thedrifter
02-28-06, 07:22 AM
Shipping
It's A Small Ports World After All
Jessica Holzer, 02.28.06, 6:00 AM ET
Following the outrage over a Dubai, U.A.E.-based company taking over terminals at some U.S. ports, one would think that Americans had a tight grip on the operations of their ports. Nothing could be further from the truth. Foreign companies run nearly all the port terminals on the West Coast and about half of those on the East Coast, according to Stephen E. Flynn, a former Coast Guard commander at the Council on Foreign Relations.
The reason is simple: Despite being the world's largest trading nation, America is a bit player in the ocean-borne shipping trade. To ensure good service, every big ocean carrier wants to control the terminals where it loads and unloads cargo. And these days, nearly all the companies shipping goods in and out of Long Beach, Calif., Seattle, and other big U.S. ports are foreign-run. Of the 6,409 oceangoing vessels engaged in U.S. trade in 2004, a mere 234, or around 4%, were owned by U.S. companies, according to the U.S. Maritime Administration.
This was not always so. In their heyday after World War II, American shippers--also called U.S. flag-carriers--dominated the high seas. "We were the strongest maritime power on the globe," says Glenn Gordinier, a maritime expert from Williams College. An American shipper, Sealand, even revolutionized the industry in 1956 when it invented "containerization," or putting goods in standardized containers rather than packing them directly in the vessel. Sealand's parent company, CSX, snapped up several large terminals around the globe.
But, one by one, all the big American shippers went belly up or were bought by rivals. In 1997, APL was sold to Neptune Orient Lines, a Singaporean flag-carrier that is the only other state-backed company besides Dubai Ports World to have leased a U.S. port terminal. In 1998, Farrell Lines was sold to Peninsula & Oriental, the British shipper just bought by Dubai Ports World. Danish shipping giant Maersk purchased Sealand in 1999. Today, less than 3% of America's waterborne imports and exports are carried by vessels under the U.S. flag.
What happened?
In a word: competition. Hamstrung by higher taxes, regulation and a law that requires all U.S. flag-carriers to be manned by American crews, the American merchant marine gave way to its foreign rivals. Powerful unions and strict labor laws ensure that American crewmen cost several times their foreign counterparts. While foreign flag-carriers go largely untaxed, U.S. shippers were levied at the 35% corporate tax rate until two years ago. "This was a major factor in allowing foreign flags to purchase all the U.S. flag companies," says Phillip Grill, a lobbyist for Matson Lines, a U.S. flag-carrier engaged in the domestic trade.
The Jones Act of 1920 made domestic trade an exception since it requires all shipping between two U.S. ports to be done by a U.S.-built ship, flying a U.S. flag and manned by a U.S. crew. But while the act shielded domestic shippers from foreign competition, it also shackled many U.S. shippers competing with foreign lines to the inefficient domestic shipbuilding industry. Any U.S. flag-carrier making more than one port of call in the U.S. on its way back from a foreign port must be built domestically, for example. And U.S.-built ships cost as much as five or six times ships built overseas.
Construction subsidies helped pay for the more costly ships, until Congress abolished them in the 1980s. But neither protectionism nor a host of construction and operating subsidies could compensate for the flow of foreign carriers to so-called "flags of convenience" registered in countries more forgiving on labor, insurance and safety standards, such as Liberia, Panama and the Northern Marianas Islands. Not surprisingly, many American shippers also flocked to such flags: a significant portion of U.S.-owned ocean-carriers are not part of the U.S. fleet, according to the U.S. Maritime Administration. The Liberian government registers U.S.-based companies out of its office in Vienna, Va.
The U.S. investment in port facilities has also lagged that of other countries. The Asian economies, powered by export-driven growth in the post-war period, quickly grasped the new container technology and poured money into expensive container facilities and huge cranes to move cargo around, providing a spur to their shipping industries. "It was too boring for the U.S.," explains Gaddis Smith, a retired maritime historian from Yale. Many Asian governments also seized on the merchant marine as a way to project military might and fed their shipping industries cheap loans and subsidies.
Yet critics of the decline of American commercial shipping argue that the strength of the merchant marine has real consequences for national security, meaning a strong commercial shipping industry provides a backstop to the Navy in the time of war. But, despite the hue and cry over the Dubai Ports World deal, there is little appetite for unraveling the regulations that burden the U.S. shippers or for ramping up subsidies for the industry.
And there also seems to be no relief ahead from fierce overseas competition. As an American crewman in John McPhee's Looking for a Ship, a 1990 book on the American merchant marines, grumbled, "We can't compete with countries that pay sailors a dollar a day and feed them fish heads and rice."
Ellie
It's A Small Ports World After All
Jessica Holzer, 02.28.06, 6:00 AM ET
Following the outrage over a Dubai, U.A.E.-based company taking over terminals at some U.S. ports, one would think that Americans had a tight grip on the operations of their ports. Nothing could be further from the truth. Foreign companies run nearly all the port terminals on the West Coast and about half of those on the East Coast, according to Stephen E. Flynn, a former Coast Guard commander at the Council on Foreign Relations.
The reason is simple: Despite being the world's largest trading nation, America is a bit player in the ocean-borne shipping trade. To ensure good service, every big ocean carrier wants to control the terminals where it loads and unloads cargo. And these days, nearly all the companies shipping goods in and out of Long Beach, Calif., Seattle, and other big U.S. ports are foreign-run. Of the 6,409 oceangoing vessels engaged in U.S. trade in 2004, a mere 234, or around 4%, were owned by U.S. companies, according to the U.S. Maritime Administration.
This was not always so. In their heyday after World War II, American shippers--also called U.S. flag-carriers--dominated the high seas. "We were the strongest maritime power on the globe," says Glenn Gordinier, a maritime expert from Williams College. An American shipper, Sealand, even revolutionized the industry in 1956 when it invented "containerization," or putting goods in standardized containers rather than packing them directly in the vessel. Sealand's parent company, CSX, snapped up several large terminals around the globe.
But, one by one, all the big American shippers went belly up or were bought by rivals. In 1997, APL was sold to Neptune Orient Lines, a Singaporean flag-carrier that is the only other state-backed company besides Dubai Ports World to have leased a U.S. port terminal. In 1998, Farrell Lines was sold to Peninsula & Oriental, the British shipper just bought by Dubai Ports World. Danish shipping giant Maersk purchased Sealand in 1999. Today, less than 3% of America's waterborne imports and exports are carried by vessels under the U.S. flag.
What happened?
In a word: competition. Hamstrung by higher taxes, regulation and a law that requires all U.S. flag-carriers to be manned by American crews, the American merchant marine gave way to its foreign rivals. Powerful unions and strict labor laws ensure that American crewmen cost several times their foreign counterparts. While foreign flag-carriers go largely untaxed, U.S. shippers were levied at the 35% corporate tax rate until two years ago. "This was a major factor in allowing foreign flags to purchase all the U.S. flag companies," says Phillip Grill, a lobbyist for Matson Lines, a U.S. flag-carrier engaged in the domestic trade.
The Jones Act of 1920 made domestic trade an exception since it requires all shipping between two U.S. ports to be done by a U.S.-built ship, flying a U.S. flag and manned by a U.S. crew. But while the act shielded domestic shippers from foreign competition, it also shackled many U.S. shippers competing with foreign lines to the inefficient domestic shipbuilding industry. Any U.S. flag-carrier making more than one port of call in the U.S. on its way back from a foreign port must be built domestically, for example. And U.S.-built ships cost as much as five or six times ships built overseas.
Construction subsidies helped pay for the more costly ships, until Congress abolished them in the 1980s. But neither protectionism nor a host of construction and operating subsidies could compensate for the flow of foreign carriers to so-called "flags of convenience" registered in countries more forgiving on labor, insurance and safety standards, such as Liberia, Panama and the Northern Marianas Islands. Not surprisingly, many American shippers also flocked to such flags: a significant portion of U.S.-owned ocean-carriers are not part of the U.S. fleet, according to the U.S. Maritime Administration. The Liberian government registers U.S.-based companies out of its office in Vienna, Va.
The U.S. investment in port facilities has also lagged that of other countries. The Asian economies, powered by export-driven growth in the post-war period, quickly grasped the new container technology and poured money into expensive container facilities and huge cranes to move cargo around, providing a spur to their shipping industries. "It was too boring for the U.S.," explains Gaddis Smith, a retired maritime historian from Yale. Many Asian governments also seized on the merchant marine as a way to project military might and fed their shipping industries cheap loans and subsidies.
Yet critics of the decline of American commercial shipping argue that the strength of the merchant marine has real consequences for national security, meaning a strong commercial shipping industry provides a backstop to the Navy in the time of war. But, despite the hue and cry over the Dubai Ports World deal, there is little appetite for unraveling the regulations that burden the U.S. shippers or for ramping up subsidies for the industry.
And there also seems to be no relief ahead from fierce overseas competition. As an American crewman in John McPhee's Looking for a Ship, a 1990 book on the American merchant marines, grumbled, "We can't compete with countries that pay sailors a dollar a day and feed them fish heads and rice."
Ellie