CARRIERS, UNIONS WANT TO BROADEN MSP CITIZENSHIP REQUIREMENTS
U.S.-flag carriers and labor unions want Congress to extend the Maritime Security Program, but believe that changes must be made to corporate citizenship requirements to keep the program viable.
MSP, which expires on Sept. 30, 2005, was created under the 1996 Maritime Security Act. The program provides the federal government with immediate access to military-useful commercial container and roll-on/roll-off tonnage during times of war or national emergencies. There are 47 U.S.-flag vessels enrolled in MSP, each receiving $2.1 million annually from the government.
To participate in MSP, vessel operators must comply with either two forms of U.S. corporate citizenship requirements:
* A section 2 U.S. citizen, which is defined in the 1916 Shipping Act as a U.S.-based company with a controlling interest by U.S. citizen owners and managers.
* A documentation citizen, which is defined as a U.S.-compliant corporation with U.S. citizen managers.
Due to preferences in the law, section 2 citizen U.S.-flag carriers dominated the available MSP slots. This became a sticking point for carriers that acquired U.S.-flag vessel operations in the late 1990s.
To keep their MSP status of acquisitions, overseas-based carriers, such as A.P. Moller/Maersk which bought Sea-Land and NOL Group which bought APL, had to deal with newly formed section 2 citizen corporations to time-charter back the U.S.-flag ships, adding millions of dollars annually to their operations costs.
In the case of Maersk, the Danish carrier already operates four containerships under a documentation citizen status in MSP, but has to time-charter the former U.S.-flag Sea-Land ships from section 2 citizen U.S. Ship Management. John P. Clancey, chairman of Maersk Inc., said a change in the section 2 citizen requirement would allow it to have more efficient control over its U.S.-flag operations.
“The result has been a cumbersome division between the international carrier that had originally been the contractor under the MSP contract, and which continues to use the MSP vessels in its service, and the independent operating company created to hold the MSP contracts and operate the vessels,” said Roy G. Bowman, APL’s vice president for government affairs and executive vice president of American Automar, in testimony before a House Armed Services Committee Merchant Marine Panel Tuesday.
“Not only is the structure unwieldy, but it also materially adds to the cost of providing U.S.-flag service by interposing another organizational layer into the operating structure, thus adding to the disadvantage of and deterrent to operating a U.S.-flag service,” Bowman said.
“If companies such as APL are to continue their participation in a re-authorized MSP program, it is essential that any new legislation eliminate the artificial barrier to a participating carrier’s ownership and operation of its vessels,” Bowman added.
Since last year, U.S.-flag carrier executives and union leaders have held meetings to discuss changes to citizenship requirements to improve MSP. They believe that the priority of section 2 citizens over documentation citizens could be eliminated by requiring documentation citizens to have a Special Security Agreement with the Defense Department.
“(U)nder the proposed changes in the citizenship ownership rules that we suggest, the maritime security fleet will continue to be comprised entirely of American-flag ships with American crews, operated by companies controlled by American and contractually bound to provide national defense sealift shipping for the United States military worldwide,” said Michael Sacco, president of the Seafarers International Union, also on behalf of the American Maritime Officers, International Organization of Masters, Mates & Pilots, and Marine Engineers’ Beneficial Association at the House panel.
But not everyone in the U.S.-flag carrier industry agrees.
“We understand that legislation is being advocated by companies like Maersk which demeans companies like mine as ‘unjustified middle men’ which increase Maersk’s costs and add little value to the MSP,” said Joseph T. “Jay” Keegan, president and chief executive officer of U.S. Ship Management, in his testimony.
“The United States government cannot afford to be vulnerable to quandaries between a foreign-owned company’s commercial interests and our national interests,” Keegan said. “The section 2 policy is essentially a national security check and balance which should not be altered. Our companies are not shams.”
Robert J. Alario, president of the Offshore Marine Service Association, told lawmakers that he’s concerned that a change in section 2 citizen requirements could eventually have a negative impact on U.S.-flag carriers in the Jones Act. “We feel that the proposed change would, inexorably and inevitably, erode our ability to truly control the ownership, loyalty and reliability of access to vessels in our nation’s domestic and offshore maritime sectors,” he said.
Erik F. Johnsen, president of International Shipholding Corp., owner and operator of MSP recipient carriers Waterman Steamship and Central Gulf, said that a compromise is needed between the divergent parties to improve the status of carriers in MSP.
“We had to be convinced that this would be beneficial for the entire industry,” Johnsen said. “We concluded that it was. We all need new ships.”
In addition, MSP participants and labor leaders asked Congress to increase the number of ships enrolled in the program to 60 and raise the level of government payment per ship in the program from $2.1 million a year to $3.5 million per ship annually over a 20-year period.
“Increasing the per-vessel annual payment under the Maritime Security Program will not only help retain and attract vessels for the United States flag, but will also give investors and lending institutions the confidence necessary to provide sufficient funds for expansion, growth and modernization of the United States-flag fleet,” Sacco said.
The MSP carriers include Maersk Line Ltd., U.S. Ship Management, American Ship Management, American Automar, Central Gulf Lines, E-Ships (formerly Farrell Lines), First American Bulk Carrier Corp., First Ocean Bulk Carrier I, II, III (formerly Lykes Lines) OSG Car Carriers and Waterman Steamship Corp. The Defense Department estimates that it would have to spend $9 billion to replace the current commercial sealift capacity under MSP.