Title XI and small passenger vessels

The Maritime Administration’s Title XI shipbuilding program is usually not the best method to finance the construction of a new passenger vessel.

The program provides federal guarantees to commercial lenders for the construction or modernization of U.S.-flag vessels (or eligible export vessels).

The original intent of Title XI was to encourage construction of vessels for domestic service that could also be used to move supplies in the event of war. In the 1970s, an amendment also allowed the program to guarantee loans for construction of rigs and vessels for offshore oil-and-gas exploration, extraction, and transportation.

For owners and operators of small passenger vessels, Title XI, as currently structured, won’t provide much financial help. And many large passenger vessel fleets, particularly ferries, are publicly owned and are often primarily financed through federal transit and highway funds (with the possible use of state or local government taxing authorities to cover the risks of repaying non-federal matching funds). However, Title XI may be a viable option when an owner/operator has a contract with a state or municipality to provide a specified service.

Smaller passenger vessel operations are generally family owned and are often located in remote areas where there are no convenient transportation alternatives. This makes the service economically self-sufficient. For these operations, limited shoreside staff and time usually puts Title XI guarantees out of reach. Small operators usually don’t have the personnel or funding resources to wade through Marad’s lengthy approval process.

While the administrative costs associated with Title XI generally make the program unattractive for smaller projects, with proper planning the program may be a good alternative for larger projects.

Potential applicants should schedule an informal pre-application meeting with Marad officials at the earliest stage possible. This will somewhat mitigate the lengthy lead time and also provide a thorough understanding of the Title XI review process and program requirements.

A review of the recent Title XI congressional hearing is available from consultant John Snedeker, at JohnCSnedeker@cs.com.

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