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III. THE ABILITY OF THE U. S. MERCHANT MARINE TO RESPOND TO THE DEMANDS OF WAR A. RESPONSE IN LIMITED WAR AND GENERAL WAR In responding to limited war situations, including potential limited wars such as the recent crisis in Lebanon, speed is essential. Initial movement by air will be advis- able at times to achieve rapid reaction, but, except for very minor operations, shipping is essential for major weapons, equipment, and bulk of troops. Quantitatively, the United States has today in its active and reserve fleets enough shipping to meet the requirements of any limited war which can be foreseen. Qualitatively, however, the characteristics of these ships are far from ideal in speed and in cargo-loading and dis- charge capability under the range of conditions which must be anticipated. For example, consideration of the use of a specific number of conventional cargo ships in a hypothetical movement problem shows that 45 days would be required to accomplish deployment of the military cargo of a typical task force from the United States to a selected foreign port. By using the same number of technologically superior ships, specifically designed for such purpose, and operating them at comparable speed, the same deployment could be accomplished in 33 days. (Only one such ship of the latter type has been built and is in service--the roll-on, roll-off ship COMET. This particular vessel is apparently not yet commercially feasible and is operated in the military service only.) In the example examined, the difference in time required to effect deployment is almost entirely attributable to improvement in the loading and dis- charge operations. With the specialized ship type, there is the added advantage of reducing port longshore personnel by about 60 percent. It is noteworthy that the employment of a sizable portion of the airlift of the Military Air Transport Service achieves a much faster initial reaction time, but there is no appreciable effect on the total tonnage to be surf ace-lifted or on the total time to complete deployment. Under conditions in which port facilities are not available either because of enemy action or because of the primitive nature of the objective area, special ships and/or cargo unloading systems will be required. Until their commercial feasibility can be demonstrated, the development of such ships is clearly the responsibility of the military departments. Because a general war will involve a massive exchange of nuclear weapons, and any later military effort will follow a period of regrouping and rehabilitation, the require- ments for ocean shipping cannot be accurately forecast. However, merchant shipping is very likely to be the least damaged physical resource and will not be the critically short item in the post-attack period. B. RESPONSE IN POLITICAL-ECONOMIC WAR The response of the United States in the current political-economic conflict must entail positive, as well as preventive, actions.

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U. S. flag ships must be available to deliver substantial portions of U. S. eco- nomic and military aid to bolster those nations whose support and friendship the United States wishes to maintain. Blue-ribbon examples of U. S. marine technology, such as the nuclear ship SAVANNAH and the high-speed mechanized cargo ships recommended in this study, should be displayed around the world to demonstrate U. S. technological progress and its corresponding ability to respond promptly and effectively in limited war emergencies. The United States should be prepared to undertake, in special cases, pre-emptive buying of the excess produce of countries whose commercial and military allegiance is desired, and to carry away the cargoes in U. S. flag bottoms. Defensively, U. S. flag shipping must be available to counter rate-cutting actions and attempts to capture the free world trade by the Sino-Soviet Bloc. The expanding industrial economy of the United States has grown increasingly dependent on foreign sources of raw materials--and on foreign markets for its products. Adequate modern shipping under U. S. control is required to ensure the timely and steady flow of import and export materials. Without U. S. -controlled merchant fleets this country could be denied shipping when most needed. The United States could also be denied influence on shipping rates. In examining the ability of the United States to meet the challenge of political-economic war in which it is now engaged, analysis of an inventory of U. S. flag and "flag of convenience" shipping in commercial service yields somber data. From Table I, it will be seen that as of July 1, 1959, the privately-owned U. S. flag merchant fleet consisted of 1013 ships, of which only 206 were of post World War II construction. Projected construction plans show negligible promise of offsetting the rapidly approaching obsolescence of the vast majority of these 1013 ships. The same is true of Government-owned shipping. Table I also reveals that a significant part of the U. S. owned tanker and dry bulk fleets are now operated under the flags of Panama, Liberia, and Honduras (PANLIBHON)--the so-called "flags of convenience". U. S. -owned fleets operated under "flags of convenience" are, for the purposes of this study, considered to be under effective U. S. control. Increased pressures, both domestic and foreign, threaten to make it economically impracticable for U. S. shipowners to continue operations under PANLJBHON flags. If the ability to operate under such "flag of convenience" registries were to be denied to our shipowners, the vessels might well turn to other, non-U. S. controlled foreign registries, with a consequent disastrous loss to U. S. controlled shipping capability. "Flag of convenience" ships account for 70 percent of U. S. total tonnage in dry bulk cargo carriers and about one-half of U. S. total tonnage in tankers. Many of these ships are new, fast, and most modern in design. They operate competitively and with- out subsidy primarily because the shipowners are not required to pay U. S. wage scales when operating under foreign flags. In addition, some of these ships enjoy the advan- tage of lower amortization costs because of construction in foreign yards. C. CORRECTIVE ACTION It is sometimes suggested that the United States turn to foreign construction for its future ship procurement, instead of building its vessels in U. S. yards. The economic wisdom of continuing our present operating subsidy program and other govern- mental protective policies has also been challenged. If this advice were to be followed precipitously, it would unquestionably erode our shipbuilding capabilities and force American berth line operators off the seas.

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10 TABLE I MERCHANT SHIPPING UNDER U. S. CONTROL U. S. Flag-Government Owned Passenger/Transport General Cargo3 Tanker Sub-Total U. S. Flag-Privately Owned 4 Passenger and Combination General Cargo3 Bulk Cargo Tanker Sub-Total "Flag of Convenience" 4 Passenger and Combination General Cargo3 Bulk Cargo Tanker Sub-Total Total Current Inventories (MSTS* Records - July 1, 1959) New Construction .1 Delivered Projected' Since Through Active Inactive Total Dec. 31, 1945 June 30, 1963 23 92 115 3 1 71 1, 543 1,614 5 0 29 76 105 4 1 123 1, 711 1,834 12 2 41 0 41 27 (17) 2 577 16 593 77 (48) 143 39 4 43 9(9) 2 275 61 336 93 (6) 22 932 81 1, 013 206 169 7 0 7 0 0 77 58 135 6(1) 6 71 10 81 44 (2) 9 223 72 295 156 (9) 50 378 140 518 206 65 1,433 1,932 3,365 424 236 * Military Sea Transportation Service 1. Figures in parentheses indicate numbers of ships delivered during period 1946 to 1948 which are basically World War II types. 2. Based on planning information available to Maritime Administration as of July 1, 1959. 3. General cargo category includes reefer and miscellaneous types. 4. Includes only ships with capacity for 50 or more passengers.

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11 If the United States should decide to abandon Government policies that are de- signed to foster the maintenance of a modern and adequate merchant marine, then its commercial and military lifelines could only be maintained by a combination of: 1. The U. S. -owned "flag of convenience" fleet—as long as it is available--for a significant portion of imports of oils, ores and other strategic raw materials. 2. The U. S. flag coastwise shipping fleet (relatively small)--for carrying our domestic trade. 3. Chartered foreign-owned foreign-flag vessels when these are available--and at the rates they choose to charge-- for the greatest share of U. S. general cargo imports and exports in foreign trade. 4. Expansion of the active Government-owned merchant-type fleet--entirely at Government expense--to ensure that minimum military needs will be met in the event of an emergency. If the United States intends to preclude complete dependence on foreign controlled shipping for the maintenance of its military and commercial lifelines, the only realistic solution lies in a drastic improvement in cargo-handling and ship operating efficiency, v together with significant advances in future ship design and construction. The Maritime Administration's continuing objective should be the development of a commercially competitive U. S. merchant marine requiring a minimum of subsidy. The Panel agrees that these advances are technologically feasible and can be commercially successful with minimum subsidy. To attain them it is imperative that management and labor be brought together in a common acceptance of the value to the whole industry of mecha- nization and automation both on the ships and in the ocean terminals. Pending these developments the subsidy program must be maintained at least at , its present level. Also, immediate Government action is required to avoid the impending flight of "flag of convenience" shipping from effective U. S. control to uncontrolled registries under European flags. It might be argued that any competitive advantage which the United States can obtain through technological advance would be only transient--that foreign operators could and would adopt the same advances and continue their economic superiority be- cause of their lower labor costs. The Panel believes that the period required for foreign competitors to catch up would be a substantial one for the following reasons: Potential foreign competitors will probably have to pay significantly higher rates for borrowed capital than do U. S. shipowners. The European merchant fleets have been largely renewed since World War II and are, in this sense, "frozen in" for a period of perhaps ten years. Low costs of foreign labor make it much less economic to invest in labor-saving devices. In world competition, no single technological advance can be expected to give an advantage for all time. Continuing research and development are necessary to meet the opponent's challenge.