Page 59: of Maritime Reporter Magazine (June 2003)

every standpoint, from out-of-pocket costs to the taxpayer, to protection of the environment, the logic favoring the addition of water transportation resources is compelling.

Two years ago, one West Coast com- mentator estimated that "USA annual fast ferry newbuild contracted produc- tion volume by 2004 should be around the $250 million level and ... is likely to grow by $50 million or so annually thereafter." Current contracting falls very far short of this. Major questions remains as to capacity needs and as to how are these projects are to be funded.

For a number of shipyard transactions which are under contract or under dis- cussion with private sector purchasers, the availability of MARAD Title XI financing guarantees appear to be an essential element. 9. Import Substitution.

In my discussion above in 3.

Petroleum Product Tankers, I noted that these newbuilding requirements might be reduced to the extent that U.S. prod- uct needs are met by imports of refined products on foreign built, non-U.S. flag vessels.

The risks of this "import substitution" are substantial. Current product tanker costs (shipyard prices plus the costs of financing) are sufficiently high that the cost of domestic petroleum products delivered to the New England states (cost of product plus cost of transporta- tion) may exceed the cost of imported petroleum product. See, Interview with

Maritime Administrator William G.

Schubert, "U.S. Market: Foundation for the Future," Maritime Reporter &

Engineering News, September 2002.

On this point, vessel financing costs can become of critical importance.

During the early years of a tanker's employment, commercial financing will result in a tanker daily rate capital com- ponent more than twice that of the same tanker financed with MARAD guaran- tees and capital construction fund assis- tance. Currently quoted shipyard prod- uct tanker pricing is in the $80 million to $90 million range. Given these ship- yard prices, there is the likelihood of significant import substitution unless the MARAD financing programs are available.

The substitution of foreign built for

U.S. built vessels would result in lost profits and wages across significant sec- tors of the U.S. economy. On average, every $1 million paid for commercial ship construction in a U.S. yard, results in an additional $ 2.8 million of eco- nomic activity outside the yard. A $ 100 million tanker contract will generate a total of approximately $380 million in additional taxable domestic gross national product.^ So this is more than just a shipbuilder problem.

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