Shipping Industry Sails Toward Subsidies

SINCE the late 1970s, the federal government has released the trucking and airline industries from its grip. But another major transportation industry, shipping, isn't following in their footsteps. Instead, Congress appears to be close to approving new subsidies for maritime business.

Late last year, the House overwhelmingly approved legislation that would offer $1.2 billion over 10 years to operators of large commercial vessels in foreign commerce - less than the $240 million shipowners now get annually, but those New Deal subsidies are due to expire by the end of the decade. The bill also may offer hundreds of millions of dollars for shipyards, which have not received direct subsidies since 1981.

The Senate appears set to approve the legislation as soon as its sponsors, Sen. John Breaux (D) of Louisiana and Rep. Gerry Studds (D) of Massachusetts, reach agreement with the Clinton administration on the funding mechanism for the payments. A plan appears near, sources close to the negotiations say.

Gale-force economic winds

Backers of the legislation say it is necessary at a time when the United States maritime industry is being battered by gale-force economic winds.

There are now 377 oceangoing vessels and 77 Great Lakes boats under the US flag - less than half the number just two decades ago. The number of jobs aboard US oceangoing ships has plummeted from more than 50,000 in 1965 to less than 10,000 today - a decline that corresponds with a concomitant fall in related occupations, such as longshoremen and port pilots.

US shipyards have been similarly hard-hit. The number of vessels under construction in the US fell from 97 in 1974 to one in 1992, according to the National Shipbuilding Initiative. If that trend continues, the number of shipyard workers will drop from roughly 100,000 today to 28,000 in 1997, according to the Shipbuilders Council of America.

A large part of the decline is due to dwindling Pentagon spending, shipping executives say. With fewer Navy ships to build and fewer Army divisions to transport, the maritime industry has been forced to look to the private sector. But attracting customers isn't easy, since US-built vessels cost more than those built abroad, and foreign-flagged vessels are typically much cheaper to operate than ships flying the Stars and Stripes.

Maritime-industry executives say they're not responsible for their lack of competitiveness in the world marketplace. Shipbuilders place the blame on foreign subsidies. South Korea, Germany, and Japan - the world's three biggest shipbuilders - each provide roughly $2 billion annually in ship-construction subsidies.

``As long as the foreign practices exist, it's impossible for us to enter the market,'' says John Stoker, president of the Shipbuilders Council of America.

In 1989, US shipbuilders filed a formal complaint against the foreign handouts, and US officials have been negotiating with the Organization for Economic Cooperation and Development ever since to eliminate the subsidies. To spur along the Paris-based talks, Rep. Sam Gibbons (D) of Florida has introduced legislation that imposes punitive fees at US ports on vessels built with foreign subsidies.

The US shipbuilding industry backs the legislation, even though it benefits from $2.3 billion in US loan guarantees to shipowners who buy its products. The Quincy Shipyard, in Mr. Studds's district, gets $230 million on top of that. (See related story, right.)

High wages, old rules blamed

Like builders, ship operators blame foreign subsidies for their troubles but, even more, stress high US wages and the destructive effects of Byzantine rules and regulations. Peter Finnerty, vice president of Sea-Land Services Inc., one of the largest US shipping firms, says federal regulations cost roughly $2.5 million per ship. If Congress doesn't pass the Breaux-Studds bill, which would offer up to $2.3 million per vessel, Mr. Finnerty says his firm will be forced to reflag 13 of its 25 US-flagged ships.

``The government needs to have a program of support for US ships in foreign commerce if they hope to have that continued capacity,'' Finnerty says.

American President Lines Ltd., another large shipping company, has also threatened to reflag many of its ships unless new subsidies are approved. Those threats, first issued last year, ``made Congress sit up and take notice,'' one House aide says. On Nov. 4, the House voted 346-to-65 for the Studds subsidies.

Supporters say the payments will not only save jobs but protect US national security. ``The bill provides the ships and the men to serve as a naval auxiliary in time of war or national emergency,'' Rep. James Quillen (R) of Tennessee declared last year. He noted that during the Gulf war, one foreign vessel refused to carry supplies to US forces in Saudi Arabia.

`Soaking up' dollars

But fiscal hawks argue that the maritime industry has already soaked up enough tax dollars. While shipyards haven't been subsidized since 1981, US-flagged vessels have been getting about $3 million per ship in operating subsidies. Shipowners have also benefited from a controversial program that forces the US government to ship 50 percent to 75 percent of its foreign food aid on US-flagged ships. These ``cargo preferences,'' opposed by agricultural interests, cost Uncle Sam $595 million last year.

``As it stands now, there are few incentives for US-flag companies and seafarers to become competitive and to become efficient,'' Rep. Tim Penny (D) of Minnesota said during a House debate in November.

An earlier version of Vice President Al Gore Jr.'s ``reinventing government'' report recommended deregulating the maritime industry and eliminating its subsidies, but that suggestion was scrapped in the final document.

An amendment sponsored by Mr. Penny and Rep. Fred Grandy (R) of Iowa to limit new cargo preferences to no more than twice the level of world-market prices also was defeated. That left farm-state lawmakers sputtering that the maritime industry is unwilling to make sacrifices to bring down the deficit - unlike agribusiness, which has seen some of its treasured subsidies pared back in the last year.

``We have reformed our programs,'' said Rep. Pat Roberts (R) of Kansas. ``Now, it is time for the merchant marine to step forward in that cold shower and enjoy a very brisk reform.''