation and actions by the Department of Agriculture to deny the applicability of certain cargo preference laws to agricultural products together show that there is no centralized review of maritime policy that requires the policy development be measured as to its effect on national security.

Recently, maritime industry experts compiled data relating to the current status of the industry and attempted to look forward to 1990.

This was done for the U.S. liner fleet, both international and domestic trading; the U.S.-flag tanker fleet, both international and domestic trading; and the Effective U.S.

Control fleet (EUSC). In each case and particularly vessels classed as militarily useful, the fleet has contracted sharply in numbers of vessels in the period from 1980 to 1985.

For example, the total number of finer vessels was reduced from 319 in 1980 to 209 in 1985. Comparable decline has occurred in the U.S.-flag militarily useful tanker vessels, where useful vessels now include those less than 100,000 dwt. Further, more than one-half of these vessels are engaged in the carriage of crude oil (a transport that must be sustained in a national emergency) and a substantial number of the vessels over 50,000 dwt are not suitable for transport of clean products due to lack of cargo tank coatings even if they can be replaced in the service by substitute foreign-flag vessels.

It has always been recognized that the primary value provided by the EUSC fleet to the nation in a national emergency was to provide shipping support for the general economy. Again, sharp declines have occurred in this fleet both in militarily useful vessels and the fleet overall during the period since 1980.

Looking forward to 1990, these shipping experts agreed that the most likely change to the fleets would be reduction in size, certainly as measured by number of vessels.

The real issue that lies before the nation is how severe the contraction of the operating fleets will be in this period. Further, it was agreed that because of the lack of a complete and coherent maritime policy and strategy, particularly in regard to a stable policy, it is impossible to predict the fleet composition with reasonable accuracy. For example, the proposed new tax law will undoubtedly cause severe changes to the future fleets. Thus, the problem of planning for military contingencies becomes extremely difficult and highly speculative.

Rarely in military planning is the expertise of industry sought. In this regard, of particular concern is the extremely long time period between data input and meaningful actions taken and/or needed analyses completed.

In the rapidly changing shipping and shipbuilding industries that exist worldwide, conclusions based on "old data" even if it is "correct data" when coupled with the extremely long time required for either political or budgeting actions is a cause for concern. When basic data is incorrect, incorrectly interpreted, or future projections are based on unsound or overly optimistic assumptions, the cause for concern is greatly heightened. Indeed, the national security can be placed in jeopardy. At a minimum, it would seem that "good planning" would seek as a minimum requirement the views of industry experts in the development of plans and analyses relating to the maritime policy. This is particularly important because the industry is subject to extremely rapid change and high volatility.

We have pointed out on numerous occasions that the noncentralized development of maritime policy and lack of the requirement that policy be tested as to its effect on the national security before implementation is a serious flaw in management.

The military is required to rely on others beyond their control to provide assets vital to the performance of their responsibilities but lack the ability to cause meaningful review and testing of policy changes that may cause their missions to be impossible to accomplish.

The record speaks with clarity in evaluating the advancement promised for the maritime industry in 1980. Rather than building a growing and viable merchant marine and shipbuilding industry, contraction and continuing loss of capability and assets in these industries has been the chosen course.

That this course is correct, that the national risks it entails are acceptable, or that the original plan set out as the guideline in 1980 was an incorrect perception of national requirements has never been articulated to the American people. On the basis of the record, the program espoused in 1980 for the achievement of maritime sufficiency has not been put in place.

What of the future? S.G. Gorshkov, Admiral of the Fleet of the Soviet Union, was quoted: "The flag of the Soviet Navy flies over the oceans of the world. Sooner or later the United States will have to understand it no longer has mastery of the seas." In 1980 candidate Reagan said: "This seven-point program will be carefully developed and it will be carried out. We cannot expect others— either allies or adversaries—to respect our interests if we show no respect or concern for them ourselves.

The failure to develop and carry out an effective naval and maritime program will deny the use of the seas to the United States and, eventually, to the Free World." Argumentum terminare.