Renewed, expanded MSP legislation ready for passage
Congress is poised to pass legislation that will renew and expand a U.S. government program that provides the Defense Department with access to U.S.-flag commercial vessels during times of war and national emergencies.
In a conference session late Nov. 6, House and Senate leaders put the final touches on a $400-billion defense authorization legislation, which includes a provision to reauthorize the Maritime Security Program.
The House passed the legislation by a 360-to-40 vote Friday. The Senate expected to vote on the legislation this week. Once passed, it will head to President Bush’s desk for signature.
MSP, established by the 1996 Maritime Security Act, was set to expire Sept. 30, 2005. It provides the government with access to 47 military-useful commercial container and roll-on/roll-off ships. The government also pays the vessel operators in the program $2.1 million per ship per year to help offset the higher U.S.-flag operations costs. The Transportation Department’s Maritime Administration oversees the MSP program.
Last year, U.S.-flag carrier and maritime union interests began to lobby for MSP’s renewal and expansion. A series of MSP hearings was held by the House Armed Services Committee in 2002. During the hearings, the carrier and unions asked the committee to increase the number of ships enrolled in MSP to 60, and raise the level of government payment per ship to $3.5 million a year for 20 years.
The House and Senate shortly after these hearings developed their own versions for MSP renewal and expansion. Both agreed to increase the MSP fleet to 60 U.S.-flag ships for 10 years, but varied on the payment per ship. During the final draft of the 2004 National Defense Authorization Act, the House and Senate conferees set the payment per ship starting at $2.6 million per ship for fiscal years 2006-2008; $2.8 million per ship for fiscal years 2009-2011; and $3.1 million per ship for fiscal years 2012-2015.
For years, U.S.-flag vessel operators have argued that they’re losing money on their MSP ships because the current $2.1 million per ship is far below what it costs to operate them. MSP’s predecessor, the Operational Differential Subsidy program, provided U.S.-flag carriers with a federal government payment of about $4 million per ship.
The House and Senate conferees used the 2004 defense authorization legislation to set guidelines for how the Defense and Transportation departments should expand the program.
Under the new MSP, there will be four categories of eligibility:
* Vessels owned and operated under section 2 of the 1916 Shipping Act.
* Vessels owned by section 2 citizens or U.S. citizens’ trusts, and chartered to a documentation citizen.
* Vessels owned and operated by a Defense contractor.
* Vessels owned by a documentation citizen, but chartered to a section 2 citizen.
The MSP reauthorization legislation also sets priorities for the award of new agreements.
The first five slots of the 60-vessel MSP pool must be awarded to section 2 citizens that own and operate new U.S.-built tank vessels. Congress has voiced its concern about the lack of U.S.-flag tankers to transport jet fuel to war zones in the Middle East. During Operation Iraqi Freedom, U.S. forces chartered 26 double-hulled product tankers, but only one was a documented U.S.-flag ship.
To stimulate the construction of new U.S.-flag tankers, the 2004 defense authorization legislation would create a “defense tank vessel construction assistance program.” Under this program, U.S. citizen owners could receive a direct payment from the government of up to 75 percent on the actual vessel construction cost, not exceeding $50 million per ship.
Second priority for MSP slots will be given to the current 47 vessels enrolled in the program, but with close scrutiny of older ships.
Third priority status will be granted to vessels owned and operated by section 2 citizens or documentation citizen operators owned by section 2 citizens.
The House and Senate conferees also made it clear that the new MSP program must “reflect an expansion beyond the use of liner operators” to include more use of ro/ro ships and product tankers.
In addition, the MSP reauthorization legislation requires the U.S. comptroller general to conduct a study to determine the potential impact of decreasing the 7,500-ton limit on the MSP vessel carriage of bulk and possibly bagged government-financed food aid. Non-MSP U.S.-flag carriers Liberty Maritime, TECO Ocean Transport and Sealift recently lobbied Congress to cap this volume to 2,500 tons per voyage for MSP carriers (For more information, read the September American Shipper, pages 26-28).
The current MSP operators are American Ship Management; Automar International Car Carrier; Central Gulf Lines; E-Ships; First American Bulk Carrier Corp.; First Ocean Bulk Carrier I, II, III; Maersk Line Ltd.; OSG Car Carriers; U.S. Ship Management; and Waterman Steamship Corp.
Maersk Line Ltd. recently asked MarAd for approval to take direct control of 15 ships in the program that are operated by U.S. Ship Management, a section 2 citizen corporation, which would make it, if approved, the largest MSP operator with 19 ships.