The average cost of operating a U.S.-flag vessel in foreign commerce was 2.7 times higher than the cost for foreign-flag vessels with much of the difference attributed to crew-related factors, federal research shows.
In dollar terms, the average daily expense for a U.S. vessel in 2010 was $20,053 compared to $7,454 for foreign-flag ships.
Crew costs account for 68 percent of U.S. vessel budgets versus 35 percent for foreign flags, according to the Maritime Administration’s recently released report on the global competitiveness of the U.S.-flag fleet. The other big differential was in maintenance and repair — 32 percent for foreign-flag and 15 percent for U.S. The remaining expenses are divided among stores/lubes, insurance, and overhead.
“U.S.-flag carriers are at a distinct disadvantage in their ability to compete in international transportation markets,” Marad said in the report, which was compiled from Marad and private source data, and information gathered by PricewaterhouseCoopers at Marad’s request.
At the end of 2010, the U.S.-flag fleet in foreign trade included 60 ships participating in the Maritime Security Program (MSP) and about 50 others carrying commercial and preference cargo, the report said. U.S.-flag ships carry less than 2 percent of U.S. foreign trade. The fleet has shrunk considerably, down from a peak of 1,268 in 1951. More than 540 U.S.-owned vessels are registered in 31 foreign countries.
While U.S.-flag vessels must hire U.S.-citizen crews, foreign registry carriers can shop around the world for the cheapest crews available, the report said. Sixty-seven percent of the carriers surveyed said the citizenship requirement “negatively impacted” their flag choice. They also highlighted “work rules and manning requirements in the United States that affect labor productivity and crewing flexibility.”
So why would anyone stay under the U.S. flag?
One reason is the Maritime Security Program (MSP) payments that help reduce the gap. The MSP pays a retainer in exchange for providing the Department of Defense with access to their operations during a war or national emergency, the report noted. As of October, the MSP payment increased from $2.9 million to $3.1 million per vessel per year, or about $8,500 per day.
And U.S.-flag operating costs not covered by MSP payments are defrayed by the ability “to carry preference cargoes at rates that are significantly higher than commercial rates.” Carriers surveyed were concerned about future tonnage levels of such cargo.
“The data strongly supports the notion that the programs currently administered by the Maritime Administration, particularly Cargo Preference and the Maritime Security Program, are critical in helping ensure a U.S.-flag fleet — with trained U.S. mariners — will be available when needed,” a Marad spokesman said. “The agency looks forward to continuing our work with all stakeholders to strengthen our national maritime policies.”
Last year, Congress, expressing some frustration, questioned Marad administrator David Matsuda about enforcement of the cargo preference laws and viability of the U.S. fleet. He said they were doing a study on operating costs.
Transportation and Infrastructure Committee spokesman Justin Harclerode said in early November that they had just received the report and had not reviewed it. “We will certainly do so,” he commented.
A copy of the report is available at: http://www.marad.dot.gov/documents/Comparison_of_US_and_Foreign_Flag_Operating_Costs.pdf.