Intermodal Marine Container Transportation: Impediments and Opportunities -- Special Report 236 (1992)

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Special Report 236 Intermodal Marine Container Transportation Impediments and Opportunities Transportation Research Board National Research Council

1992 TRANSPORTATION RESEARCH BOARD EXECUTIVE COMM1TIEE Chairman William W. Millar, Executive Director, Port Authority of Allegheny County, Pittsburgh, Pennsylvania Vice Chairman A. Ray Chamberlain, Executive Director, Colorado Department of Transportation, Denver Executive Director Thomas B. Deen, Transportation Research Board Gilbert E. Carmichael, Administrator, Federal Railroad Administration, U.S. Department of Transportation (cx officio) Brian W. Clymer, Administrator, Federal Transit Administration, U.S. Department of Transportation (cx officio) Jerry R. Curry, Administrator, National Highway Traffic Safety Administration, U. S. Department of Transportation (cx officio) Travis P. Dungan, Administrator, Research and Special Programs Administration, U.S. Department of Transportation (cx officio) V Francis B. Francois, Executive Director, American Association of State Highway and Transportation Officials, Washington, D.C. (cx officio) John Gray, President, National Asphalt Pavement Association, Lanham, Maryland (cx officio) Thomas H. Hanna President andCEO, Motor Vehicle Manufacturers Association of the United States, Inc., Detroit, Michigan (cx officio) Barry L. Harris, Acting Administrator, Federal Aviation Administration, U.S. Department of Transportation (cx officio) Lt. Gen. Henry J. Hatch, Chief of Engineers and Commander, U.S. Army Corps of Engineers, Washington, D.C. (cx officio) Thomas D. Larson, Administrator, Federal Highway Administration, U.S. Department of Transportation (cx officio) Capt. Warren G. Leback, Administrator, Maritime Administration, U.S. Department of Transportation (cx officio) V George H. Way, Jr., Vice President, Research and Test Department, Association of American Railroads, Washington. D.C. (cx officio) James M. Beggs, Chairman, SPACEHAB, Inc. (former Administrator of the National Aeronautics and Space Administration), Washington, D.C. Kirk Brown, Secretary, Illinois Department of Transportation, Springfield David Burwell, President, Rails-to-Trails Conservancy, Washington, D.C. L. G. (Gary) Byrd, Consultant, Alexandria, Virginia L. Stanley Crane (former Chairman and CEO of Consolidated Rail Corporation), Gladwyne, Pennsylvania Richard K. Davidson, Chairman and CEO, Union Pacific Railroad, Omaha, Nebraska James C. DeLong, Director of Aviation, Philadelphia International Airport, Pennsylvania Jerry L. DePoy, Vice President, Properties and Facilities, USAir, Arlington, Virginia Thomas J. Harrelson, Secretary, North Carolina Department of Transportation, Raleigh Lester P. Lamm, President, Highway Users Federation, Washington, D.C. Lillian C. Liburdi, Director, Port Department, The Port Authority of New York and New Jersey, New York City Adolf D. May, Jr., Professor and Vice Chair, Institute of Transportation Studies, University of California, Berkeley Wayne Mum, Chief Engineer, Missouri Highway and Transportation Department, Jefferson City (Past Chairman, 1990) Neil Peterson, Executive Director, Los Angeles County Transportation Commission, Los Angeles Della M. Roy, Professor of Materials Science, Pennsylvania State University,.Univcrsity Park Joseph M. Sussman, JR East Professor of Engineering, Massachusetts Institute of Technology, Cambridge John R. Tabb, Director and CAO, Mississippi State Highway Department, Jackson James W. van Loben Sels, Director, California Department of Transportation, Sacramento C. Michael Walton,Paul D. and Betty Robertson Meek Centennial Professor and Chairman, Civil Engineering Department, University of Texas at Austin (Past Chairman, 1991) Franklin E. White, Commissioner, New York State Department of Transportation, Albany Julian Wolpeñ, Henry G. Bryant Professor of Geography, Public Affairs and Urban Planning, Woodrow Wilson School of Public and Interriational Affairs, Princeton University RbtAYogffl;Prbtidnht, ABF Freight Systems, Inc., Fort Smith, Arkansas I

Special Report 236 Intermodal Marine Container Transportation ImptAmenft and Opportunities Committee for a Study of the Effects of Regulatory Reform on Technological Innovation in Marine Container Shipping Transportation Research Board National Research Council Washington, D.C. 1992

Transportation Research Board Special Report 236 Subscriber Category VIII freight transportation Transportation Research Board publications are available by ordering directly from TRB. They may also be obtained on a regular basis through organizational or individual affiliation with TRB; affiliates or libraty subscribers are eligible for substantial discounts. For further information, write to the Transportation Research Board, National Research Council, 2101 Constitution Ave- nue, N.W., Washington, D.C. 20418. Printed in the United States of America NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competencies and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by the Report Review Committee of the National Research Council. This study was sponsored by the Maritime Administration of the U.S. Department of Transportation. Library of Congress Cataloging-in-Publication Data National Research Council (U.S.). Committee for a Study of the Effects of Regulatoiy Reform on Technological Innovation in Marine Container Shipping. Intermodal marine container transportation: impediments and opportunities I Committee for a Study of the Effects of Regulatory Reform on Technological Innovation in Marine Container Shipping. P. cm.—(Special report; 236) Includes bibliographical references (p.). ISBN 0-309-05154-1 1. Merchant marine—government policy—United States. 2. Containerization—Government policy—United States. 1. Title. II. Series: Special report (National Research Council (U.S.). Transportation Research Board) ; 236. HE745.N393 1992 387.5 '442'0973—dc2O ISSN 0360-859X 91-43124 CIP Cover design: Diane Snell Photograph credits Cover, Port of Tacoma Chapter 1, Port of Tacoma Chapter 2, Port of New Orleans Chapter 3, Port Authority of New York and New Jersey Chapter 4, Port of New Orleans

Committee for Study of the Effects of Regulatory Reform on Technological Innovation in Marine Container Shipping W. BRUCE ALLEN, Chairman, Wharton School, University of Pennsylvania L. STANLEY CRANE (former Chairman and CEO, Consolidated Rail Corporation), Gladwyne, Pennsylvania MICHAEL DIAz, American President Domestic Company, Ltd., Oakland, California HENRY S. MARCUS, Massachusetts Institute of Technology, Cambridge JAMES J. O'BRIEN, Port Everglades Authority, Florida PAUL F. RICHARDSON, Paul F. Richardson Associates, Inc., Holmdel, New Jersey STANTON P. SENDER, Morgan, Lewis, and Bockius, Washington, D.C. Gnno P. STEFFLRE, Rail Delivery Services, Los Angeles, California ROGER W. WIGEN, 3M Company, St. Paul, Minnesota Liaison Representatives PAUL B. MENTZ, Maritime Administration, Washington, D.C. ROBERT N. STEINER, Marine Board, National Research Council, Washington, D.C. Transportation Research Board Staff ROBERT E. SKINNER, JR., Director for Special Projects SUZANNE B. SCHNEIDER, Special Assistant to the Executive Director NANCY A. ACKERMAN, Director of Publications Study Consultant DOUGLAS L. JOHNSON

Preface As part of its technology policy program, the Maritime Administration of the U.S. Department of Transportation asked the Transportation Research Board to conduct a study to identify where and how govern- ment action might assist in overcoming impediments and promoting efficiency in intermodal marine container transportation, especially through technological or institutional innovation. The committee assembled to conduct this study included experts in transportation economics, transportation law, maritime policy, and marine engineering, along with representatives of major shippers, con- tainership lines, port authorities, motor 'carriers, and railroads—the actual participants in the day-to-day operations of the container trans- portation chain. Under the chairmanship of W. Bruce Allen, Professor of Public Policy and Management and Transportation at the University of Pennsylvania's Wharton School, the committee assessed the state of the industry, examined numerous issues and problems, reviewed rele- vant research, and solicited additional information and perspectives when needed. The scope and resources of this study—like those of many studies undertaken by the National Research Council—did not allow for the collection and analysis of new data or the conduct of original research. Rather, the committee relied on the collective experience and judgment of its members, a group of experts who were convened to conduct a broad-ranging exploratory study. In a synthesizing and deliberative mode, the committee identified and analyzed 10 key issues on which government in the United States affects or can affect the intermodal marine container transportation industry. These are critical issues to- day that will have broad impact on the future of marine container technology and transportation. The scope and resources of the study did not permit comprehensive or definitive analysis of each of these issues, and some will require further evaluation before policy choices can be made. This study provides an important first step by defining the issues, analyzing the significance of government actions or poli- cies, and laying out options that should be considered, including criti- cal trade-offs between national objectives that may have to be made in some cases. The committee engaged in a lengthy deliberative process to select the issues to be examined in detail. It recognized, however, that these are not the only major issues in which government affects or can affect V

interrnodal marine container transportation. Some areas—such as do- mestic containerization and the domestic offshore trade—were ex- cluded because the committee was asked to focus specifically on inter- national offshore movements. Some issues were excluded because they were considered to be focused less on container transportation than on the maritime industry as a whole, because their ramifications extended into areas of expertise not represented on the committee, or because they were under review concurrently by other major study groups, such as the Advisory Commission on Conferences in Ocean Shipping, which is reviewing the Shipping Act of 1984. The report is organized as follows. Chapters 1-3 provide back- ground on the development, components, and functioning of intermo- dal marine container transportation. Chapter 4 contains a detailed examination of each of the 10 key issues identified by the committee, including the committee's conclusions and recommendations, as appropriate. Under the direction of the committee, freight transportation consul- tant Douglas L. Johnson drafted the report, with the assistance of Suzanne B. Schneider and the overall supervision of Robert E. Skin- ner, Jr., Director for Special Projects. Information, assistance, and data were provided throughout the course of the study by the Maritime Administration's Offices of Technology Assessment, Port and Inter- modal Development, Ship Operating Assistance, and Trade Analysis. The American Association of Port Authorities and the Journal of Com- merce Trade Information Service also supplied data. Special apprecia- tion is expressed to Frances E. Holland for her expert assistance in typing the many drafts of the manuscript. vi

Contents Executive Summary 1 1. Introduction 12 The Intermodal Marine Container Concept, 12 Importance of Intermodal Marine Container Transportation, 14 2 The Container Revolution 17 The Technological Revolution, 17 Development of Intermodalism, 21 Marine Containers, 23 Development of Containerships, 26 Impact of Transportation Deregulation, 30 Future Developments, 33 3 The Container Transportation Chain 37 Shippers and Consignees, 37 Intermediaries, 38 Ocean Carriers, 41 Ports and Marine Terminals, 42 Cargo Inspection Agencies, 46 Drayage and Long-Haul Trucking, 47 Railroads, 49 4 Key Issues 52 PART A: IMPEDIMENTS TO EFFICIENCY AND INNOVATION, 57 Ship Procurement Restrictions Under ODS Program, 57 Federally Imposed Ship-Manning Requirements, 67 Military Cargo Bidding Policies, 72 Environmental Policy Conflicts and Costs, 81 Overweight Container Trucks, 84 Customs Clearance Procedures, 98 PART B: OPPORTUNITIES FOR IMPROVEMENT, 104 Intermodal Equipment Interchange Procedures, 104 Cargo Liability and Responsibility Regulation, 108 Creation of a Federal Intermodal Coordinating Office, 112 Collection and Publication of Container Trade Data, 115 Study Committee Biographical Information 125

Executive Summary The container revolution, which began in the mid-1950s, has led to major changes in this country's foreign and domestic trade. At first a largely American enterprise confined to U.S. coastal and intercoastal routes, marine containerization has evolved rapidly, spreading to all U.S. trading areas. Today, containerized traffic dominates liner (non- bulk goods) trade to and from the United States, representing about 80 percent of all U.S. liner trade by volume and $195 billion a year by value of the goods transported. And the technological revolution— involving newly designed containers, containerships, and container ports—has been accompanied by an equally important institutional revolution, yielding true land-sea-land intermodalism. Crossing modes and national boundaries, the intermodal marine container transportation chain has numerous links—shippers and con- signees, intermediaries, ocean carriers, ports and marine terminals, cargo inspection agencies, drayage and long-haul trucking, and railroads. Partly because of the multimodal, international nature of marine container transportation, government has always had a major role in the affairs of the industry, and the industry is heavily affected by government action at all levels—local, state, national, and international. Like other industries that have expanded rapidly, the international intermodal container transportation industry is experiencing growing pains. Despite the advances made in the industry, opportunities to improve efficiency arise at almost every link in the chain. Various forms of governmental regulation affect the different links in the chain, with impacts on the efficiency with which marine containers are used and the efficiency with which U.S. carriers can move contain- erized cargo. STUDY SCOPE AND ISSUES Under its mandate to promote the U.S. maritime industry, the Mar- itime Administration of the U.S. Department of Transportation re- quested that the Transportation Research Board (TRB) conduct a study to help determine where and how government action might assist in overcoming impediments and fostering efficiency in intermodal ma- rine container transportation, especially through technological or insti-

INTERMODAL MARINE CONTAINER TRANSPORTATION tutional innovation. The committee assembled to conduct this study established a framework for its examination by posing two questions: Are there major impediments to the further development of con- tainer technology and transportation that government in the United States can help remove? Are there major opportunities to improve container technology and transportation that government in the United States can help realize? After lengthy deliberations, including examination of numerous is- sues and problems, 10 key issues were identified for further study and analysis. Although these are not the only areas in which government affects or can affect the industry, they are critical issues today that will have a broad impact on the further development of marine container technology and transportation. Each issue involves significant prob- lems faced in the day-to-day operations of participants in the intermo- dal container transportation chain. Equally important, the committee believes that its analysis and judgment can help clarify these issues and the key 'trade-offs involved, and thus aid in uncovering practical solutions. In its deliberations, the committee excluded issues pertaining to domestic container transportation because it was asked to focus specif- ically on international offshore movements. Other issues were ex- cluded because they were deemed to be concerned with the maritime industry as a whole, rather than just marine container transportation; because their ramifications extended into areas of expertise not repre- sented on the committee; or because they were under review concur- rently by other major study groups. In discussing and analyzing each of the 10 issues, the committee evaluated their relationships to the following broad policy goals: Promoting the efficient, safe, and environmentally responsible transport of goods; Promoting economic growth; and Promoting national security. Resolution of a given issue might be judged to fulfill one or more of these goals, or it might necessitate trade-offs among them. The ab- sence of definitive recommendations on some issues stems from the committee's belief that the ultimate trade-offs can only be made at high policy-making levels of government.

Executive Summary The 10 issues are listed below, not in order of priority, and a brief summary of each of the issues with the committee's recommendations for addressing them follows. Ship procurement restrictions under the Operating Differential Subsidy (ODS) program, Federally imposed ship-manning requirements, Military cargo bidding policies, Environmental policy conflicts and costs, Overweight container trucks, Customs clearance procedures, Intermodal equipment interchange procedures, Cargo liability and responsibility regulation, Creation of a federal intermodal coordinating office, and Collection and publication of container trade data. The first six issues involve problems on which governmental actions are viewed as impediments to technological or organizational innova- tion and efficiency in intermodal marine container transportation. In contrast, the last four issues offer opportunities for government to improve container transportation by playing a facilitating role. The first three issues—ship procurement restrictions under the ODS program, federal ship-manning requirements, and military cargo bid- ding policies—are further related because they involve government actions that affect the U.S. -flag containership fleet. For these issues, national defense objectives must be considered along with other factors inassessing the value placed on maintaining a U.S.-flag fleet and the economics of operating such a fleet. The second three issues— environmental policy conflicts and costs, overweight container trucks, and customs clearance procedures—are related because they reflect the lack of a consistent national policy or the lack of a programmatic interpretation and application of such a policy at state or local levels. STUDY ISSUES AND RECOMMENDATIONS Impediments to Efficiency and Innovation Ship Procurement Restrictions Under the ODS Program U.S. liner operators who receive operating subsidies from the federal government are required by law to buy only containerships built in

INTERMODAL MARINE CONTAINER TRANSPORTATION U.S. shipyards. In recent years, U.S.-built ships have been priced up to three times as much and have often required more than twice as long for delivety as foreign-built ships. Furthermore, U.S.-flag ships are required by federal laws and regulations to be manned by Ameri- can crews, whereas foreign carriers can employ foreign crews at lower costs. Originally coupled with a Construction Differential Sub- sidy (CDS) program, which has been effectively discontinued, the ODS program was designed primarily to provide labor cost parity for U.S.-flag carriers with foreign-flag carriers. The ODS subsidy was intended to promote a strong U.S. merchant marine, both to benefit national defense and to develop foreign and domestic commerce, but the requirement to "buy American" has imposed steep additional costs on participating U.S. carriers. The ship procurement issue directly affects one of the most significant cost elements for Ameri- can containership operators, who have been leading innovators in the development of the intermodal marine container transportation sys- tem that serves America. If the U.S.-flag carriers are unable to control their vessel costs, they will gradually be driven out of busi- ness by foreign competitors, and the nation's ability to maintain a strong U.S. merchant marine will be undermined. RECOMMENDATION. The committee believes that a prompt and thor- ough reevaluation of government policy toward the U.S. merchant marine and the maritime industry is urgently needed. Such a major reevaluation can provide the basis for resolving those problems of the U.S. -flag containership fleet that stem from current federal maritime policies. Full resolution of this issue will require reconciling differ- ent, sometimes conflicting, goals. Resolution will require reexamina- tion of national defense objectives, including assessment of the desirability of maintaining a fleet of technologically advanced con- tainerships along with a pool of trained U.S. merchant seamen. Con- sideration of measures that would improve the competitive position of the nation's intermodal marine container transportation industry, in- cluding removal of ODS program restrictions on trade routes and feeder vessels, is also necessary for full resolution. Changes in federal laws and regulations will be required. Because this can be a time- consuming process, and because the ship operators' problem will soon become critical, an interim measure could be adopted under which U.S. -flag carriers would be given a limited one-year window of opportunity to order foreign-built ships and would still be eligible for ODS. Postponing all action while a permanent policy is being forged is not recommended because of the danger this would pose to the future of the U.S.-flag containership fleet.

Executive Summary Federally Imposed Ship-Manning Requirements Although U.S. operators have successfully decreased crew costs dur- ing the last several years, they have not achieved labor cost parity with their chief foreign competitors. To accomplish labor cost parity, U.S. operators have attempted to reduce crew sizes, which are considerably larger than those on comparable foreignflag vessels from other devel- oped nations. Labor is one of the major cost elements in containership operations. Crew size is dictated both by federally imposed manning requirements and by labor-management agreements. In looking at its application of existing manning laws and rulings in recent years, the U.S. Coast Guard believes that it has sufficient leeway to interpret the existing statutes to give ship operators somewhat greater flexibility in manning than at present. RECOMMENDATION. As recommended in a 1990 report by the Na- tional Research Council's Marine Board, U.S. manning laws should be updated to remove unwarranted barriers to innovation and estab- lish a clear federal role in reviewing the safety of ship-manning practices (Marine Board 1990). The Coast Guard should conduct as soon as possible its planned reevaluation of manning requirements for all merchant vessels, including approval of manning levels ap- propriate for the different types of ships on a more individualized basis. Consideration of federal ship-manning requirements should. be included in the comprehensive reevaluation of federal maritime policy recommended for the ship procurement issue. Military Cargo Bidding Policies Bidding policies for U.S. military cargo affect interrnodal container transportation because military shipments account for a significant portion of U.S.-flag containership revenues. Current laws require that all military cargoes must move on U.S.-flag ships and that 50 percent of such cargoes must move on privately owned (nonmilitary) U.S.-flag ships "to the extent such vessels are available at fair and reasonable rates..." [U.S. Code, Title 46, Appendix-Shipping, §1241(b)(1)]. Ship operators maintain that the strict competitive bidding process con- ducted by the Navy's Military Sealift Command (MSC)—by far the largest military shipper—compels operators to submit exceedingly low bids to fill empty container slots on North Atlantic routes. Such low rates, the carriers argue, are not fair and reasonable and are adversely affecting U.S. carriers' profitability. If true, these claims suggest that low MSC rates may be subverting the intent of the nation's cargo

INTERMODAL MARINE CONTAINER TRANSPORTATION preference laws. This controversial issue presents a conflict between two federal mandates: the national policy of promoting a strong U.S. merchant marine and the general mandate to keep federal spending down and manage government programs cost-effectively. RECOMMENDATION. Unlike the first two issues, which can be re- solved through some measure of deregulation of the shipping in- dustry, military cargo bidding policies pose the more difficult dilemma of choosing between two longstanding, important goals or finding a compromise where none is obvious. As with the first two issues, resolving these problems may ultimately require congres- sional action. The basic issue, as summarized in a 1983 report by the Office of Technology Assessment, is "whether national priori- ties require the existence of a merchant fleet which cannot compete in a free market under present conditions. If so, it must be deter- mined whether cargo preference is the most desirable way to provide a needed subsidy" (OTA 1983). Because this issue is closely linked to the first two issues for ensuring the health of the U.S. maritime industry, it is recommended that military cargo bidding policies be included in the comprehensive reevaluation of U.S. policy toward the merchant marine and the maritime industry suggested earlier. Environmental Policy Conflicts and Costs U.S. environmental policies seek to protect and preserve the nation's valuable environmental resources. Although few would disagree with the goals of these policies, the complexity of the sometimes conflicting array of federal, state, local, and regional environmental laws and regulations affects efficiency and innovation in marine container ship- ping. Among the most pressing examples of this problem are the laws and regulations on dredging, disposal of dredged material, and preser- vation of wetlands. Dredging is required to accommodate the newest generation of deep-draft containerships at some ports. But channel deepening and port enlargement require approval by multiple agencies (federal, state or regional, and sometimes local)—by all accounts a very time-consuming process. Permits must also be obtained for dis- posal of dredged material. Existing federal laws and regulations that protect wetlands and coastal areas also require permits for seaports being considered for expansion. These issues could affect the capacity and thereby the long-term competitive balance of U.S. ports and their ability to handle container traffic efficiently. Further, the issues exem- plify the complex interplay among environmental, transportation, and

Executive Summary economic goals as well as the practical difficulties that result from the many levels of government involved in the regulatory process. RECOMMENDATION. There is no simple solution to these problems. Further analysis of dredging-related issues is needed to identify the national and local trade-offs among environmental, transportation, and economic goals. Successful implementation of the new Mem- orandum of Agreement on wetlands between the U.S. Army Corps of Engineers and the Environmental Protection Agency (EPA) could provide a model for developing a rational and expeditious process for regulatory decision making on other environmental issues. Con- sistent interpretation and application of national EPA policy is needed, together with a more explicit systems-level view to assess the impacts of environmental laws and regulations on marine trans- portation and to evaluate the trade-offs between transportation and environmental goals. Overweight Container Trucks Although trucks carrying overweight containers on the nation's high- ways are a problem that affects truckers most directly, the issue has repercussions throughout the container transportation chain and the potential to significantly disrupt container trade. Overweight trucks on the nation's highways result from many factors: many shippers and intermediaries, and perhaps some carriers, are unaware of existing laws and regulations; U.S. and foreign highway weight laws differ and weight limits for the containers themselves are much higher than U.S. highway weight limits; some states apparently have given low priority to enforcing highway weight laws; most ocean and rail container freight rates are now based on flat charges per box without regard to weight; and there is intense competition pervading every segment of the intermodal marine container transportation industry. RECOMMENDATION. Comparative evaluation of possible approaches to resolving this problem is needed. These approaches include edu- cation campaigns, enforcement through weighing, state cooperation in enforcement, assigning weight responsibility, modified tariffs, and specialized equipment to make container rigs operate in compli- ance with truck weight limits. Some combination of these ap- proaches will be necessary, and the solution should deal with both inbound and outbound containers, apply uniformly to all industry segments, cover all areas of the country equally, and be compatible with existing truck size and weight laws and regulations. Although

INTERMODAL MARINE CONTAINER TRANSPORTATION the problem exists primarily at state and local levels, these criteria suggest that the federal government must take the lead in resolving this issue, which may in fact require a federal solution. Customs Clearance Procedures Delays in clearing imported cargo through the U.S. Customs Service have been a problem at some major container ports, as have wide variations and sudden changes in the application of Customs regula- tions and procedures by districts. These problems have a direct impact on the efficiency of marine container transportation, and "port shop- ping" to find the least restrictive Customs district has heightened the already strong competition among U.S. ports. Independent studies have reported that delays in clearing cargo primarily result from inade- quate staffing at Customs districts. Problems in implementing national programs, particularly the Automated Commercial System (ACS), have also been reported. RECOMMENDATION. The Customs Service has made some progress in resolving clearance problems during the past two years. Increased funding and personnel have been channeled to district commercial operations since early 1990, and Customs trade specialists have been given greater leeway to make classification decisions, which has sped up cargo clearance. Nevertheless, there appears to be a need for several more trade specialists at some major ports. Consid- eration should be given to creating additional positions as well as to giving the Customs Service greater flexibility in staffing by not eannarking any newly created positions for specific locations. Cus- toms Service headquarters and the Regional Commissioners should ensure that Customs districts follow uniform procedures and prac- tices in their commercial operations, particularly in classification decisions. To do this, interregional communications within the Cus- toms Service should be strengthened, and joint industry—Customs Service committees should be established at major ports to improve communication and help coordinate the implementation of recom- mended changes, especially in ACS. Opportunities for Improvement Intermodal Equipment Interchange Procedures Deregulation of the marine container transportation industry created a vacuum in the area of equipment control. The conventional carrier-to-

Executive Summary carrier legal relationships that had developed under Interstate Com- merce Commission (ICC) regulations began to break down when the ICC started deregulating trailer-on-flatcar and container-on-flatcar ser- vices more than a decade ago. It was left to the marketplace to sort out the working relationships between participants in the intermodal inter- change. This lack of a clear and established legal structure to govern the flow of intermodal freight creates problems for intermodal marine container transportation. Existing agreements that govern the interchange of container- handling equipment between railroads and motor carriers were cre- ated by railroads in the early days of intermodalism. These Trailer Interchange Agreements (TIAs) have become a major source of con- cern for truck operators, who argue that TIAs are unilateral and unfair because they put the burden of responsibility on the motor carriers for the care and handling of railroad-owned equipment, even when the equipment is in the hands of shippers. TIAs hinder the building of durable long-term railroad-motor carrier partnerships, which are needed to improve service and reduce costs for users. During the past two years, attention has been focused increasingly on the need to improve equipment utilization and the railroad-motor carrier interchange. In a recent initiative, the American Trucking Associations (ATA) Intermodal Council looked at the negative effects of TIAs on efficiency and productivity and the potential benefits to motor carriers and railroads of alternative interchange agreements that address motor carrier concerns. The railroads' reaction to this initia- tive has been positive; several major railroads are initiating changes intended to offer incentives to motor carriers to replace traditional TIA disincentives. RECOMMENDATION. The recent ATA initiative and railroad re- sponses are encouraging moves. As a general principle, all of the modes involved in marine container transfers should be represented in planning the logistics of such transfers and no particular mode should be unfairly burdened. The industry should develop partner- ships on the basis of service and equitable cost-responsibility arrangements. The lack of an established legal structure to govern the flow of intermodal freight is an issue with ramifications that exceed the scope of this study. The committee believes that a comprehensive examination is needed to understand the problems created and to determine how best to address them. Specifically, a comprehensive study of the intermodal equipment interchange (among rail, marine, and motor carriers) is needed to provide the basis for further analysis

10 INTERMODAL MARINE CONTAINER TRANSPORTATION of the problems stemming from the absence of a clear legal frame- work governing the interchange. Cargo Liability and Responsibility Regulation The lack of uniform cargo liability and responsibility regulation for international intermodal shipments is a barrier to improved efficiency in marine container shipping. Numerous international agreements and national laws have been established or proposed on this topic, and many of these set forth different rules and limits of liability for loss or damage to cargo in international movements. The U.S. government signed two of the international treaties that would revise cargo liability but has not taken steps to recommend either of the treaties to the Senate for ratification. Liability is still somewhat uncertain for intermodal movements, because a carrier's liability differs according to the seg- ment of the journey during which damage or loss occurs. In addition, shippers and carriers hold sharply different views on the allocation of risk for the ocean leg and thus on the desirability of changing the existing rules and limitations. RECOMMENDATION. The U.S. government, acting through the De- partment of Transportation (DOT), should continue efforts to evalu- ate the costs and benefits of the various treaties that have been promulgated or proposed and to assess the actions taken by other countries in complying with the terms of the treaties. If appropriate, the government should transmit specific proposals to the Senate, including its recommendations for ratification. An effective resolu- tion will require some compromise between the carriers, who favor agreements that would give them the most limited liability, and the shippers, who favor a new, more clear-cut regime and the imposi- tion of greater liability on the carriers. The differences between shippers and carriers on changing the rules and limits of cargo liability and responsibility remain unresolved. Creation of a Federal Intermodal Coordinating Office For several years, many in the intermodal freight transportation indus- try have believed that better coordination of public policies affecting the industry is needed. Better coordination at cargo transfer points and among the different participants in the intermodal container transporta- tion process could improve efficiency. A federal intermodal coordinat- ing office would collect and disseminate information, facilitate

Executive Summary 11 industry cooperation and mediate disputes, coordinate federal policies and intermodal research, and serve as a resource center to provide technical expertise on questions about intermodal transportation. RECOMMENDATION. A coordinating office for intermodal freight transportation should be established within DOT. [Note: Creation of such an office within DOT was mandated by the Intermodal Surface Transportation Efficiency Act of 1991.] Collection and Publication of Container Trade Data Access to accurate and timely data is essential for the efficient func- tioning of any business. Important container data, especially container flow data, are currently unsuitable for many purposes or entirely lack- ing. This problem is part of a large and growing information gap on all types and modes of freight transportation. A data base that includes accurate and current information would meet the needs of both public and private users and could contribute indirectly to the industry's effi- ciency over time. RECOMMENDATION. DOT and the Congress have recognized the need to improve federal efforts to collect and disseminate transpor- tation data, and some promising efforts have been made to lay the groundwork for such a program. For container trade data, the poten- tial exists to enhance ongoing data collection efforts, for example, by adding container size to current Census waterborne trade data or by expanding the scope and detail of the automated manifest system. The needs of both the public and private sectors should be addressed in developing such a program. [Note: The Intermodal Surface Transportation Efficiency Act of 1991 directs DOT to develop and maintain an intermodal transportation data base.] REFERENCES OTA Office of Technology Assessment Marine Board. 1990. Crew Size and Maritime Safety. National Academy Press, National Research Council, Washington, D.C. OTA. 1983. An Assessment of Maritime Trade and Technology. U.S. Congress, Washington, D.C., Oct.

1 Introduction THE INTERMODAL MARINE CONTAINER CONCEPT All else being equal, the most efficient form of freight trans- portation is one in which the goods move in a continuous tiow from shipper to receiver without interruption. Thus, shipments by a single transportation mode are usu- ally preferable to intermodal shipments, in which cargo is transferred between two or more modes. In fact, however, most freight move- ments require the use of more than one mode. For overseas shipments, which necessarily involve the transfer of goods from land to water and water to land, intermodalism is inescapable. Although the landside movement for many overseas shipments may amount to no more than a short trip to and from the docks by truck, that transfer between modes is time consuming and costly. When the origin and destination are well inland and most of the landside movement is by rail, it is still usually necessary to both pick up and deliver by truck. Thus two land modes may be used with two sets of intermodal transfers. Moreover, except where on-dock rail facilities exist, moving goods from rail to ship and ship to rail usually requires truck drayage and therefore two more intermodal transfers. In all, a single international movement may in- volve three line hauls by two modes (one by ship and two by rail), four short hauls by one mode (all truck), and no less than six intermodal transfers. Intermodalism maximizes efficiency by exploiting the comparative advantage of each of the modes in handling different types of freight 12

Introduction 13 movements (e.g., line haul versus pick-up and delivery). Each transfer, however, interrupts the flow and introduces inefficiencies into the sys- tem. The virtue of container transportation is that by simplifying and speeding up the cargo-handling process at each transfer point, it mini- mizes these interruptions and restores as many efficiencies as possible. Because the container is closed and relatively impregnable, it offers protection from the elements, reduces the chances of damage, and vir- tually eliminates the pilferage that used to plague breakbulk operations. Moreover, containers can be readily adapted to carry specialized cargo, as do, for instance, refrigerated and tank containers. As important as these attributes are, however, they are eclipsed by the advantages confer- red by the fact that the container is unitized and, at least in international trade, modular.' As such, the container lends itself to mechanized, even automated, handling. It is this standardization and mechanization that has vastly improved the efficiency with which ships, trains, and trucks, as well as terminals and warehouses, are loaded and unloaded and cargo is transferred from one mode to another. This increased efficiency has produced significant cost and time savings for shippers and carriers alike, and most of these savings have been passed on to consumers. Although intermodal transportation existed before containerization, the speed and ease with which containers can be interchanged between modes has contributed directly to the steady growth in international intermodal traffic in recent years and has helped create a distinct inter- modal container transportation industry. In addition to the contributions made by containers and container-handling technology, modern inter- modalism is also based on the application of systematizing concepts (spurred on by transportation deregulation and aided by computers) to the business of moving freight. Manifestations of this include the wide- spread availability of single through (point-to-point) rates and single bills of lading (considerably reducing paperwork); continually updated and readily accessible information on the location and status of ship- ments; the growth of volume and service contracts between shippers and carriers; the general adoption by carriers of hub-and-spoke operations, including load-centering ports; the development of inland pick-up and delivery networks with careful coordination of ship and train, and train and truck, schedules; and the corporate consolidations and mergers that have led to integrated multimodal transportation firms that exercise end- to-end control over international freight movements. As noted in Chap- ter 2, these organizational and institutional innovations were just as revolutionary as the technological innovations in equipment. The combination of containerization and intermodalism has been synergistic—containerization increased the feasibility of intermodalism, and intermodalism helped containerization achieve greater efficiency.

14 INTERMODAL MARINE CONTAINER TRANSPORTATION IMPORTANCE OF INTERMODAL MARINE CONTAINER TRANSPORTATION A common way of gauging the economic importance of a freight transportation function is by measuring the volume and value of the goods carried. For the international intermodal marine container trans- portation industry, that part of U.S. foreign trade that is waterborne (i.e., excluding all air shipments and overland trade with Canada and Mexico) and containerized is measured. Unfortunately, the only data on containerized waterborne trade that can be used to develop time series are either not accurate or not current. One widely used indicator—total container throughput of U.S. ports— covers U.S. coastal trade as well as international trade (and therefore also includes considerable double-counting), does not distinguish be- tween empty and loaded containers, and contains inflated figures for some ports. However, these data are probably useful for charting an overall trend. From 1970 to 1988, these data show a growth of approxi- mately 440 percent in total container throughput of U.S. ports.2 More accurate and relevant are the containerized cargo statistics that were collected and published by the Maritime Administration (MARAD). These data, however, are only available up to 1984. These statistics were compiled directly from customs declarations filed by container-carrying vessels engaged in foreign trade and included num- ber of loaded containers (in TEUs) and cargo weights. Although post- 1984 data are not available, rough estimates can be made for these years by extrapolating from liner trade data on the basis of the same customs documents and projecting trends in the percentage of liner tonnage that is containerized and average tons per TEU.3 By this estimate, waterborne containerized foreign trade accounted for about 80 percent of all U.S. liner trade in 1988 and grew approximately 540 percent from 1970 to 1988 (MARAD 1985; Census Bureau 1990). Recently, statistics on loaded containers, developed on the basis of the same customs declarations used by MARAD, have become avail- able through a proprietary service of The Journal of Commerce in New York, called the Port Import-Export Reporting Service (PIERS). Al- though not wholly comparable with the previous MARAD data, the PIERS data appear to be reasonably accurate and are, in any case, the only data now available.4 PIERS reports that a total of 8,050,000 loaded TEUs were exported and imported during 1988, 8,681,000 during 1989, and 9,015,000 during 1990—a 12 percent increase during this period (Journal of Commerce, Inc., 1990, 1991). There are no publicly available data on the value of marine container imports and exports, but it is possible to estimate this on the basis of liner

introduction 15 trade. It is clear that the importance of foreign trade to the U.S. economy has increased dramatically in recent years. Between 1970 and 1988, the total value of goods imported and exported rose from 13 percent to 21 percent of the gross national product (GNP) (DOT 1989, 22). During this period, the value of liner trade grew 138 percent in constant dollars (that is, after allowing for inflation) . This reflects both an increase in the volume of trade—liner trade tonnage grew 58 percent from 1970 to 1988—and an increase in the value of the goods being traded, especially on the import side. If containerized imports and exports also represented 80 percent of liner trade by value in 1988, they were worth almost $195 billion that year. During the period 1978 to 1988, containerized imports and exports appear to have grown in value by an average of more than 10 percent per year in constant dollars.6 Certainly any industry in which the value of the goods transported alone accounts for $195 billion annually is a major factor in the Ameri- can economy, and there is every reason to think that these growth trends will continue into the near future, if not at quite the same high rates. Most forecasts of U.S. liner trade are predicting continued growth. Consequently, it seems reasonable to project an average 5 percent per year increase in container imports and exports over the next few years.7 Even this modest growth rate would increase con- tainer traffic to almost 10.5 million TEUs in 1993, with a value of more than $250 billion. How this industry began and how it grew to such magnitude so rapidly are discussed in the brief history of the container revolution given in the following chapter. NOTES "Unitized" refers to the aggregation of separate items or pieces of cargo into a single unit by means of a standardized unit load device (ULD). Other ULDs, besides containers, include bags, boxes, dn.ims, and pallets. ULDs make cargo far easier to handle and account for when being loaded, unloaded, or trans- ferred. Because they are standardized, ULDs are also less expensive to manu- facture in quantity. "Modular" refers to ULDs of a uniform size (or exact multiples of a uniform size) that can be precisely substituted one for another. All containers are ULDs, but not all are modular (e.g., 35-, 48-, and 53-foot domestic containers). For more on this concept, see discussions by Van Den Berg (1969, 23) and by Muller (1989, 119). Data are from Containerization International Yearbook, 1972-1990. The con- tainers are counted in 20-foot-equivalent units, or TEUs, which are the com- mon unit of measurement in container transportation. This permits accurate comparison of containers of different lengths, i.e., a 40-foot container equals two TEUs, a 45-foot container equals 2.25 TEUs, etc.

16 INTERMODAL MARINE CONTAINER TRANSPORTATION The liner-trade category includes all waterborne trade except liquid and diy- bulk commodities (e.g., oil, coal, and grains), which are carried in tankers and dry-bulk ships, and the so-called neo-bulk commodities (e.g., automobiles and lumber), which are often carried in specialized ships. The category generally covers manufactured and processed goods, the great majority of which are now containerized, and containerized shipments of some bulk and neo-bulk com- modities. In a typical year, liner trade accounts for only about 10 percent of U.S. waterborne foreign trade by volume but over 60 percent by value. The Journal of Commerce claims that the container figures are "90-95 percent accurate" (telephone interview, Bill Ralph, Vice President, Trade Information Service, April 8, 1991). These figures are based on a 1989 MARAD study (Appendixes D and K). Inflation was measured by the Consumer Price Index. It should be noted that the available statistics probably understate the growth in the value of the container trade because they do not reflect the fact that containerization did not simply penetrate historical liner cargoes. Rather, a significant share of the cargo historically carried by liners—such as bulk parcels—shifted to other vessels, and the containenzable cargoes increased at growth rates that both made up for the shifted cargoes and increased the total. This average assumes that the industry's performance during the recession year 1991 will be flat or show a slight downturn, but that growth will resume in 1992. REFERENCES ABBREVIATIONS DOT U.S. Department of Transportation MARAD Maritime Administration Census Bureau. 1990. U.S. Waterborne Imports and Exports by Liner, 1986-1988. U.S. Department of Commerce. Containerisation International Yearbook. 1972-1990. National Magazine Com- pany Ltd., London. DOT. 1989. Moving America: New Directions, New Opportunities—Building the National Transportation Policy. July. Journal of Commerce, Inc. 1990. U.S. Liner Trade Review, Annual Issue 1988-1989. March. Journal of Commerce, Inc. 1991. U.S. Liner Trade Review, Annual Issue 1990. Feb. MARAD. 1985. Containerized Cargo Statistics, 1983. U.S. Department of Transportation. MARAD. 1989. United States Oceanborne Foreign Trade Routes. U.S. Depart- ment of Transportation, Sept. Muller, G. 1989. Intermodal Freight Transportation, 2nd ed. Eno Foundation, Westport, Conn. Van Den Berg, G. 1969. Containerisation: A Modern Transport System. Hutchin- son & Co., London.

2 The Container Revolution THE TECHNOLOGICAL REVOLUTION j-I The dawn of the era of contain- - erization can be precisely dated - as April 20, 1956, when a Pan Atlantic Steamship tanker, the SS Maxton (renamed the Ideal X), set sail from New York for Houston carrying 58 loaded truck-trailer vans above deck. The vans "had been lifted on to the specially constructed spar-deck of the Ma.xton by a dockside gantry crane," and were traveling without their chassis (Van Den Berg 1969, 154). The voyage was a deliberate experiment on the part of Malcolm McLean, a trucking company owner, who had re- cently purchased Pan Atlantic and its small fleet of dry cargo and tanker ships. On the basis of his experience in the trucking industry, McLean believed that total distribution costs could be reduced only by a streamlining of the entire distribution process. The "repetitive han- dling of freight" was the problem, particularly at intermodal transfer points. The solution to this problem, he believed, was a detachable container, which "could be loaded at the shipper's door, sealed, trucked to the port, lifted off its chassis and stowed on board ship, where it could act as a storage unit until it arrived at the port of destination......Upon arrival, the sealed container would be moved onto a truck chassis and delivered directly to the consignee. McLean was convinced that this process would reduce costs, theft, and dam- age; provide savings in packaging, and result in "more reliable 17

18 INTERMODAL MARINE CONTAINER TRANSPORTATION service—with one carrier responsible for the entire door-to-door move- ment" (Van Den Berg 1969, 151-154). Although intermodal containerization as it is known today can be traced back to that date, it was not without antecedents. Mention is made of an 8- by 8- by 18-foot steel container that could be transferred among truck, rail, and ship modes being used by a moving company as early as 1906 (Van Den Berg 1969, 150, 152). Apparently, however, that remained an isolated innovation. Several railroads developed a less-than-carload (LCL) container service using steel containers after World War I, with some railroads providing truck pick-up and deliv- ery. Again, this service did not catch on and eventually succumbed to Interstate Commerce Commission (ICC) rate restrictions and competi- tion from expanding truck lines and freight forwarders. Railroad pig- gyback service [trailer-onflatcar and container-on-flatcar (TOFC and COFC)] was introduced in 1926, but did not become significant until a 1954 ICC ruling and, in any case, the few containers involved were always shipped with their chassis (Muller 1989, 7-9). Widespread containerization really began during World War II when the U.S. Army started shipping war material to Europe in small reus- able wooden boxes (Van Den Berg 1969, 150). This led to the devel- opment after the war of the 6- by 6- by 6-foOt steel-clad Container Express (Conex) box used for military shipments on commercial ves- sels, especially during the Korean War. This box in turn served as a model for the small containers that most major ship operators began using during the late 1940s and early 1950s. These, however, were mainly loaded and unloaded at the docks and not used intermodally (Muller 1989, 121, 122). By contrast, McLean's 1956 concept incorporated both containeriz- ation and intermodalism, and the experiment was so successful that it is usually taken to mark the real beginning of the container revolu- tion. Immediately following that first voyage, another tanker was outfitted to carry containers, and plans were finalized to convert six regular dry-cargo ships to full containerships with on-board cranes for self-loading and unloading. The first of these came on line in October 1957, with the capacity to carry 226 35-foot containers. By mid-1958, Pan Atlantic was offering scheduled containership service between Newark and Puerto Rico as well as between Newark and Houston with intermediate port calls at Jacksonville and Miami. In 1960, Pan Atlantic changed its name to Sea-Land Service, "to better describe the services offered," and in 1963, it began operating containerships between Newark and Long Beach-Oakland by way of the Panama Canal, using converted tankers that could carry 476 containers. Sea- Land closed the first decade of containerization by inaugurating the

The Container Revolution 19 first transatlantic containership service in April 1966 with weekly sailings from Port Elizabeth—Baltimore to Rotterdam-Bremen (Van Den Berg 1969, 154-156). In the meantime, on the West Coast, Matson Navigation began its own containerization experiment after much research on ways to re- duce cargo-handling costs. Matson adapted several freighters to carry 75 24-foot containers above deck. The first voyage was from Oakland to Honolulu in August 1958. This experiment was also a success, and Matson began converting a larger freighter to full containership use. This ship, which began scheduled service between California and Ha- waii in 1960, had a capacity of 436 24-foot boxes, including 72 refrig- erated containers, and its own deck-mounted crane. Eight years later, in September 1968, Matson ended its first decade of containership operations by inaugurating a fully containerized transpacific service with regular sailings between California and Japan (Van Den Berg 1969, 161, 162; Muller 1989, 15). Thus, during its first 10 years, marine containerization was purely an American enterprise and, with one exception, was confined to U.S. coastal and intercoastal routes. (The exception was the small and un- successful attempt at international trade with Central and South Amer- ica begun by Grace Lines in 1960.) Moreover, although the technological revolution involving newly designed containers, con- tainerships, and container ports (the first, Port Elizabeth, New Jersey, opened in 1962) was well under way, the equally important institutional revolution that would produce true land-sea-land intermodalism had barely begun. The role of trucks was limited to local pick-up and delivery of containers in and around port cities, and rail was hardly involved at all. There were certainly few through bills of lading between inland points in the United States and abroad. "Competitive animosity between land and sea modes, combined with institutional lethargy, caused land-sea intermodality to progress slowly." Both highway and TOFC trailers "filled with exports arrive at the Port of New York daily. . . [but they] are unloaded at truck terminals, railroad pier stations, or on steamship piers, and hardly any go overseas intact" (Muller 1989, 15). The technological revolution picked up considerable speed in 1966 with the advent of Sea-Land's weekly containership service to and from Europe. This was followed shortly by the entry of U.S. Lines, then the largest American ocean carrier, on the same North Atlantic routes. The economies offered to both shippers and ship operators by containerization were so overwhelming that foreign lines were vir- tually forced to meet this competition and begin their own container- ship services. Most major foreign transatlantic carriers did so, either

20 INTERMODAL MARINE CONTAINER TRANSPORTATION singly or as part of a consortium, by the end of 1968. The same pattern was repeated shortly thereafter on transpacific routes. The introduction of the first vessels specifically designed from the keel up to serve as containerships provided further impetus to this technological revolution. Between 1969 and 1971, Sea-Land took deliv- ety on six and Matson took delivery on four higher-speed (23 to 27 knots), higher-capacity (1,000 to 1,200 boxes each) cellular container liners (Van Den Berg 1969, 157, 162, 163). These vessels were built without shipboard cranes because it was found that dockside cranes were more efficient (considering that they could be used much more frequently) and, as container loads increased, shipboard cranes were causing ships to lose trim while being loaded and unloaded. Removing the cranes also allowed more containers to be stowed above deck (Muller 1989, 109). Since then, ships built specifically for container service have grown steadily in size and capacity to the point that some now on order will be able to carry nearly 5,000 twenty-foot-equivalent units (TEUs). Another major impetus to the technological revolution was the international standardization of marine container dimensions and capacities. After much negotiation, the standards were finally agreed upon in the late 1960s and came into effect during the early 1970s. In retrospect, it is clear that these standards were a necessary prerequisite for, and gave a real push to, land-sea-land intermodalism. Given the strong boosts during the late 1960s just described, contain- erization began to spread rapidly to all U.S. trading areas. By 1973, except for bulk cargo, "transatlantic trade consisted almost entirely of cargo carried by containership and roll-on/roll-off (ro-ro) vessels" (Muller 1979, 17). By the late 1970s, containerized traffic accounted for well over half of all liner trade to and from the United States. Today that figure is at least 75 percent and probably closer to 100 percent for U.S. trade with Europe and the Far East, by far the two most important trading areas. The rapidity with which containers replaced breakbulk cargo handling was clearly a result of the great improvements in pro- ductivity compared with traditional methods of cargo handling. The economic advantages of containerization were succinctly described in a 1980 Supreme Court decision: Because cargo does not have to be handled and repacked as it moves from the warehouse by truck to the dock, into the vessel, then from the vessel to the dock and by truck or rail to its destination, the costs of handling are significantly reduced. Expenses of separate export packag- ing, storage, losses from pilferage and breakage, and costs of insurance and processing cargo documents may also be decreased. Perhaps most significantly, a container ship can be loaded or unloaded in a fraction of the time required for a conventional ship. As a result, the unprofitable

The Container Revolution 21 in-port time of each ship is reduced, and a smaller number of ships are needed to carry a given volume of cargo. (NLRB v. International Long- shoremen 's Association 1980) As a result of these advantages, ocean carriers, port authorities, and marine terminal operators embarked on a massive investment program in which billions of dollars were spent for the construction of hundreds of containerships, the buying or leasing of thousands of containers and chassis, and the expansion of numerous ports and terminals equipped with huge dockside cranes and other heavy container-handling equip- ment. A major consequence of this investment was to sharply increase the already capital-intensive nature of the U.S. maritime industry. In addition, crew sizes have been reduced as ships have become more automated, and the need for dock workers has been cut drastically. Since 1972, average daily employment of longshoremen and other dock workers has been more than halved.' DEVELOPMENT OF INTERMODALISM The widespread adoption of container technology led directly to a second phase of the container revolution, or, in fact, to a second revolution—the development of intermodalism. This revolution was less technological and more institutional. Intermodalism "brought with it a shift in emphasis compared to containerization. Instead of hardware, the focus was on the organization of the transport system and the synchronization of the distribution system" (Hayuth 1987, 14). Strictly speaking, of course, intermodalism signifies nothing more than the use of two or more modes for a freight shipment, but the implication was usually that the shipment was moving under a single (or combination) through rate on a single through bill of lading. That is certainly implied nowadays; in addition, the term has more recently come to signify "an integrated transportation system which coordi- nates the water, rail, and/or truck movement of containerized cargo under a single carrier's control in a continuous movement from shipper to consignee" (FMC 1989, 50). The beginning of marine container intermodalism in the earlier, more restricted sense of the term goes back to the first land-bridge services in the mid-1960s. Rather than taking an all-water route through the Panama Canal, transpacific container shipments bound for Europe were moved across Canada by rail piggyback to the St. Law- rence Seaway. More important was the minibridge service begun in

22 INTERMODAL MARINE CONTAINER TRANSPORTATION 1971 when European containers destined for a Gulf Coast port were landed at an East Coast port and shipped the rest of the way by rail. This was quickly followed by routing Far Eastern containers destined for the eastern seaboard through California ports and via transconti- nental rail to East Coast ports for delivery by truck. Much of this was high-valued cargo that could benefit from faster transit times and could offset the higher cost of using a partial land route rather than a virtually all-water route. Minibridge was followed by microbridge, in which Far Eastern containers destined for the Midwest entered through West Coast ports and were sent by rail directly to the Midwest rather than through an East Coast port. Both mini- and microbridge service slowly grew in importance throughout the 1970s, predominantly in an east- bound direction. Both types of service have been used for exports as well as imports. Although a few dedicated unit container trains ap- peared, for the most part container shipments were simply added to existing TOFC trains. In 1979, however, American President Lines (APL), wanting to improve its intermodal service, began acquiring its own railcars and started contracting with railroads to move its own dedicated container trains. These "linertrains" were specifically planned to mesh with arrivals and departures of APL's containerships. The various land-bridge services were given a boost in late 1979 when, in anticipation of the Staggers Rail Act of 1980, the ICC dereg- ulated all TOFC and COFC traffic with a prior or subsequent vessel movement. Further deregulation of intermodal marine container traffic came with the Shipping Act of 1984. This law allowed ocean carrier conferences to establish intermodal through rates without fear of anti- trust action and permitted conferences and carriers to sign long-term service contracts with shippers. Marine container intermodalism in the more recent, broader sense in which a single carrier operates an integrated intermodal transportation system and offers complete door-to-door service probably dates no earlier than 1984. That is when APL began its regular double-stack container train service between Los Angeles and Chicago—New York. Double-stacking containers on trains was originated experimentally by the Southern Pacific (SP) in 1977, and scheduled service actually began in 1981 when the SP started moving Sea-Land boxes between Los Angeles and Houston. The concept did not catch on, however, until APL proved that it was feasible on a large scale. Since then, the idea has been widely copied and double-stack service has mush- roomed. By the end of 1989, there were more than 100 double-stack train departures from the West Coast each week and the double-stack car fleet had reached an annual capacity of 3 million TEUs (Manaly- tics 1990, 29, Table 6). A major consequence of this development was

The Container Revolution 23 to shift both import and export cargoes from East and Gulf Coast ports to West Coast ports. This accelerated a trend that was already under way as a result of the shift in the center of U.S. trade from Europe to the Far East. This historic shift has made the Panama Canal much less important for liner shipping and that in turn has permitted the construc- tion of more efficient, larger-than-Canal-size containerships. One reason for APL's success was that it designed a much lighter and more cost-efficient railcar. Probably more important was its expe- rience in operating intermodal liner trains. As before, APL controlled the equipment and contracted with railroads for the use of rail lines, locomotives, and crews. Thus, APL itself could decide what cargo to carry and how that cargo could be obtained. This control was instru- mental in helping APL fill its westbound backhauls, and was a major step in the development of large multimodal freight transportation companies that operate international intermodal networks. Although it followed a different path, the CSX Corporation has reached a similar point. Although the intermodal revolution has not yet run its course, and some problems and doubts remain (Hayuth 1987, 19-21), organi- zations such as APL and CSX epitomize its potential and may well represent the wave of the future. MARINE CONTAINERS Container Fleet There were probably about 4,600,000 marine containers of all types and sizes, representing about 6,300,000 TEUs, in international trade use at the beginning of 1990. This estimate was developed on the basis of a January 1986 worldwide survey (Containerisation International 1986) updated by world production figures less estimated scrappage since then (Containerisation International Yearbook 1990, 16, 466-468). The January 1986 survey found that U.S.-based ship opera- tors and leasing companies owned 41 percent of all containers and 43 percent of all TEUs at that time. (The next five ranking nations—the United Kingdom, Japan, Taiwan, Italy, and West Germany—together accounted for only 32 percent of the TEUs.) A MARAD inventory reported that at the beginning of 1990, American ship operators and leasing firms owned 1,657,000 containers representing 2,388,000 TEUs, or about 36 and 38 percent, respectively, of the estimated world total cited above (MARAD 1991, 4). The exact number of American- owned boxes is not that important because less than 20 percent of U.S. trade is carried in U.S.-flag ships and U.S. ships sometimes carry

24 INTERMODAL MARINE CONTAINER TRANSPORTATION foreign containers. According to the MARAD data, 87 percent of the U.S. container fleet is owned by 9 leasing companies and only 13 percent by ocean carriers. Almost all of the leases, however, are to carriers. Container Types By far the most common type of marine container in use is the dry freight van, capable of carrying a wide variety of manufactured and processed goods. The 1986 survey shows that 85 percent of containers worldwide are of this type. The 1990 MARAD inventory indicates that 89 percent of U.S.-owned containers are dry vans. Virtually any nonli- quid cargo that does not require temperature control can be carried in a dry van. Thus, many agricultural commodities that had been shipped breakbulk are now containerized (e.g., bags of rice, flour, sugar, and beans). Lumber mill and paper mill products also are now commonly transported in this way. Liquids that can be loaded into drums, such as chemicals and petroleum products, also can be transported in dry vans. These goods are all in addition to the full range of manufactured goods and general merchandise that makes up most dry van loads. Several specialized types of containers also exist, primarily refriger- ated units and open-top boxes; these represent 5 and 4 percent of the world's total and 4 and 3 percent of the U.S. total, respectively. Tank containers and bulk containers have very recently begun to grow in importance, and may soon approach other specialized containers in number. Most dry van and specialized containers are constructed of steel, but some, especially the newer and larger ones, are made of aluminum, as are almost all refrigerated containers. Container Sizes and Capacities The great majority of the marine containers in use at present are 8 feet wide by 8.5 feet high by either 20 or 40 feet long. The January 1986 survey indicated that these two sizes make up 87 percent of all con- tainers worldwide: 59 percent are 20 feet long and 28 percent are 40 feet long. According to that survey, the 20-foot size predominates, particularly in Europe, where it accounts for 80 percent of all boxes. According to the January 1990 MARAD inventory, 20- by 8- by 8.5- foot containers make up 56 percent, and 40- by 8- by 8.5-foot con- tainers 37 percent of the American fleet. The only other significant size in the American fleet is the larger-capacity 40- by 8- by 9.5-foot box, which represents 5 percent of the U.S. total. This size has also

The Container Revolution 25 been introduced in the Far East but is rarely used in Europe. Even newer and larger cubic capacity containers, 45 and 48 feet long and 9.5 feet high, have appeared in recent years (the 48-feet containers are also 8.5 feet wide). As of January 1990, these new containers accounted for only 1.5 percent of the U.S. fleet, but the 45-foot-long box, at least, is expected to proliferate rapidly (Manalytics 1990, 122). Most marine container dimensions were developed on the basis of U.S. highway requirements.2 The 8-foot width is based on the 96-inch truck-trailer width that was the federal legal maximum until the 1982 Surface Transportation Assistance Act allowed 102 inches. The 8.5- foot height limit was chosen considering the standard minimum high- way overpass height of 13.5 feet: when this box is loaded on a normal chassis, the overall height of the rig permits a 6-inch clearance. The length of early containers varied from one ship operator to another depending on the trucks involved in pick-up and delivery. Sea-Land, which served primarily East Coast—Caribbean routes, adopted a 35- foot container because that was the maximum semitrailer length then permitted on the eastern seaboard. On the other hand, Matson Naviga- tion, serving the West Coast—Hawaii route, chose a 24-foot-long box on the basis of the then prevailing length of a western doubles unit. (Matson still operates more than 11,000 24-foot containers, but Sea- Land is rapidly phasing out its 35-foot boxes.) The proliferation of sizes and gross weights, along with the spread of containerization to Europe and the Far East, led to increasing calls for international standards. Such standards were worked out by the American National Standards Institute (ANSI) and the International Standards Organization (ISO) during the 1960s and came into effect in the early 1970s. Widths and heights were each set at 8 feet, and lengths were limited to 10, 20, 30, and 40 feet with corresponding weight capacities of 10, 20, 25, and 30 long tons (2,240 pounds), respec- tively. The need for greater capacity, however, was quickly recognized and the 8.5-foot height was soon permitted. At the same time, little application was found for 10- and 30-foot boxes, and these lengths have virtually disappeared. In addition to dimensions and capacities, standards were also established for pillar, sidewall, and corner casting strength (ISO boxes can be stacked up to six high) and for strength and placement of fittings for lifting. These standards have greatly facili- tated the physical exchange of containers in international intermodal transportation. All marine containers have a metal plate welded to one corner that gives the dimensions and tare weight of the box and its rated cubic and gross weight capacities. All marine containers being built today meet or surpass ISO con- struction standards, but an increasing number exceed ISO size and

26 INTERMODAL MARINE CONTAINER TRANSPORTATION weight limits (see Table 2-1). From as early as 1970, but especially since 1980, major American ocean carriers have offered a 40-foot container that is 9.5 feet high to provide increased cubic capacity. These containers present highway clearance problems, particularly in urban areas, and can be safely trucked only by means of a special gooseneck, drop-frame chassis. Since 1985, U.S. ship operators serv- ing North Pacific routes have offered a 45-foot-long, 9.5-foot-high container—again, the impetus being to provide increased cubic capac- ity. Recently, 48- and even 53-foot containers that are not only 9.5 feet high but also 8.5 feet wide have appeared, but so far they are being used only domestically. Although none has yet done so, most of these larger dimensions will probably receive ISO approval in the not too distant future. At present, the larger boxes can be rated and plated to the ISO maximum gross weight limit (30 long tons) or to the heavier weights they are capable of handling by ISO construction standards. The international agreements provide that receiving carriers may re- fuse to accept containers not conforming to ISO size and weight limits. This does not necessarily make the ISO standards the upper limit on sizes and weights because the option of refusal is voluntary and is unlikely to be invoked in the face of sharp competition. In any event, most non-ISO boxes are not currently being interchanged interna- tionally; they are operated in closed-loop movements that are entirely controlled by the U.S. ship operators who own them. DEVELOPMENT OF CONTAINERSHIPS As mentioned earlier, the first full containerships were nothing more than small dry cargo breakbulk ships or tankers converted to carry containers. The very first, launched in late 1957, had a capacity of only 396 TEUs, and even the first converted tanker could carry no more than 833 TEUs. The evolution of containerships since then is often described in terms of ship generations, with each generation characterized by larger and more efficient ships than the previous one. Although different authorities describe these generations differently, there is general agreement on the pattern of development. The first generation covers the period to 1969 when the first ship built specifically for container service was launched. All ships oper- ated during this period were general cargo ships or tankers converted to container use by fitting holds with cell guides (metal braces designed to secure containers both horizontally and vertically) and by reinforc- ing decks. They generally had capacities in the 750- to 1,000-TEU range and drafts less than 30 feet. Almost all were steam powered with

TABLE 2-1 SPECIFICATIONS OF AMERICAN-OWNED MARINE CONTAINERS (MARAD 1991) Size" (fi) Type Cladding" ISO Box Tare Weight' (lb) Cubic Capacity" (ft3) Approximate MGWRd Number Owned 20 x 8 x 8.5 Dry van Steel Yes 4,900 1,150 44,800 828,500 20 x 8 x 8.5 All others Both Yes Various Various 44,800 93,600 24 x 8 x 8.5/9.5 Various Both No Various Various 48,000 11,700 35 x 8 x 8.5 Various Both No . Various Various 50,000 1,500 40 x 8 x 8.5 Dry van Steel Yes 8,300 2,350 67,200 465,300 40 x 8 x 8.5 Dry van Aluminum Yes 6,500 2,400 67,200 60,200 40 x 8 x 8.5 Reefer Aluminum Yes 10,300 2,000 67,200 30,400 40 x 8 x 9.5 Dry van Steel No 9,600 2,650 67,200 61,000 40 x 8 x 9.5 Dry van Aluminum No 7,000 2,700 67,200 33,000 40 x 8 x 8/8.5/9/9.5 Various Both Few Various Various 67,200 47,000 45 x 8 x 9.5 Various Both No 8,800 3,050 72,800 19,000 48/53 x 8.5 x 95e Dry van Both No 9,300 3,500 78,400 5,200 1,656,400 "Length x width x height. hsteel or aluminum. 'Approximate average. "Maximum gross weight rating in pounds by ISO standards FUsed only domestically.

28 INTERMODAL MARINE CONTAINER TRANSPORTATION service speeds of 18 to 21 knots. All in all, they were no larger or faster than the conventional cargo ships of their day. Once transatlantic and then transpacific containership service took hold, it became clear that larger and faster ships would better realize the economic advantages of containerization. This led to the first ships specifically designed and built to carry containers, and these constitute the second generation, covering the period 1969-1971. These ships had capacities in the 1,000- to 1 ,500-TEU range and drafts of about 30 feet. Almost all were powered with steam turbines that could achieve service speeds of 20 to 23 knots. The emphasis on size and speed continued into the third generation, which covers 1972-1974. Ships of this generation generally ranged in capacity from 1,000 to 2,500 TEUs and had drafts up to 33 feet. Many were powered with twin-screw steam turbines and some even with diesel engines; typical service speeds were in the 22- to 26-knot range. As containerization took hold on the long Europe-Far East trade route, still larger ships became economically attractive. This led to the com- missioning of the first so-called "panamax" containerships—ships just able to pass through the Panama Canal. These first panamax vessels (most of which actually were routed through the Suez Canal) could carry 3,000 TEUs at service speeds of 26 knots. This generation also included the fastest containerships ever built; they were ordered by Sea-Land for transpacific service and could make 33 knots while carry- ing 1,900 TEUs. Some ships of this generation also incorporated auto- mated engine room controls as shipboard automation got under way. After a hiatus, the fourth generation of containerships, at least for the U.S. fleet, was built during the period 1978-1983. The pause was largely caused by the oil crisis of 1973 and the subsequent rise in oil prices and fall-off in international trade and ocean shipping. When ship construction resumed, large capacity was still demanded but there had been a change in thinking about the value of speed. Sharply higher fuel prices made the relatively fuel-hungry twin-screw steam turbines costly and led to the substitution of single-screw, low-speed diesel engines, which burn heavier but cheaper diesel fuel. Thus, although more panamax ships were launched and typical capacities ranged from 1,500 to 3,000 TEUs with drafts up to 35 feet, service speeds fell to the 20- to 24-knot range. This generation of ships also saw widespread serious effort toward automation of both engine room and deck ma- chinery and controls. These trends continued into the fifth generation, 1984-1987, during which most of the ships built were of panamax size and powered with diesel engines designed to operate at relatively low but fuel-efficient speeds. There was also greater emphasis on shipboard automation and

The Container Revolution 29 on improving loading and unloading to reduce time in port. Capacities are generally in the 2,500- to 4,000-TEU range with drafts of 38 to 40 feet, and typical service speeds ranged from 18 to 23 knots. The un- doubted exemplars of this generation are the 12 huge "econships" ordered by U.S. Lines for around-the-world service. These ships are all capable of loading up to 4,400 TEUs, have drafts up to 41 feet, lengths up to 960 feet, and beams up to 105 feet (they just fit the width of the Panama Canal). After U.S. Lines went bankrupt, these ships were bought by Sea-Land, which operates them at reduced capacities but higher speeds. The industry is now in the sixth generation of containerships—the post-panamax generation. APL, in studying ship designs that maxi- mize capacity while minimizing operating costs, found that optimum beam size was wider than that permitted by the Panama Canal. As an exclusively Pacific Ocean carrier, and able to reach the Midwest and East by stack train, APL has no need of the canal. Consequently, APL continued research, discovered several advantages in being able to optimize hull proportions, and designed a very wide but shorter and shallower draft ship than those of panamax size (Clayton 1989, 23, 24). According to APL Senior Vice President L. P. Robinson, The principal advantage of the post-panamax vessel is that, theo- retically, container capacity is unlimited. Another is improved stability. Typically a large panamax ship must carty upwards of 12,500 tons of water ballast, but the equivalent post-panamax ship requires little or no. . . ballast [and therefore consumes less fuel]. Also [it] will operate at a lesser draft with the same volume of cargo or run faster for the same installed power. . . . Significantly, the post-panamax ship is five percent cheaper to build, as length is the most expensive dimension ...but, as it is not limited to Canal dimensions, the operator can insert a mid-body section to increase container capacity. Lastly, because the rows are wider and the ship is shorter than the panamax equivalent, a higher stevedoring productivity can be achieved. (Clayton 1989, 24) So far only five such ships have been built, all for APL, but at least two other carriers serving the United States have some on order (Kur- sar 1990, 41). The ships can load up to 4,400 TEUs, including 48-foot boxes; they have a 40-foot draft, 896-foot length, and 129-foot beam width; and they operate at a service speed of about 21 knots. It is expected that post-panamax ships with over 5 ,000-TEU capacities will be designed and built in the near future (Containerisation International Yearbook 1990, 5). In addition to full containerships, semicontainerships and combina- tion ships are used for shipping containers. The former are largely general cargo ships that load dry cargoes in traditional breakbulk form

30 INTERMODAL MARINE CONTAINER TRANSPORTATION or in a unitized form other than containers (such as pallets) but also have some container slots. Most are relatively small but not necessarily old ships. They are usually employed in less developed areas that lack improved port facilities. They give operators the advantage of flex- ibility but at the expense of higher cargo-handling costs per container. Combination ships are either car-carrying roll on-roll off (ro-ro) ships that also carry containers or bulk-container ships. These combination ships are usually larger and newer than semicontainerships, and some of them have quite large capacities—up to 2,500 TEUs. They are often employed on the major arterial trade routes. The total world containership fleet has grown dramatically since the early days of transoceanic container trade. In late 1989, there were 1,361 active full containerships (see Table 2-2)—a 145 percent in- crease in the last 10 years or an average of nearly 15 percent per year— and another 133 containerships were on confirmed (contracted) order. Total worldwide containership capacity, counting slots on all container-carrying vessels, has gone up even faster as ships have got- ten steadily larger. In late 1989, worldwide capacity totaled 3,021,000 TEUs—a gain of more than 200 percent in the last 10 years and an average of more than 20 percent per year. Another 297,000 TEUs will be available in the ships on order (Containerisation International Year- book 1990, 13). As of January 1990, the active U.S. -flag full containership fleet consisted of 93 vessels with an aggregate container capacity of 194,000 TEUs.3 This represents 7 percent of the world total of full containerships, but 12 percent of the capacity of those ships. (The United States follows Germany and Japan in total containership capac- ity.) More than half the U.S. vessels (47 of 93) are newer fourth-, fifth-, and sixth-generation ships. Because they are larger, these newer ships account for 69 percent of U.S. full containership capacity. Thirty-eight of these ships are capable of loading more than 2,500 TEUs, and they account for 61 percent of U.S. full containership capacity. Sixty-seven of the U.S.-flag full containerships, accounting for 84 percent of the capacity of such ships, are owned by just two operators—Sea-Land and APL. There are six smaller carriers: Central Gulf Lines, Crowley Maritime, Farrell Lines, Lykes Brothers Steam- ship, Matson Navigation, and Puerto Rico Marine Management. The last two are engaged solely in domestic offshore trade. IMPACT OF TRANSPORTATION DEREGULATION Because the technological innovations that brought about the container revolution had occurred by the mid-1970s, and because roughly half of

The Container Revolution 31 TABLE 2-2 SUMMARY OF WORLD AND U.S. CONTAINERSHIP FLEETS World F1eet' Ships Capacity (no.) (TEUs) TEUs/ Ship U.S. Fleetb Ships Capacity (no.) (TEUs) TEUs/ Ship Full containerships Less than 1000 TEUs 702 319,100 455 4 2,300 575 1,000-2,499TEUs 461 714,500 1,550 51 73,900 1,449 2,500+ TEUs 198 589,900 2,979 38 117,700 3,097 Total full ships 1,361 1,623,500 1,193 93 193,900 2,085 Semicontainerships 1,923 639,400 333 19 4,430 233 Combination ships 457 422,100 924 7 11,050 1,579 Total 3,741 2,685,000 718 119 209,380 1,759 NOTE: To simplify the table, pure ro-ro ships (which can, but usually do not, carry con- tainers) and two minor ship categories have.been eliminated from both world and U.S. data. "World fleet data are from Containerisation International Yearbook 1990 and are as of November 1, 1989. bUS, fleet data are from the MARAD Inventory of American Intermodal Equipment 1990 (1991) and are as of January 1, 1990. The U.S. fleet data include containerships used in the U.S. domestic offshore trade as well as in foreign trade. the U.S. liner trade had been containerized by that time, the advent of federal transportation deregulation in the late 1970s clearly had little or no impact on the development of containerization. At the same time, it is also clear that deregulation gave a substantial boost to the second phase of the container revolution—the development of intermodalism. Although intermodal marine container shipments were common before transportation deregulation began, carriers could not offer shippers anything like true intermodal through service or single-factor point- to-point intermodal rates. "The ICC and the FMC, each in its respec- tive sphere of land and sea, exerted, in varying degrees, tight control over rates and conditions of carriage. Such rigid government con- trol . . . discouraged a more rapid development of land-sea inter- modality" (Muller 1989, 17). Moreover, even when shipping conferences had obtained FMC approval to set through intermodal rates, there was a fear of antitrust exposure because of opposition by the Justice Department (FMC 1989, 52). This restrictive climate, how- ever, was radically changed by deregulatory legislation, especially the Staggers Rail Act of 1980 and the Shipping Act of 1984. The most important effect of the Staggers Act on intermodal marine container transportation was the freeing of piggyback (TOFC and

32 INTERMODAL MARINE CONTAINER TRANSPORTATION COFC) traffic from ICC restrictions. Actually, rates for COFC ship- ments that had been or were to be moved by ship were deregulated by the ICC in late 1979 before passage of the act, but clearly in anticipa- tion of it. Then in March 1981, the rail portion of all other piggyback traffic was freed from rate restrictions (the truck portion was freed much later). These moves allowed railroads to price TOFC and COFC shipments more competitively against long-haul trucks and helped pro- mote this form of intermodal transportation. This traffic was given an even greater boost by the Shipping Act of 1984, which permitted shipping conferences to discuss and agree on the inland portion (as well as the ocean portion) of intermodal rates without fear of antitrust action. (Ocean carriers must, however, negoti- ate charges with rail and motor carriers individually rather than as a conference.) Following this act, the ICC dropped its requirement that rates for the inland portion be separately stated in tariffs. The joint effect of these changes allowed ocean carriers to establish, on an almost ad hoc basis, through routes and single bill of lading through rates (without needing to file rate divisions) covering the entire inter- modal transportation chain and to adjust them as necessary to meet market conditions. This "freeing-up" of the development of inter- modalism has been called one of the act's most important accomplish- ments (FMC 1989, 52). These acts also permitted, indeed encouraged, carriers and shippers to negotiate long-term service contracts. Again, the ICC acted in antic- ipation of the legislation. When the ICC deregulated rail rates on produce shipments in May 1979, it "also gave railroads freedom to establish special contracts with large shippers based on volume and service" (Muller 1989, 26). This contracting freedom was enlarged in the Staggers Act and proved so successful that a similar provision was included in the Shipping Act. Under these contracts, shippers agree to ship a minimum number of containers over a certain period and ship operators guarantee a fixed rate per box as long as the minimum is met. Rebates in the form of lower rates are allowed for exceeding the minimum quota. Terms of the contracts must be filed with the FMC (only the tariff portion of rail contracts needs to be filed with the ICC), and there is a "most-favored shipper" clause requiring carriers to offer essentially the same terms to all shippers similarly situated. These contracts permit all participants to negotiate volume pricing outside the tariff system and have become very widely used, especially for double- stack shipments. They have also strongly enhanced, for better or worse, the role of "box rates" (per-container rates). The Staggers Act also promoted intermodal marine container trans- portation by facilitating the formation of multimodal transportation

The Container Revolution 33 companies. The act removed most restrictions on rail mergers and on rail ownership of carriers in other modes. The removal of restrictions on rail mergers encouraged the drive, already well under way, toward fewer and larger railroads. Lifting the restrictions on rail ownership of carriers in other modes opened the way for ICC approval for railroads to start up new truck lines (1983) and to purchase existing truck lines (1984), barge lines (1985), and ship lines (1986). Although not all parties have benefitted from deregulation, there is no doubt that deregulatory legislation "has been a big plus" for both intermodal marine container carriers and shippers (Muller 1989, 26). Carriers have benefitted from improved intermodal coordination and operating efficiency, which have helped keep costs down, and shippers have benefitted from increased intermodal choice and competition, which have helped keep rates low. Federal restrictions on intermodal container shipments involving rail and truck carriage have been almost completely eliminated, but subsidized ocean carriers are still subject to a number of regulations covering routes and rates. The variable im- pacts of deregulation on ports are discussed in Chapter 3. FUTURE DEVELOPMENTS Two trends have been clearly discernible in intermodal marine con- tainer transportation for several years and may be expected to continue and even intensify in the immediate future. Increased Capacity One trend, driven primarily by a search for improved productivity, is the increasing size and capacity of containers, container equip- ment, and container facilities. As outlined previously, container- ships have grown steadily—huge panamax and post-panamax vessels that carry 4,000 TEUs are now commonplace. Fueled by continued growth in world trade and by replacement programs, demand for these and even larger ships is expected to increase in the next few years (Kursar 1990; Containerisation International 1989, 23-27; Containerisation International Yearbook 1990, 5, 11-17). The same phenomenon can be seen with container trains: carrying capacities have been multiplied by double-stacking, longer cars, and more frequent departures. There are now daily 2-mile- long stack trains on one major rail corridor that move more than 800 TEUs at one time. Similarly, the capacities of marine and rail

34 INTERMODAL MARINE CONTAINER TRANSPORTATION container terminals have been increased through the enlargement of terminal areas and the addition of heavier and more automated equipment. The newest-generation dockside cranes, for instance, have a reach of 150 feet and a lift capacity of 50 tons. Terminals have perhaps reached their epitome in the huge Intermodal Con- tainer Transfer Facility (ICTF) near Los Angeles. Owned and oper- ated by the ports of Los Angeles and Long Beach in conjunction with the Southern Pacific Railroad, the ICTF covers 150 acres, has an annual capacity of more than 500,000 containers (which can be expanded), and operates around the clock. Benefits from further increases in equipment and facility size are probably reaching a limit. Beyond the next few years, the search for improved productivity is expected to emphasize increased effi- ciency more than increased size, especially efficiencies arising from speed and automation. Service speeds for the ships currently on order are already higher than those in the recent past, and advances in marine propulsion technology are likely to continue that trend (Containerisation International 1989, 27; Muller 1989, 171). Ad- vances in shipboard and dockside computerization and automation, especially to speed cargo handling, are being introduced and are likely to catch on quickly. Even containers themselves are being automated in a sense by being outfitted with transponders so that they can be more rapidly identified and located. Further automa- tion, such as automatic train control and intermodal high- productivity integral trains, should significantly increase railroad efficiency at both the network and individual train levels. Some productivity gains may come from relatively low-technology inno- vations, as for instance the hatch-coverless, "open design" ships now under construction. In these ships, hatch covers are completely eliminated and replaced with a continuous cell guide system from bottom to top tier. "This permits containers to slot into the upright guides without the need for lashings, and removes the time- consuming and relatively labor intensive lifting/replacing of hatch covers. Consequently, port turnaround times can be significantly speeded up" (Containerisation International 1989, 24, 25). Increased Consolidation The second trend is the increased consolidation and integration of organizations that is occurring within the intermodal marine con- tainer transportation industry. This trend reflects the developments of the first trend just described, but also represents a conscious

The Container Revolution 35 attempt by some firms to create integrated multimodal transporta- tion systems or total transportation companies. Examples are briefly described in Chapter 3. In a highly competitive market that increas- ingly emphasizes service factors, it appears that the largest and most integrated intermodal operators who can control door-to-door movements and offer some logistics management have a great ad- vantage (Manalytics 1990, 150). Thus, it may be expected that, at least among ocean carriers, the big will get bigger and the smaller will either merge or fall by the wayside (Manalytics 1990, 151; Containerisation International Yearbook 1990, 6). Some forms of integration, however, can occur without the need for consolidation into a single organization. Examples are consortium arrangements for sharing shipboard and terminal space, neutral chassis and railcar poois, and joint ventures between ocean and rail carriers. All of these devices are likely to become more common, especially among medium- and smaller-sized carriers. The principal integrating mech- anism for everyone within or served by the industry will clearly be the increasing use of electronic communications and data interchange. Like the first trend, increasing consolidation and integration is, at heart, a search for greater productivity, and both are simply extensions of the technological and organizational improvements that originally led to the container-intermodal revolution. When containerization and intermodalism first came about, they won immediate acceptance be- cause the existing technology and institutions were outmoded. Given that intermodal marine container transportation now dominates U.S. merchandise trade, will the additional investments required to realize further productivity gains be made? The answer is probably yes, for three reasons: Most projections call for steady growth in U.S. trade with the industrialized world, which can only mean increased container trade. There are still some bulk and neo-bulk shipments traded between the United States and its major partners that could be profitably containerized. Containerization is just now taking hold on trade routes to South America, south Asia, and Africa. In addition, there is the vast potential offered by domestic container- ization, which could become a very significant supplement to interna- tional container trade for most segments of the industry. All in all, the future of intermodal marine container transportation looks reasonably bright.

36 INTERMODAL MARINE CONTAINER TRANSPORTATION NOTES According to statistics compiled by MARAD, average daily employment of such workers stood at 61,850 in January 1972 and had fallen to 28,000 by October 1990. This and the following paragraph rely heavily on an unpublished paper by Richard Staley, President, Richard Staley Associates, March 1988. Data are from MARAD (1991). The TEU capacity of several American ships is rated rather conservatively in the MARAD inventory. If those ships were rated as in the Containerisation International Yearbook, the aggregated capac- ity of the U.S. full containership fleet would approach 210,000 TEUs. REFERENCES ABBREVIATIONS FMC Federal Maritime Commission MARAD Maritime Administration Clayton, R. 1989. Containerisation in the 90s. Fairplay International Shipping Weekly. Aug. 17. Containerisation International. 1986. Special Report on World Container Census. July. Containerisation International. 1989. Larger Faster Vessels Ordered for the 1990s. July. Containerisation International Yearbook. 1990. National Magazine Company Ltd., London. FMC. 1989. Section 18 Report on the Shipping Act of 1984. Washington, D.C. Sept. Hayuth, Y. 1987. Intermodality: Concept and Practice. Lloyd's of London Press, London. Kursar, R. J. 1990. Outlook for Ocean Transport: Bigger Ships and Low Rates. Traffic World, July 9. Manalytics, Inc. 1990. Double Stack Container Systems: Implications for U.S. Railroads and Ports. Final Report. Federal Railroad Administration and MARAD, U.S. Department of Transportation, June. MARAD. 1991. Inventory of American Intermodal Equipment 1990. U.S. De- partment of Transportation, April. Muller, G. 1989. Intermodal Freight Transportation, 2nd ed. Eno Foundation, Westport, Conn. NLRB v. International Longshoremen's Association. 1980. 447 U.S. Supreme Court 490, June 20. Van Den Berg, G. 1969. Containerisation: A Modern Transport System. Hutchin- son & Co., London.

3 The Container Transportation Chain r - - .. Despite advances made in sys- tematizing the process, moving I a marine container from origin to destination is still a complex - endeavor. It requires the close - cooperation of hundreds of peo- _______________________________ pie in dozens of locations who work in different occupations and live in different cultures. It is therefore not surprising that problems arise from time to time and that some of these are large or persistent enough to impede container transportation. This report identifies and analyzes some important is- sues on which government can have an impact, and these are discussed in Chapter 4. To provide a context for this discussion, to illustrate some of the complexities involved, and to help the reader locate the issues and gauge their significance, the intermodal marine container transportation chain is outlined in this chapter. Although the chain actually begins or ends overseas, this report focuses solely on Amer- ica; only the links to, from, and within the United States are discussed. Each of the major links is briefly characterized, and these descriptions are supplemented with recent statistical data, if available. SHIPPERS AND CONSIGNEES For imports, the first link in the container transportation chain is not the foreign exporter who ships the goods, but rather the American importer who orders them—in other words, the consignee. The oppo- site is true for exports, but in both cases there is an American firm that has a strong proprietaly interest in the shipment. On the export side, 37

38 INTERMODAL MARINE CONTAINER TRANSPORTATION major American manufacturers and producers who are experienced in foreign trade generally maintain large export traffic departments to handle the myriad details involved in selling and shipping overseas, including obtaining containers and arranging for inland and ocean transportation. These companies are often called direct shippers. Al- though the term is not used, there are equivalent direct consignees on the import side—major American firms that have experience in foreign trade and that manage all of the details involved in ordering, transport- ing, and clearing imported goods by themselves. INTERMEDIARIES Probably the majority of U.S. firms that import and export employ specialized intermediaries to make and oversee transportation and cus- toms arrangements. These various middlemen or third parties play an important role by linking shippers and consignees with carriers. Some offer only a single service, such as clearing cargo through customs, whereas others provide a full range of services, even to the point of taking legal responsibility for the goods being moved. New types of intermediaries have appeared since the beginning of transportation deregulation in the late 1970s; some perform different functions than the older types of intermediaries, and some overlap and compete with the older types. On the other hand, some older intermediaries have taken on new roles. A simplified classification of the principal kinds of intermediaries currently involved in intermodal marine container trans- portation follows.' Ocean Freight Forwarders These firms are undoubtedly the oldest type of intermediaries in inter- national trade. Ocean, or foreign, freight forwarders generally act as substitute export traffic departments for the shippers who hire them. Their main transportation function is to arrange for ocean carnage and prepare bills of lading and other documents. Before the Shipping Act of 1984, they were limited to arranging port-to-port shipments, but since then they have also been allowed to handle through land-sea-land intermodal movements. Consequently, some ocean freight forwarders will now also arrange inland transportation both here and abroad. Although compensated primarily by shippers, forwarders are also usu- ally paid a brokerage fee by ship lines for the cargoes they place.

The Container Transportation Chain 39 Many forwarders also perform the classic intermediary function of consolidating smaller shipments from several shippers into larger ship- ments to obtain volume discounts from carriers. Some of the cost savings are passed on to the shippers, inducing them to use the for- warders' services, and the balance is retained as profit. Many for- warders also know U.S. export and foreign import regulations and documentation requirements and act as, or work closely with, customs brokers. Ocean freight forwarders are licensed and regulated by the Federal Maritime Commission (FMC) and are required to file public tariffs. Approximately 1,800 ocean freight forwarders were operating in the United States at the end of 1988 (FMC 1989, 139). Customs Brokers Customs or customhouse brokers are almost as old a type of intermedi- ary in international trade as ocean freight forwarders are, and they complement freight forwarders by dealing mainly with the import side. There is, in fact, considerable overlap between these two types of intermediaries, with many firms performing both functions. The cus- toms broker's principal role is to act on behalf of consignees in clearing imports through Customs. Some brokers also serve as domestic freight forwarders by arranging for delivery of the goods once cleared. The principal role of those brokers who also deal with exports is to help shippers comply with U.S. export documentation requirements. Some also offer advice and assistance on foreign import regulations and duties. Customs brokers are licensed and regulated by the U.S. Cus- toms Service in the Treasury Department. If they also act as domestic freight forwarders, customs brokers are also licensed and regulated by the Interstate Commerce Commission (ICC). Non-Vessel-Operating Common Carriers During the early days of containerization when ocean freight forwarders were prevented by FMC mles from arranging land transportation, other firms stepped in to offer intermodal through-freight services—usually including freight consolidation and distribution—to smaller shippers and consignees. Soon these firms began to contract with ship operators for blocks of space, issue through bills of lading, publish tariffs, and accept liability for shipments. In fact, these firms began to do everything an ocean carrier does and more, except own containers and operate vessels. In 1961 the FMC designated these entities "non-vessel-operating corn-

40 INTERMODAL MARINE CONTAINER TRANSPORTATION mon carriers by water" (NVOCCs), and in 1984 they were given statu- tory recognition by the Shipping Act. For several years NVOCCs were prohibited by the ICC from filing joint through rates with inland carriers, but this restriction was lifted in 1979. Under the Shipping Act of 1984, NVOCCs are not considered ocean carriers and therefore cannot offer volume and service contracts to shippers. However, as shippers themselves, they can sign such contracts with carriers and pass the lower rates on to their own clients. NVOCCs may be firms specifically established as such or may equally likely be freight forwarders, railroads, truck lines, or even container leasing com- panies. No license is required, but they are partially regulated by the FMC and must file public tariffs. Approximately 1,400 such firms were listed with the FMC at the end of 1988 (FMC 1989, 141). Shippers' Associations These entities are defined in the Shipping Act of 1984 as nonprofit cooperative associations that consolidate or distribute freight ship- ments for their members to obtain volume rates or service contracts. Before the act, shippers' associations could only deal with domestic traffic. Now, both existing domestic shippers' associations and newly established ones may act collectively in tendering international cargo. Although they are nonprofit associations, they function just as com- mercial freight consolidators and forwarders do except that their ser- vices are restricted to members. Criteria for membership are, however, quite loose. Membership can be based on a common destination or even a common hub as well as on a common commodity or a common origin. Thus, at least three port authorities have created such associa- tions to channel cargo through their ports (Muller 1989, 99-100). Shippers' associations are unlicensed, but their activities are partially regulated by FMC. As of 1988, there were about 60 active associations involved in international trade (FMC 1989, 136). Shippers' associations should not be confused with shippers' agents, which are for-profit firms that consolidate and forward domestic inter- modal freight for shippers, especially rail intermodal shipments. Some shippers' agents do, however, arrange for inland rail transportation of marine containers to and from ports. Integrated Multimodal Transportation Firms Strictly speaking, these firms are not intermediaries but carriers. They are mentioned here, however, because some ship operators have devel-

The Container Transportation Chain 41 oped to the point that they offer not only inland pick-up and delivery but complete integrated intermodal through services, including full- scale logistics management. With single operator, end-to-end control over freight movements, they obviate the need for separate freight forwarding and transportation brokenng firms and thus are beginning to replace some traditional intermediaries. The principal examples are the two largest U.S.-flag carriers, Sea- Land and American President Lines (APL). Sea-Land was brought into the CSX Corporation in 1986 as the last carrier needed to complete a multimodal transportation system. In addition to Sea-Land, CSX includes two major rail systems, the largest inland barge carrier, sev- eral truck lines, both marine and rail terminal companies, and freight forwarding and transportation broker operations. These firms handle all types of freight transportation, but the functions involving inland container movements have been integrated under one management in CSX Intermodal (CSXI). After American President Companies (APC) was created as the parent of APL in 1983, American President Intermodal (API) was formed to manage the double-stack train service. In 1987 American President Domestic (APD) was created as a landside counterpart to APL to oversee API, the newly acquired National Piggyback Services (the largest piggyback broker), truck lines, and terminal companies. Although APC does not own rail lines, API has forged close working ties with several major container-carrying railroads, especially the Union Pacific. These two U.S. corporations, CSX and APC, are probably the most advanced of the integrated multimodal firms, but they are no longer the only ones. The large Danish carrier, Maersk Line, and the equally large Japanese carriers, K Line and NYK-Showa Lines, are building networks of American subsidiaries to provide integrated intermodal transportation services in the United States (Containerisation Interna- tional 1988b, 55-61). OCEAN CARRIERS Containership service is part—by far the most important part—of the liner sector of the ocean shipping industry. Liner service is defined as freight service that is "offered on a scheduled and advertised basis. The itineraries and sailing schedules of vessels in liner service are regular, predetermined, and fixed. On certain trade routes, e.g., the transpacific and transatlantic, frequency of sailing is at least weekly" (FMC 1989, 331). Liner carriers and the liner trade may be compared

42 INTERMODAL MARINE CONTAINER TRANSPORTATION with highway regular route common carriers and less-than-truckload (LTL) freight. Like their highway counterparts, liner operators not only follow regular schedules, but they also are common carriers, call at several ports on one voyage, carry less-than-shipload lots, and must file public tariffs. Liner carriers that serve the same trade route traditionally have banded together in cartel-like shipping conferences that set uniform rates, restrict competition, regulate schedules and ports of call, and sometimes arrange for pooling of cargoes or revenues. Such practices have been justified as necessary in a capital-intensive international industry to avoid ruinous rate wars and were sanctioned by the Ship- ping Act of 1916. The Shipping Act of 1984 reaffirmed these practices and the antitrust immunity granted to U.S. members of shipping con- ferences. The act went further by providing antitrust immunity for conferences to set intermodal (ship-to-rail and ship-to-truck) rates as well. Conference members are a major presence on most trade routes, but there are usually several independent carriers that offer lower-than- conference rates as well. As accurately as can be determined, in 1988 there were 34 ocean carriers who provided regularly scheduled containership service be- tween the United States and the Far East, and 33 who offered such service between the United States and Europe (these are by far the two largest U.S. container trade areas). Fourteen U.S.-Far East ship lines were conference carriers and 20 were independents, whereas 20 U.S.-Europe ship lines were conference carriers and 13 were indepen- dents (FMC 1989, 317, 322). The relative size of an ocean carrier on a trade route can be mea- sured by the total number of loaded containers carried [in twenty-foot- equivalent units (TEUs)] in all the vessels operated on that route, and these figures can be aggregated for all routes served. The 12 largest containership lines serving the United States during 1989 and 1990 are given in Table 3-1. In both years, these 12 accounted for almost 64 percent of all commercial marine container traffic leaving or entering the United States. PORTS AND MARINE TERMINALS Ports Ports and marine terminals are the key links in the container transpor- tation chain because they are the locus of the intermodal transfer that occurs between land and water and water and land. Of the approxi-

TABLE 3-1 MAJOR CONTAINERSHIP LINES SERVING UNITED STATES (Journal of Commerce, Inc. 1990, 1991) Ship Line and Registry Conference Status Ocean Service Between U.S. Coasts Foreign Areas Loaded Containers Carrieda (thousands of TEUs) 1989 1990 Sea-Land Corporation, USA Member East/West/Gulf All 853 875 Evergreen Marine, Taiwan Independent West/East All 762 795 American President Lines (APL), USA Member West Far East 718 695 Maersk Line, Denmark Bothb East/West/Gulf All 674 692 Orient Overseas Container Line (OOCL), Hong Kong Bothb West/East/Gulf All 390 433 Hanjin Shipping Company, South Korea Member West/East Far East 414 428 NYK-Showa Lines, Japan Member West/East Far East 367 383 Kawasaki Kisen Kaisha (K Line), Japan Member West/East Far East 367 356 Mitsui-OSK Lines (MOL), Japan Member West/East Far East 342 348 China Ocean Shipping Company (COSCO), China Independent West/East/Gulf All 187 285 Hyundai Merchant Marine, South Korea Member West Far East 249 247 Hapag-Lloyd Lines, Germany Member East/Gulf Europe 193 216 "Commercial cargoes only. bMembers of transpacific conference but independent transatlantic carriers

44 INTERMODAL MARINE CONTAINER TRANSPORTATION mately 50 ports in the United States that have some container-handling capacity, relatively few can be described as major container ports. Not only do container ports require a large investment, but ship operators have also had a decisive influence by selecting some ports as "load centers" and ignoring others: A recent trend in containerized shipping operations, resulting in part from the tendency to build ever larger container vessels, has been ex- ploitation of the load center concept. This is similar to the "hub" concept utilized by airlines, truckers, and railroad piggyback opera- tions. Large, transoceanic container vessels call at only a few ports and forward containerized cargoes to destination via rail, truck, or coastwise feeder vessel. For example, one operator who formerly called at seven ports along the U.S. East Coast between Boston and Jacksonville re- cently introduced large new container ships which are 250 percent larger than their predecessors. These ships will [now] call at only three ports. (SOIC 1984, 22) By now, all the major containership lines serving the United States have chosen their load center ports. The ports were selected mainly on the basis of their natural geographic locations and local market sizes. There is no doubt, however, that two other factors were important: (a) the size and efficiency of container-handling facilities, equipment, and work force; and (b) the availability of good inland transportation connections by rail and highway. The relative size of container ports is usually measured by total container throughput, that is, the total number of containers (in TEUs) that passes through the port, whether loaded or empty. Unfortunately, the port authorities and terminal operators who compile these statistics do not all count containers on the same basis or with the same accu- racy. Moreover, some use the total count as a marketing tool and so may be prone to exaggerate. The editors of Containerisation Interna- tional Yearbook, who publish throughput statistics on all ports world- wide, attempt to correct the worst discrepancies and estimate the missing data, but many problems remain. A much better indicator, especially for international trade, is loaded container throughput. These data were available from MARAD through 1983 and have recently become available once again from a commercial reporting service for 1988 onward. Table 3-2, developed from these data, gives the 12 largest U.S. container ports in terms of their throughput of loaded containers moving in foreign trade during the years 1988-1990. In each of the three years, these 12 ports ac- counted for over 89 percent of all commercial marine container traffic in U.S. foreign trade.

The Container Transportation Chain 45 TABLE 3-2 MAJOR U.S. CONTAINER PORTS FOR INTERNATIONAL TRADE Port Loaded Container Throughput (thousands of TEUs)° 1988 1989 1990 Los Angeles 1,181 1,446 1,453 Long Beach 1,123 1,164 1,224 New York and New Jersey" 1,098 1,198 1,213 Seattle 744 723 768 Oakland 515 562 582 Charleston 470 550 560 Hampton Roads' 396 438 498 Tacoma 430 514 484 Houston 356 348 370 Savannah 280 292 313 Miami 225 258 297 Baltimore 353 317 271 "For commercial cargo only. bPorts operated by the Port Authority of New York and New Jersey. 'Hampton Roads includes the ports of Norfolk and Portsmouth, Virginia. SOURCE: For 1988 and 1989, MARAD Report to Congress [1990, Table 4 (based on PIERS data)]; for 1990, Journal of Commerce, Inc. 1991 (also PIERS data). Marine Terminals Generally, ports are owned by public or quasi-public bodies that pro- vide the land and basic infrastructure, but they are operated by marine terminal operators (MTOs) who lease the land and physical plant while providing cargo-handling facilities and services. Most terminals spe- cialize in handling either bulk or general cargo, which is usually con- tainerized. Some state port authorities operate their own container terminals, as is the case at Baltimore, Hampton Roads, Charleston, and Savannah; but most are privately operated and many are subsid- iaries of major ship operators. Smaller ports may have only one termi- nal, contiguous with the port, whereas larger ports will have many terminals. The Port Authority of New York and New Jersey, for in- stance, has more than 20 terminals, including seven container termi- nals. A container terminal within a port may be a common-use facility open to any ship operator, a preferential-use facility usually open only to a few operators but sometimes available to others, or an exclusive- use facility restricted to one carrier (Rayacich 1986, 113). Where port authorities operate terminals or private terminal opera- tors provide only cargo-handling facilities without loading and unload- ing ships, separate stevedoring firms perform this function. Stevedores are contractors, hired by either ship operators or cargo owners, who in

46 INTERMODAL MARINE CONTAINER TRANSPORTATION turn hire longshoremen—usually on a daily basis—to do the work. At most container terminals, the terminal operator and the stevedoring firm are the same entity. Increasingly, the larger ocean carriers have set up their own container terminals and stevedoring companies at their load center ports to handle their own vessels. Some of these firms also offer their services to other carriers. Currently, there are approximately 60 MTOs, including both independent and carrier-affiliated companies. Not only do marine container terminals provide loading and un- loading facilities and equipment, but, equally important, they also provide container storage areas that can be quite extensive. Such con- tainer yards are necessary because few outbound containers can be loaded immediately after arriving at the terminal and few inbound containers can be picked up right after coming off a ship. Virtually all must be temporarily stored. Thus the transfer between truck and ship is not direct; the trucker really delivers to or picks up from the terminal. CARGO INSPECTION AGENCIES The principal cargo inspection agency is the U.S. Customs Service, which is part of the Department of the Treasury. Customs' principal function relating to commercial cargo is to enforce the Tariff Act of 1930 and related laws and regulations governing imported merchan- dise. This primarily involves classifying and appraising the goods and assessing and collecting applicable customs duties. Secondarily, Cus- toms enforces quotas and trademark and licensing agreements. Ancil- lary functions that sometimes affect container movements include intercepting contraband merchandise (such as narcotics) and prevent- ing importation of noxious or hazardous goods that might endanger public health and safety. Although it deals mainly with imports, Cus- toms is also responsible for inspecting outbound cargo to enforce ex- port control laws, which primarily regulate military technology transfer. In all, the Customs Service enforces laws and regulations that fall under the primary jurisdiction of some 40 other federal agencies. The Customs Service is organized into 7 regions incorporating a. total of 44 districts. However, only 5 regions and 11 districts, which cover the major container ports listed previously, are significant for international marine container transportation. (These regions and dis- tricts are shown in Table 3-3.) It is estimated that Customs processed a total of 2.2 million marine containers in 1980 and 3.2 million in 1989, a growth of 45 percent (U.S. Congress. House. 1990, 5).

The Container Transportation Chain 47 TABLE 3-3 IMPORTANT CUSTOMS DISTRICTS FOR INTERNATIONAL MARINE CONTAINER TRANSPORTATION Customs Region Customs District New York New York Seaport Newark Northeast Baltimore Southeast Norfolk Charleston Savannah Miami Southwest Houston Pacific Los Angeles-Long Beach San Francisco Seattle Districts have considerable latitude in the cargo classification, ex- amination, and clearance procedures and practices they follow. This has led to significant differences between districts, and these differ- ences have become a competitive element affecting the selection of ports and carriers. Importers have switched to ports that offer the most trouble-free and least costly customs clearance procedures (Booz-Allen & Hamilton 1987, Ch. VI, 5). All districts begin the cargo inspection process by reviewing the entty documents that accompany imports and determining whether to clear or physically examine the cargo. Nation- ally, more than 80 percent of cargo entries are cleared on the basis of a document review only, about 15 percent are given a brief examination, and 3 or 4 percent are thoroughly examined (Booz-Allen & Hamilton 1987, Ch. V, 1). An estimated 11 percent of all entries nationwide involve the enforcement of laws and regulations under the jurisdiction of other agencies, for containers, principally those of the Food and Drug Administration; the Bureau of Alcohol, Tobacco, and Firearms; and the various inspection services of the U.S. Department of Agricul- ture (McKinsey & Company 1988, 4-25 to 4-26). DRAYAGE AND LONG-HAUL TRUCKING Drayage means not only transfers between marine and rail terminals but also local pick-up and delivery services to and from marine termi- nals for nearby shippers and consignees. Drayage operations are to be distinguished from the inland transportation of containers, which in- volves a line-haul movement by truck or rail. A line-haul movement by rail, of course, usually requires a drayage movement on both ends.

48 INTERMODAL MARINE CONTAINER TRANSPORTATION Sometimes local pick-up and delivety operations overlap line-haul operations. Nevertheless, the distinction is pertinent because different segments of the trucking industry are involved in each operation. Most waterfront and local drayage is handled by smaller drayage or delivery firms that usually employ independent owner-operators as drivers. On the other hand, most long-haul container trucking is the province of larger intercity trucking companies whose drivers are generally direct employees and often union members. Just where the line should be drawn between these two types of firms is not clear, and there may be significant regional variation in the average length of haul. One experi- enced observer suggests that the majority of California movements are less than 50 miles, whereas most movements in the East are more than 250 miles.2 It is equally unclear where the division lies between trucking and rail. A major study on inland transportation of marine containers, done in connection with ICC hearings on the CSX—Sea-Land merger in 1986, concluded that "motor carriers transport the vast majority of containers for distances up to 500 miles from port facilities (a radius that encompasses nearly 80 percent of the nation's population)," and that "even for movements of greater distance motor carriers compete vigorously with railroads for many inland container shipments (par- ticularly those moving to and from East Coast ports).113 Because the study was based only on Sea-Land containers shipped through East Coast ports, this finding may only apply to the East, but the reasoning behind the conclusion is of interest. First, the conclusion is based on the fact that the population of the country is heavily concentrated in coastal areas. All but 13 of the 48 contiguous states, with approximately 82 percent of the population, lie entirely or largely within 500 miles of a container port. Indeed, along the Atlantic and Gulf coasts, some 24 states, with 56 percent of the population, are wholly or largely within 300 miles of at least two container ports. Second, the conclusion derives from a comparison of the truck and rail costs of moving containers, which demonstrates that truck is always the lowest-cost mode for shipments up to 400 miles, and is usually the lowest-cost mode for most shipments between 400 and 700 miles. Finally, the conclusion is supported by analysis of a randomly selected sample of 5,000 inbound and outbound containers handled by Sea-Land during the first half of 1986 through Port Eliz- abeth, New Jersey. Eighty-six percent of the containers originated or terminated within 400 miles of the port, and all went by truck; 8 percent traveled between 400 and 700 miles, and 90 percent of these went by truck; of the remaining 6 percent that went over 700 miles, only 6 percent were carried by truck.

The Container Transportation Chain 49 The study also includes a breakdown between inbound and out- bound boxes, regardless of mode, based on an analysis of all con- tainers handled by Sea-Land in 1984 at Port Elizabeth. Of those boxes that were inbound, 72 percent terminated within 100 miles and 82 percent terminated within 400 miles. Of those boxes that were out- bound, 74 percent originated within 100 miles and 90 percent origi- nated within 400 miles. To support these figures, the study reports an estimate by the Port Authority of New York and New Jersey indicating that about 80 percent of all of its container traffic originated or termi- nated within 150 miles of the port.4 RAILROADS Whatever the exact division between rail and trucking, it is clear that growing numbers of marine containers are being moved by double- stack train, primarily but no longer exclusively from and to the West Coast.5 To be economically viable, double-stack service requires high volumes and long hauls. Thus, until recently, only the main west-to- east transcontinental rail corridors carrying huge volumes of imports from the Far East could sustain this traffic. In this operation, the principal role of eastern railroads was to carry western trains from midwestern gateways to eastern destinations. Now, although continuations of western trains still account for most eastern double stack traffic, expansion of the double stack network has led eastern railroads to establish new double stack trains independent of their western counterparts. .double stack operations have begun to resemble a network of interlocking movements rather than a collection of unrelated unit trains. This development has greatly assisted double stack operators in competing with trucks, because it has created the service frequency and traffic density needed to attract the business of demanding customers. (Manalytics 1990, 29) This expansion has resulted from increasing container imports from Europe as well as from the Far East, increasing container exports to both destinations, the beginnings of widespread domestic containeriza- tion,6 and somewhat more efficient rail and terminal operations. For the main west-east movement, there were as of December 1989 more than 100 separate regularly scheduled double-stack trains depart- ing each week from Pacific Coast ports eastbound and slightly fewer returning westbound.7 This figure includes both dedicated double- stack unit trains and conventional intermodal trains with large blocks of double-stack cars (more than 100 TEUs). The eastbound trains are controlled by 12 containership lines and 4 railroads (including all but

50 INTERMODAL MARINE CONTAINER TRANSPORTATION the last three carriers listed in Table 3-1). The ocean carrier-controlled trains are, of course, primarily dedicated to hauling containers brought in by those carriers, whereas most of those controlled by railroads are common-use trains available to any ocean carrier. The main corridors are between the Puget Sound ports and Chicago, and between the Southern California ports and Chicago or the Southeast. Most of those arriving at Chicago continue on to the East Coast after an interchange. All of the "big seven" railroads plus a few of the large regional railroads are heavily involved in hauling marine containers. Not sur- prisingly, CSX, which handles the eastern operations of Sea-Land trains, is the most involved. In 1988, its intermodal subsidiary, CSXI, owned 17 percent of the double-stack car sets and controlled 10 double- stack trains. It also participated in three other trains as a terminating carrier. The Burlington Northern is also a major player; in 1988 it owned 14 percent of the car sets, controlled 7 trains, and operated 10 others as the originating or terminating carrier. Although not a rail- road, APL's intermodal affiliate, API, is the most important operator of all: it owned 37 percent of the car sets and controlled 18 double- stack trains in 1988 (Containerisation International 1988a, Table 1). At the end of 1989, the double-stack railcar fleet totaled more than 3,000 car sets (each with five articulated well-platforms), each of which could carry either twenty 20-foot or ten 40- to 48-foot con- tainers. The fleet thus has a total capacity of at least 60,000 TEUs, or about 15 times what it was in 1984. Assuming weekly departures, the annual capacity amounts to more than 3,000,000 TEUs (Manalytics 1990, Table 6). A typical double-stack unit train consists of 24 car sets carrying 240 40-foot boxes, but many box size combinations are now possible. Older well cars are designed to carry either two 20-foot containers or one 40-foot container on both the bottom and top tiers, but can usually accommodate a 45-foot box on top as well (Manalytics 1990, 123-125). Some of the newer types can load 45-foot and even 48-foot boxes on the bottom tier as well as on the top tier, and can carry 53-foot boxes on top as well. All 45-, 48-, and 53-foot boxes are fitted with extra corner castings spaced 40 feet apart so that when carried on top they can be anchored to a 40-foot box below. NOTES This section is based on Chapter 7 of Intermodal Freight Transportation (Muller 1989), and on Chapter 7 of the Federal Maritime Commission report on the Shipping Act of 1984 (FMC 1989). Communication from Greg Steffire, Executive Vice President, Law, Rail De- livery Services, Los Angeles, Dec. 14, 1989.

The Container Transportation Chain 51 Verified statement of Forrest S. Baker, Jr., President, Transportation Research and Marketing (TRAM), to ICC (Docket No. 30900), 1986, P. 1. Verified statement of Forrest S. Baker, Jr. (see previous note), pp. 4-14. This section is based primarily on a report by Manalytics, Inc. (1990). Domestic container loads, most carried in ISO marine containers, are esti- mated to have accounted for 11 to 12 percent of all rail container loadings in 1988, most but not all on double-stack trains (Manalytics 1990, 90-91). Based on a Temple, Barker & Sloane study quoted by Pisani (1989, 36), updated by Manalytics, Inc. (1990). REFERENCES ABBREVIATIONS FMC Federal Maritime Commission MARAD Maritime Administration SOIC Steamship Operators Intermodal Committee Booz-Aflen & Hamilton, Inc. 1987. U.S. Customs Service Research Paper. West- ern States Coalition for Effective U.S. Customs Service, Oakland, Calif., Aug. Containerisation International. 1 988a. U.S. Domestic Containerisation Takes Hold. April. Containerisation International. 1988b. It's New ... It's Here ... It's Value Added. Sept. FMC. 1989. Section 18 Report on the Shipping Act of 1984. Washington, D.C., Sept. Journal of Commerce, Inc. 1990. U.S. Liner Trade Review, Annual Issue 1988-89. New York, March. Journal of Commerce, Inc. 1991. U.S. Liner Trade Review, Annual Issue 1990. New York, Feb. Manalytics, Inc. 1990. Double Stack Container Systems: Implications for U.S. Railroads and Ports, Final Report. Federal Railroad Administration and MARAD, U.S. Department of Transportation, June. MARAD. 1990. Report to Congress on Status of Public Ports of the United States, 1988-1989. U.S. Department of Transportation, April. McKinsey & Company, Inc. 1988. Developing a Strategic Vision of U.S. Cus- toms' Commercial Operations. U.S. Customs Service, Washington, D.C. Feb. Muller, G. 1989. Intermodal Freight Transportation, 2nd ed. Eno Foundation, Westport, Conn. Pisani, J. 1989. Port Development in the United States. International Association of Ports and Harbors Foundation, Tokyo. Rayacich, D. 1986. Marine Terminal Operations in the United States. In Improv- ing Productivity in U. S. Marine Terminals, National Academy Press, Washing- ton, D.C., 1986. SOIC. 1984. The Federal Bridge Formula: Its Effects on the Foreign Trade of the United States. New York, Sept. U.S. Congress. House. 1990. Oversight Subcommittee of the House Ways and Means Committee, Report on Abuses and Mismanagement in U.S. Customs Service Commercial Operations. Feb. 8.

4 Key Issues Like other industries that have expanded rapidly, the intermo- dal marine container transporta- tion industry is suffering grow- ing pains. For marine container shipping, the problems resulting from rapid growth are compli- cated and magnified by the fact that the industry crosses modal and national boundary lines. Partly because of that, government has always had a major role in the affairs of the industry and the industry is heavily affected by government action at all levels—local, state, na- tional, and international. The committee's charge, therefore, was to focus on government-related issues, especially those on which govern- ment action might have a beneficial impact on the industry and its ability to increase efficiency through innovation. Because of the international nature of this industry, the committee recognized that many important issues involving government concern foreign regulations and business practices. The committee decided at the outset, however, to restrict the study to an analysis of issues on which governments in the United States have decisive jurisdiction or leverage, in the belief that the committee's time and resources should be focused where it had the greatest potential to contribute to the debate and ultimate resolution of problems. Within this framework, the approach taken was to assess the state of the industry in terms of two questions: Are there major impediments to the further development of con- tainer technology and transportation that government in the United States can help remove? 52

Key Issues 53 Are there major opportunities to improve container technology and transportation that government in the United States can help realize? Numerous issues and problems were examined, and many of these were discussed in detail. The committee considered the movement of containers by each mode, the vehicle technologies used, the accom- panying land-based facilities, the operation of the vehicles and termi- nals, and government action in regulating and monitoring the flow of cargo, as well as the procedures used to move government cargo on commercial ships. After lengthy deliberations, 10 key issues were identified for further study and analysis. Although these are not the only areas in which government affects or can affect the industry, they are critical issues today that will have broad impact on the future of marine container technology and transportation. They all involve significant problems that are often faced in the day-to-day operations of participants in the container transportation chain (see Chapter 3). Equally important, the committee believes that its analysis and judgment can assist in clarify- ing these issues and the significant trade-offs involved, and thus help identify practical solutions. In its deliberations, the committee excluded issues pertaining to domestic containerization and domestic offshore trade because it was asked to focus specifically on international offshore movements. Other issues were excluded because they were considered to be focused less on container transportation than on the maritime industry as a whole, because their ramifications extended into areas of expertise not repre- sented on the committee, or because they were under review concur- rently by other major study groups, such as the Advisory Commission on Conferences in Ocean Shipping, appointed to evaluate the Shipping Actof 1984. In its discussion and analysis of each of the 10 issues, the committee evaluated their relationships to the following broad policy goals: Promoting the efficient, safe, and environmentally responsible transport of goods; Promoting economic growth; and Promoting national security. Although resolution of a given issue might be seen as fulfilling one, two, or all three of these goals, often there are trade-offs involved that require some compromise in the choice to maximize one or another of these objectives. The committee's reluctance to make definitive rec-

54 INTERMODAL MARINE CONTAINER TRANSPORTATION ommendations on some issues stemmed from its recognition that the trade-offs among these goals can only be made at the highest policy- making levels of government. The 10 issues, which are reported on at length in this chapter, are as follows (not in order of priority). Ship procurement restrictions under the Operating Differential Subsidy (ODS) program, Federally imposed ship-manning requirements, Military cargo bidding policies, Environmental policy conflicts and costs, Overweight container trucks, Customs clearance procedures, Intermodal equipment interchange procedures, Cargo liability and responsibility regulation, Creation of a federal intermodal coordinating office, and Collection and publication of container trade data. The first six issues, which are discussed in the first part of this chapter, cover areas in which governmental actions are viewed as impediments to technological or organizational efficiency and innova- tion in intermodal marine container transportation. In contrast, the last four issues, which are covered in the second part, offer opportunities for government action to facilitate improvements in container transportation. The first three issues—ship procurement restrictions under the ODS program, federal ship-manning requirements, and military cargo bid- ding policies—are closely related because they concern federal govern- mental policies toward the U.S.-flag containership fleet. Each issue involves national defense considerations in assessing the value placed on maintaining a U.S.-flag fleet and the economics of operating such a fleet. The interrelationship of these three issues underlies the commit- tee's recommendation that a major reevaluation of U.S. policy toward the merchant marine and maritime industry should be undertaken (see conclusion of section on ship procurement restrictions under the ODS program). The second three issues—environmental policy conflicts and costs, overweight container trucks, and customs clearance procedures—are related because each reflects the lack of a consistent national policy or the lack of a programmatic interpretation and application of such a policy at state or local levels. Table 4-1 shows the 10 issues by their relevance to the various links in the intermodal container transportation chain; Table 4-2 classifies

Key Issues 55 TABLE 4-1 KEY ISSUES AFFECTING INTERMODAL MARINE CONTAINER TRANSPORTATION BY LINK IN CONTAINER TRANSPORTATION CHAIN Link in Chain' Issue Examined Domestic shippers and 5. Overweight container trucks consignees 6. Customs clearance procedures 7. Intermodal equipment interchange 8. Cargo liability regulation Intermediaries 5. Overweight container trucks 6. Customs clearance procedures 8. Cargo liability regulation 9. Federal intermodal coordinating office Ocean carriers 1. ODS ship procurement restrictions 2. Federal ship-manning requirements 3. Militaiy cargo bidding policies 5. Overweight container trucks 7. Intermodal equipment interchange 8. Cargo liability regulation 9. Federal intermodal coordinating office 10. Collect/publish container trade data Ports and marine terminals 4. Environmental policy conflicts and costs 5. Overweight container trucks 6. Customs clearance procedures 7. Intermodal equipment interchange Federal intermodal coordinating office Collect/publish container trade data Cargo inspection agencies 6. Customs clearance procedures 10. Collect/publish container trade data Drayage and long-haul trucking 4. Environmental policy conflicts and costs 5. Overweight container trucks Intermodal equipment interchange Cargo liability regulation Federal intermodal coordinating office Railroads 5. Overweight container trucks Intermodal equipment interchange Cargo liability regulation Federal intermodal coordinating office Collect/publish container trade data "Links in the foreign half of the international intermodal transportation chain are not listed here because the foreign portion of the chain was excluded in this study. the issues by the area of impact and the level of government con- cerned. Eight of the issues are focused primarily at the federal level. Five of these (military cargo bidding policies, customs clearance pro- cedures, intermodal equipment interchange, creation of a federal inter- modal coordinating office, and collection and publication of container trade data) are focused at the federal administrative level. Resolution of these five issues would require administrative action but should not

56 INTERMODAL MARINE CONTAINER TRANSPORTATION TABLE 4-2 KEY ISSUES AFFECTING INTERMODAL MARINE CONTAINER TRANSPORTATION BY IMPACT AREA AND LEVEL OF GOVERNMENT Government Impact Area Issue Examined Level' Economics 1. ODS ship procurement restrictions Federal 2. Federal ship-manning Federal requirements 3. Military cargo bidding policies Federal 4. Environmental policy conflicts Federal/state/local and costs 5. Overweight container trucks Federal/state 6. Customs clearance procedures Federal 8. Cargo liability regulation Federal Safety 2. Federal ship-manning Federal requirements Environmental policy conflicts Federal/state/local and costs Overweight container trucks Federal/state 7. Intermodal equipment interchange —_Federal Environment 4. Environmental policy conflicts Federal/state/local and costs Operations ODS ship procurement restrictions Federal Federal ship-manning Federal requirements Environmental policy conflicts Federal/statetlocal and costs Overweight container trucks Federal/state Customs clearance procedures Federal Intermodal equipment interchange Federal Cargo liability regulation Federal Information and Federal intermodal coordinating Federal management office Collect/publish container trade Federal data 'Links in the foreign half of the intermodal transportation chain, and the governmental bodies that regulate them, are excluded here because of this study's exclusive focus on issues affecting marine container transportation over which governments in the United States have jurisdiction or leverage. necessitate changes in federal laws or regulations. The resolution of the other three federally centered issues (ODS program restrictions on ship procurement, federally imposed ship-manning requirements, and cargo liability and responsibility regulation), 'however, would probably require regulatory changes or legislative action. The most difficult issues to resolve may be the two that involve state and local govern- ments (environmental policy conflicts and costs and overweight con-

Key Issues 57 tamer trucks), simply because of the number of different jurisdictions that must agree. PART A: IMPEDIMENTS TO EFFICIENCY AND INNOVATION SHIP PROCUREMENT RESTRICTIONS UNDER ODS PROGRAM Issues U.S. liner operators receiving operating subsidies from the federal government are required by law to buy only containerships built in American shipyards, even though in recent years such ships have been priced up to three times as much and have often required over twice as long for delivery as foreign-built ships.' The ODS is designed primar- ily to give U.S. -flag carriers labor cost parity with foreign-flag car- riers. This is necessary because U.S.-flag ships are required by federal laws and regulations to be manned by American crews, whereas for- eign ship operators are able to employ lower-cost foreign crews 2 The rationale for the subsidy, stated in the basic statute, is to promote a strong U.S. merchant marine (meaning both merchant ships and mer- chant seamen) for the sake of national defense and the development of foreign and domestic commerce. Citing national defense as the pri- mary reason for federal support of the merchant marine goes back to early maritime statutes and has been carried through to the most recent ones (OTA 1983, 142; GAO 1981).3 The ODS program demonstrates government recognition that if national defense policy requires U.S. citizen crews who will be responsive during emergencies, the addi- tional cost must be borne by public funds. There would be nojustifica- tion or need for an ODS program without this requirement for American crews. U.S. liner operators, however, can successfully compete with for- eign liner operators only if they are able to maintain vessel price parity as well as labor cost parity. Federal policy is imposing steep additional costs on U.S. carriers by requiring them to "buy American." When the ship operators signed their ODS contracts,4 which oblige them to buy U.S.-built replacement vessels, it was historically intended that gov- ernment would make up the difference for the more expensive Ameri- can ships by paying construction differential subsidies (CDS) to U.S. shipyards, enabling them to lower their prices. As part of the general drive to reduce federal subsidies and deregulate the economy, how- ever, funding for the CDS program was effectively discontinued in

58 INTERMODAL MARINE CONTAINER TRANSPORTATION 1981. At that time, a temporary one-year authority was granted to obtain permits making foreign-built ships eligible for ODS, but this was never made permanent. In the face of the requirement to employ only American crews, the wisdom of maintaining an additional re- quirement to buy only American-built ships can be questioned. This issue is of central importance to intermodal marine container transportation because it bears directly on one of the most significant cost elements to U.S. containership operators, who have been leading innovators in the development of the intermodal marine container transportation system that serves America. More than 80 percent of all ODS funds go to liner operators, and liner operations today are over- whelmingly dominated by containerships. There is little doubt that if U.S.-flag carriers are unable to control their vessel costs, they will be gradually driven out of business by foreign competitors or will have to consider other options such as foreign-flag operations. A related aspect of the problem is the technology of American-built merchant ships; the Office of Technology Assessment (OTA) has concluded that these ships are often technologically inferior to their foreign counterparts (OTA 1983, 96-99). Thus, carriers may be saddled with ships that not only cost more to build but also cost more to operate. The problem of maintaining vessel price parity will become critical in the very near future, when it can be expected that as many as half of the liner ships in the U.S.-flag fleet engaged in foreign commerce will need to be re- placed because of age or obsolescence (interview with William P. Verdon, President, United Shipowners of America, October 31, 1989). Background Current government policy toward the maritime industry was estab- lished by the Merchant Marine Act of 1936, which declares: It is necessary for the national defense and development of its foreign and domestic commerce that the United States shall have a merchant marine (a) sufficient to carry its domestic water-borne commerce and a substantial portion of the water-borne export and import foreign com- merce of the United States and to provide shipping service essential for maintaining the flow of such domestic and foreign water-borne com- merce at all times, (b) capable of serving as a naval and military auxil- iary in time of war or national emergency, (c) owned and operated under the United States flag by citizens of the United States, insofar as may be practicable, (d) composed of the best-equipped, safest, and most suita- ble types of vessels, constructed in the United States and manned with a trained and efficient citizen personnel, and (e) supplemented by effi- cient facilities for shipbuilding and ship repair. It is declared to be the

Key Issues 59 policy of the United States to foster the development and encourage the maintenance of such a merchant marine. (U.S. Code, Title 46, Appendix-Shipping, §1101) To implement this policy, the 1936 act established the CDS and ODS programs under which the federal government made direct pay- ments to defray the higher costs of shipbuilding and ship operating in the United States. Under the CDS program, funding for which was discontinued in 1981, shipyards were paid, depending on the year, from 35 to 55 percent of the capital cost of ship construction. Under the ODS program, ship operators are reimbursed for the difference in crew costs between operating a ship under the U.S. flag with a U.S. crew and operating the same vessel under a foreign flag with a foreign crew. (Some other operating costs are also partially subsidized, but these now amount to less than 10 percent of the ODS program and are falling.) The two programs are tied together by a provision that makes only U.S.-built ships eligible for the operating subsidy. To participate in the ODS program, ship operators must agree to a specified minimum and maximum number of sailings per year on assigned routes determined by the Maritime Administration (MARAD) to be essential to U.S. commerce, whether or not these routes are profitable. (In May 1987, MARAD revised the previous essential-trade route system to increase flexibility for the carriers, but carriers believe that the present system still unduly constrains their operations.) Moreover, ship operators can- not use ships receiving either subsidy on any exclusively foreign-to- foreign (cross-trades) route, nor can they normally operate foreign-flag ships as feeder vessels. Still another provision precludes paying a "subsidy in support of any service in competition with another U.S. carrier" (OTA 1983, 152). This means that if a carrier wants to reas- sign a ship from one trade route to another, it can be challenged by any U.S. carrier serving that route and must be prepared to undergo a long and costly legal battle or face loss of the subsidy. It is generally agreed that, even if this provision made sense in the 1930s, in today's econ- omy it serves only to dampen competition and reduce a carrier's incen- tives and ability to use new technology. According to one industry spokesman, it has also imposed an estimated $50 million in litigation costs on carriers during the last 10 years (Verdon 1989, 8). The policies and programs set by the 1936 act have never been changed, and in fact were reconfirmed with only a few modifications by the Merchant Marine Act of 1970. That act amended the original act to permit bulk ships to receive ODS (previously restricted to liner ships), and it revised the wage-subsidy provision to minimize the

60 INTERMODAL MARINE CONTAINER TRANSPORTATION operating subsidy and encourage collective bargaining. A wage index was developed, and wage increases larger than those allowed by the index were not subsidizable (OTA 1983, 153). The 1970 act also pledged federal support to construct 300 merchant ships in a 10-year program, with the construction subsidy rate to be gradually reduced from 55 to 35 percent by 1976. The goal of constructing 300 new ships was never reached. Between 1970 and 1981, only 80 new merchant vessels were built and another 56 reconstructed or converted from other types of ships with CDS funding. Approximately 45 of the new vessels were containerships, and almost all the conversions were to containerships. Rising U.S. inflation and a worldwide shipbuilding slump—which prompted for- eign nations to provide even more aid to their shipyards, allowing them to cut their prices—combined to produce a widening gap between U.S. and foreign vessel prices. Congress increased the maximum CDS rate to 50 percent in 1976, but it was recognized that even this was not enough to compensate for the price difference.5 Phaseout of the CDS program began in 1981 when the incoming administration announced that no new CDS funds would be requested for fiscal 1982 or thereafter. (The last ship built under the program was ordered in 1979 and launched in 1983.) At the same time, Congress granted a temporary one-year authority for foreign-built ships to be eligible for ODS. As a result, some 32 new liner ships were ordered from foreign shipyards. These vessels have all been delivered, and they constitute more than one-third of the total U.S. - flag liner fleet involved in international trade (Verdon 1989, Appen- dix 1). In 1982, the administration announced that it would honor existing ODS contracts but would not enter into any new ones; none, in fact, has been signed since then. In 1983, the administration proposed legislation to extend indefinitely the temporary authority for foreign-built ships to qualify for ODS, but that bill was not passed by the Congress. The construction of most containerships built or converted in the United States has been aided by the CDS program, and all U.S. contain- ership operators in foreign trades except the largest (Sea-Land Corpora- tion) currently participate in the ODS program.6 As older CDS-funded ships have been retired without being replaced by new ones, outlays for the ODS program have shrunk. In 1985, 117 liner ships (almost all containerships) received ODS at a total cost of $299 million, but by 1990 the number of ships subsidized had fallen to 59 (again almost all contain- erships) and the total outlay for the year was down to $193 million (MARAD 1991a, Table 10, 12; personal communication from Office of Ship Operating Assistance, MARAD, May 20, 1991). Currently, the

Key Issues 61 subsidy pays for about 80 percent of crew wages and benefits, costs for U.S. crews being that much higher than for foreign crews manning the same ship (personal communication from Office of Ship Operating As- sistance, MARAD, October 17, 1990). Bills were introduced throughout the 1980s to liberalize the ODS program, especially to authorize ship operators to purchase foreign- built ships. None of these bills, however, became law. Today, U.S.- flag carriers are caught in a very serious dilemma—they cannot afford to buy American-built ships and they are not allowed to buy foreign- built ships and continue to receive the operating subsidy. U.S.-flag carriers cannot afford to employ American crews without that subsidy; yet if they accept it, they must also accept severe restrictions on when, where, and how they can deploy their ships. Possible Solutions Assuming that the United States wants to maintain its merchant ma- rine, that U.S.-flag carriers must continue to employ only U.S. citizen crews, and therefore that the ODS program will continue, there would appear to be only two possible ways to maintain vessel price parity. One is to revive and adequately fund the CDS program to equalize U.S. and foreign containership prices, and the other is to permit pro- curement of foreign-built ships. Federal maritime policy should be consistent; government should either pay the extra cost of American- built ships or drop the requirement to purchase them. In either case, ODS regulations on trade routes, the prohibition on foreign-flag feeder vessels, and other restrictive provisions of the program appear to be outmoded policies from the past that tend to stifle competition and inhibit the adoption of new technology. If no action is taken, the gradual demise of the U.S.-flag containership fleet is likely. The two alternative approaches are discussed in the following pages, along with a third alternative—a free-market approach that presupposes abolition of the U.S.-citizen crew requirement. Revive CDS A reinstituted CDS program that compensates fully for the difference in shipyard prices would go a long way toward solving the problem of vessel price parity for ship operators. Full compensation would also obviously be a boon to shipyards and their suppliers. There are, how- ever, two major problems with this approach.

62 INTERMODAL MARINE CONTAINER TRANSPORTATION The first problem is that full compensation would clearly have a significant impact on the federal budget. It is impossible to quantify the impact without knowing how large the price differential is per ship (which depends on ship size and design) and how many ships might be ordered. However, an estimate of these factors can be developed. Recent estimates show that the gap between U.S. and foreign shipyard prices has widened since 1981. A 1987 American President Lines (APL) study estimated that the domestic price for a very large line-haul containership of the most up-to-date design would be over three times the foreign price ($232 million versus $65 million). This was devel- oped on the basis of a five-ship order for delivery in 1992.7 Because U.S. yards in recent years have required as many as 42 months for delivery versus 18 months for foreign yards, these time-based costs account for a considerable part of the difference. (This is to say noth- ing of the lost opportunity costs or that this time lag means that U.S.- built ships may miss out on the latest technological advances.) In a brief study in early 1990, APL compared the known cost of a smaller containership now under construction in a U.S. yard with an estimate of the cost of the same ship if it were built abroad. The U.S.- built ship was found to be more than twice as costly ($129 million versus $53 million). Another example comes from MARAD, which performed concept-design studies for three types of containerships in 1988 and compared the costs of construction in American yards with costs in Japanese and Korean yards. On the basis of a five-ship order, the cost in U.S. yards was at least three times that in the Japanese and Korean yards for all three types (communication from John Dum- bleton, Program Manager, Office of Technology Assessment, Mar- itime Administration, February 9, 1990). From these examples, it appears that the minimum price differential is at least 2.5 to 1 and may be 3 to 1. Price differentials of this magni- tude would require a CDS subsidy rate of 60 to 67 percent of the American price. It should be noted, however, that in a CDS program, buyers benefit from reduced total interest charges as well as a lower price. Just how many new containerships might be ordered by U.S. carriers under a revived CDS program cannot be predicted with much accuracy without an elaborate forecasting study. However, it is clear that there is considerable pent-up demand at least for replacement tonnage at present. Historically (although the history only goes back 30 years), container- ships do not so much wear out as become economically obsolete. A new 1,620-TEU containership with a crew of4l and powered by twin steam turbines capable of 24 knots, which was the pride of an operator's fleet when launched. in 1973, was rendered virtually noncompetitive just 12

Key Issues 63 years later by the launching of a 3 ,450-TEU automated containership that requires a crew of only 21 and is powered by a single slow-speed, more fuel-efficient diesel engine. The availability to competitors of ships with dramatically increased capacity and sharply reduced labor and fuel costs has driven operators to lay-up and seek to replace ships that are otherwise perfectly sound. A review of the latest MARAD inventoty (MARAD 1991b)8 shows that of the 83 full containerships in the U.S. international fleet at the beginning of 1990, 36 were built during the early 1970s or before. Of these, 28 are steam-powered vessels that have an average crew size of 42 and an average capacity of 1,405 TEUs. These data are in sharp contrast with the data on the 26 newest containerships built since 1984. All are powered by fuel-efficient diesels, all have 21-man crews, and most are quite large—they average 3,185 TEUs per ship, and the newest among them are capable of carrying up to 4,400 TEUs. Most of the 28 old steam-powered ships may be considered prime candidates for replacement. Next in line would be the eight diesel-powered ships from the same era, because they require 30-man crews and average only 1,182 TEUs per ship. Besides full containerships, the U.S. inter- national fleet also includes 17 very old (early 1960s), steam-driven breakbulk ships with 42-man crews that have some container capacity. Most of these could be profitably replaced with up-to-date semicontainerships. An estimate of the minimum total cost of a reinstituted CDS pro- gram can be made by assuming that ship operators would try to replace at least half of these 53 obsolete ships over the next few years, that the U.S. shipyard base price for the ships ordered would average $150 million per ship, and that a 60 percent subsidy rate would be necessary to equalize prices with foreign yards. These figures would have an impact on the federal budget totaling approximately $2.4 billion. This, however, is the minimum estimate for a containership CDS program only. The actual cost would be much higher if any of these assump- tions were exceeded, or if roll-on, roll-off (ro-ro), dry bulk, and tanker ships were also included in the program. Given this high cost and the magnitude of current federal budget problems, it seems unlikely that any major CDS program will ever again be funded. Yet it is clear that no commercial ship operator in the foreign trades can or will build in a U.S. shipyard without some kind of construction subsidy. (In fact, only one order for a new oceangoing merchant ship has been placed in an American shipyard in the last five years, and that was for a Jones Act vessel for use in domestic offshore trade.) The second major problem is that reviving CDS would do little to improve the technological level of U.S.-built containerships. As re-

64 INTERMODAL MARINE CONTAINER TRANSPORTATION ported by OTA and others, dozens of shipyards have closed and hun- dreds of engineers and other professionals and thousands of skilled production workers have quit or been laid off in the last decade as the commercial shipbuilding industry has shrunk and lost much of its capacity and capability (OTA 1983, Chapter 4; Commad 1987a, 36- 43). The industry suffers from small and outmoded plants and equip- ment, poor materials procurement and production planning, and low worker productivity—all of which combine to produce high costs and slow delivery times. At this point, the industry lacks the knowledge and experience needed to design and construct a state-of-the-art con- tainership, and a revived CDS program would not by itself provide an incentive to improve technological efficiency. The industry is espe- cially lacking in low-speed diesel engine technology, which is a key to fuel-efficient ship operations. Permit Foreign Procurement Although allowing ship operators to buy or build ships anywhere, the second approach would, like the first, still retain the requirement for U.S.-citizen crews. This should eliminate any concerns about the ready availability of U.S. merchant ships at the onset of a national emergency—a U.S.-owned, U.S.-registered, and U.S.-crewed ship is a U.S.-flag ship even if built abroad. This approach would also help sustain the pool of trained merchant seamen needed to crew those ships during a war.9 Most important, this approach enables U.S. ship operators to con- trol vessel costs and to compete on an equal footing with foreign carriers without the large increases in federal subsidies that would be entailed in a revived CDS program. Participants in the intermodal marine container transportation industry generally favor this alterna- tive. They believe that it is the surest, easiest to implement, and most politically feasible approach, despite the likelihood that shipbuilders would oppose such a move.'0 It should be noted that a policy of permitting ODS carriers to buy foreign-built ships has been consistently endorsed since 1981 by MARAD, the U.S. Department of Transportation (DOT), and the Executive Office. DOT's recent Statement of National Transportation Policy stated that it is official federal policy to Remove unnecessary Federal requirements that prevent U.S-flag ships from competing effectively in world trade; [and] Review and restmcture Federal maritime programs, including the Operating Differential Subsidy program, to promote cost efficiency in

Key Issues 65 the U.S. fleet, strengthen the fleet's competitive position in the interna- tional market, and encourage necessaiy modernization and expansion. (DOT 1990, 67) This policy is specifically embodied in a "Short-Term Legislative Agenda" intended to give commercial operators greater flexibility to compete in international trade as well as recognize the need of U.S. - flag operators to be competitive in acquiring vessels (DOT 1990, 120). This approach was previously endorsed, with modifications, by the independent federal Commission on Merchant Marine and Defense (Commad), which was established in 1986 to examine defense-related maritime issues. In its final report, Commad recommended reform of the ODS program and called for legislation to Provide immediate ODS eligibility to existing foreign-built U.S.-flag ships, and a one-year period during which existing operators could apply for ODS. Allow existing operators to modernize and expand their fleets by acquiring or building ships abroad during a limited initial period; and immediately qualify such vessels for ODS and carnage of government preference cargoes. Link ODS eligibility for foreign-built ships one-for-one to the number of oceangoing merchant ships built in U.S. shipyards, with the Secre- taly of Transportation given authority to allocate the right to build an ODS-eligible ship abroad in order to maximize contributions to the nation's strategic sealift capability and the health of the commercial fleet. (Commad 1989, 7) Bills embodying these provisions were introduced in Congress in both 1988 and 1989 but never progressed beyond committee hearings. Nevertheless, this solution to the problem appears much more likely to win acceptance than does a revived CDS program. Follow a Free-Market Approach There is a third alternative—a free-market approach that would abolish all subsidies, including the ODS program, and allow ship operators to employ foreign crews as well as procure foreign-built ships. A mod- ification of this approach would be to require that the captain be a U.S. citizen to ensure that the ships could be quickly called up in case of a national emergency. A free-market approach would cany forward the policy of dereg- ulating the economy and gradually eliminating federal subsidies. Elim- inating all federal subsidies and associated program restrictions could provide an impetus to innovation in the industiy. This approach would

66 INTERMODAL MARINE CONTAINER TRANSPORTATION simply continue the status quo as far as the ODS program is concerned because all ODS containership contracts are scheduled to expire by 1997 and no new ones have been executed since 1981. Besides giving U.S.-flag carriers access to the lowest-cost and most up-to-date ves- sels, this approach would save taxpayers the yearly cost of the ODS program. Obviously, U.S. shipyards and their suppliers would not benefit, and the seamen's unions could also be expected to oppose the policy. The chief argument against a free-market approach is that it would undermine the policy of maintaining a pool of trained U.S. merchant seamen to operate U.S. merchant ships in times of war or national emergency. Yet the ODS program clearly is not producing that result. The Transportation Institute reports a rapid drop in active seafarers from almost 51,000 in 1981 to 29,000 in 1986 and projects a drop to 22,500 by 1992 (Transportation Institute 1986, 9). If the national defense argument for employing only U.S. citizen crews—let alone for buying only U.S. -built ships—is no longer persuasive, then serious consideration should be given to freeing U.S.-flag carriers from these requirements. Conclusions The present ODS program—with its restrictions on ship procurement, trade routes, and feeder vessels—is a major impediment to participat- ing U.S.-flag carriers. The problem is acute and will soon become critical as an increasing number of old and obsolete U.S.-flag contain- erships need to be replaced." If U.S. carriers are unable to find re- placement vessels at roughly the same cost as their foreign competitors and maintain labor cost parity as well, the carriers will be gradually driven out of business. This has already happened to several well- established ship operators. Although any of the three approaches outlined here would help solve the immediate problem of vessel price parity for ship operators, each one raises major issues of broad national policy, such as the cost of subsidies and their impact on the economy, protectionism and efficiency in the shipping industry, the health of the shipbuilding industry, the level of military preparedness, and even the desirability of maintaining a U.S.-flag merchant marine. None of these issues can be resolved here: all are com- plex and have long-range implications, and the trade-offs among them will require policy-setting decisions at the highest levels of government.

Key Issues 67 Therefore, the committee believes that a prompt and thorough re- evaluation of overall government policy toward the U.S. merchant marine and the maritime industry as a whole should be undertaken, to include consideration of the issues listed above. Such a major re- evaluation is sorely needed and could provide the basis for resolving this issue and related problems that stem from federal policies affecting the U.S. -flag containership fleet. Full resolution of these issues will require reconciling different, sometimes conflicting, goals. Resolution will require reexamination of national defense objectives, including assessment of the desirability of maintaining a fleet of technologically advanced containerships along with a pool of trained U.S. merchant seamen. Resolution will also require consideration of measures that would improve the competitive position of the nation's intermodal marine container transportation industry, including removal of ODS program restrictions on trade routes and feeder vessels. To resolve the issue of ship procurement restrictions under the ODS program, federal laws and regulations will have to be changed. Be- cause this process can be time-consuming (especially when the issue is as controversial as this one), and because the ship operators' problem will soon become critical, an interim measure could be adopted similar to the proposal advanced by Commad (see Permit Foreign Procure- ment section), under which U.S. -flag carriers would be given a limited one-year window of opportunity to order foreign-built ships and retain eligibility for ODS funding. Although adoption of such an interim measure would probably also require congressional as well as execu- tive action, presumably it could be accomplished more quickly than a major revamping of maritime policy. Postponing all action while a permanent policy is being forged poses the danger that the U.S. -flag containership fleet will deteriorate to a level from which it would be very difficult to recover. FEDERALLY IMPOSED SifiP-MANNING REQUIREMENTS Issues Only 20 years ago, the newest class of containership in the U.S. fleet carried a crew of more than 40 and averaged less than 1,600 TEUs, with the largest rated at 2,000 TEUs. Now the newest class of ships carries a crew of 21 and averages more than 3,100 TEUs, with the largest rated at 4,400 TEUs. Crew size has been halved, while capac- ity has doubled.

68 INTERMODAL MARINE CONTAINER TRANSPORTATION Despite this dramatic improvement, U.S.-flag carriers still lag be- hind their rivals from other developed nations. During the late 1960s and early 1970s, the most efficient European and Japanese container- ships operated with a crew of 24, compared with the 41 employed on U.S. ships. During the late 1970s and early 1980s, when the first modem automated diesel ships came on line, some U.S. operators were able to employ 34-man crews, but at the same time a few Eu- ropean and many Japanese lines used 18 (Marine Board 1984, 26, Appendix D). Now, with the newest U.S. -flag ships down to crews of 21, at least three European lines operate with 12-man crews, and most Japanese (and Taiwanese) carriers run their newest vessels with 16- or even 14-man crews, and seven have crews of only 11. The same 4,400-TEU ship that requires a crew of 21 when operated by a U.S. carrier needs only 14 in Europe (and, in fact, is designed to be operated with only 11) (Marine Board 1990, 1-12). Thus, although U.S operators have succeeded in lowering crew costs during the last several years, they have not achieved labor cost parity with their chief competitors, let alone with other even lower-cost carriers. To help reduce crew costs, ship operators would like to reduce crew sizes on their newest ships from 21 to 17 or fewer and, equally important, reduce crews on their slightly older but still modem vessels from the 34- to 39-man range to fewer than 30. Seafaring unions are generally opposed to any reduction in existing crew sizes, although they have been willing to discuss reduced manning in connection with ships under construction. Crew size is at issue in intermodal marine container transportation because labor costs are one of the major cost elements in containership operations. Crew costs account for between 10 and 20 percent of total costs)2 Smaller crews would not only cut labor costs for ship operators but could also save several million dollars per year in ODS program outlays. [The average crew size for all MARAD-subsidized liner ships has already come down from 56 in 1970 to 41 in 1980 (OTA 1983, 32) to an estimated 34 in 1990, and would be driven even lower by these reductions.] High U.S. crew costs result from high crew compensation as well as crew size, but only crew size is at issue here)3 Crew size is dictated both by federally imposed manning requirements and by labor- management agreements. In all cases, the agreements call for more crew than do the minimum manning requirements. In fact, a 1979 study of 12 ship operators representing about 70 percent of the U.S. international merchant fleet reported that "according to the weighted average of the responses received from operators with unionized crews . . . union agreements concerning crew size add an additional

Key Issues 69 42 percent in crew costs. . ." (Ernst & Whinney 1979, 5-10). How- ever, when asked to determine the crew complement needed to operate safely and efficiently, assuming that they were free of federal require- ments and labor agreements, the operators chose a crew size that added only 10 percent in crew costs (Ernst & Whinney 1979, 5-11, 12). The federal requirements may, in effect, establish a floor in labor- management negotiations. Ultimately, lowering the floor could result in smaller crews. The question then becomes, Are current federal manning requirements justified? Background Federal rules governing vessel manning are found in statutes, Coast Guard regulations implementing the statutes, and judicial decisions interpreting the statutes.14 Court interpretations of liability laws have also influenced manning levels, for instance by requiring lookouts. There is also a separate federal statute that implements an international convention that requires a radio officer to be aboard when a ship is at sea.'5 Broadly speaking, the manning rules cover three main areas: watch standing, work assignments, and working hours. The watch-standing requirements, which govern actual manning levels, come from detailed, somewhat paternalistic laws that reflect nineteenth-century maritime legal culture. The basic 1915 law specifi- cally requires only five crewmen, all licensed officers—a master, three mates, and an engineer—but also provides that unlicensed "sailors, firemen, oilers, and water tenders" be divided into at least two watches "and kept on duty successively to perform ordinary work incident to the operation and management of the vessel." In effect, the provisions re- quire a double complement of personnel in these categories. The law was broadened in 1936 when licensed officers were added to the list of watch-standing categories, and all the categories enumer- ated plus "coal passers" were divided into three watches. Thus a triple complement is now required of all such personnel except the master. Court decisions have determined, however, that the three-watch provi- sion does not apply to unlicensed engine-room personnel not specifi- cally enumerated, nor to such categories as "boatswain" or "repairman" hired as part of a maintenance department. The statutory provisions are actually far more complex than indicated here, and the rules have been further complicated by hundreds of Coast Guard regu- lations and dozens of sometimes conflicting judicial rulings. The Coast Guard has wide discretion to prescribe the minimum crew necessary for the safe operation of individual vessels, and does so after

70 INTERMODAL MARINE CONTAINER TRANSPORTATION inspection of each ship and consultation with its owner or operator. Minimum manning levels are determined through administrative guidelines and implemented by Certificates of Inspection issued in the field. These customarily call for a licensed master, three licensed mates, three or four licensed engineers, enough sailors to have three per watch, and, on a steam vessel, sufficient unlicensed engine-room personnel for three per watch—for a standard of 26 individuals (Marine Board 1984, 68, 99-100). To this total must be added six or so cooks and stewards for the galley, which is not covered by the statutes, plus the radio officer. The principal work assignment rule is a statutoty provision prohibit- ing a "seaman" (undefined) from "crossing over" or working in both the deck and engine departments on a single voyage. Although the statutes do not specifically establish or define shipboard departments, they do recognize the traditional division between the deck and engine room by requiring separate licenses. This has perpetuated an outmoded and inefficient division of labor and discouraged the adoption of new technology. The principal working hours rule restricts crewmen from working more than 8 hours per day unless they volunteer to do so. Actually, most crewmen work 10 to 12 hours per day, seven days a week (Marine Board 1990, 78). Current Status The Coast Guard has been reassessing its application of these laws and rulings in recent years. In particular, since the late 1970s, the Coast Guard has permitted creation of shipboard "maintenance" depart- ments. Because this department is not mentioned in the statutes, its members are not subject to the three-watch provision and moreover can cross over and perform both deck and engine maintenance. Fur- thermore, the Coast Guard has permitted deck and engine room main- tenance personnel required by a Certificate of Inspection to be reassigned to the maintenance department and thereby relieved of their watch standing duties (Marine Board 1990, 79, 140). This has been helpful in reducing crew sizes but does not begin to match innovations made abroad. To take advantage of shipboard automation, several western European nations and Japan have successfully breached the traditional departmental boundaries and have virtually eliminated the division of crews into watches (Marine Board 1984, Chapter 4; Marine Board 1990, Chapter 1). Recently, recognizing efficiencies created by the new automated diesel engine rooms, automated navigational aids, and other techno-

Key Issues 71 logical advances, and in the light of labor-management agreement, the Coast Guard has pennitted 21-man crews for the newest and largest U.S. containerships (Marine Board 1984, 63-64). This appears to be veiy near the practical minimum manning possible under current laws and regulations. However, the Coast Guard has issued some Certifi- cates of Inspection without requirements for unlicensed engineering personnel or attended engine rooms, implying that the number of li- censed engineers could be legally reduced to one and "sailors" to three (Marine Board 1984, 22). With the new standard of three galley de- partment personnel plus the radio officer, this could produce a crew of 15. This has not yet been attempted in the United States, but such crews are now common abroad. Conclusions To assess the safety implications of the numerous technological and organizational innovations that have been put into practice in Europe and Japan in recent years, the Coast Guard asked the Marine Board of the National Research Council in 1987 to study the effect of smaller crews on maritime safety. After surveying international and foreign government agencies, interviewing several U.S. ship operators and maritime unions, and reviewing previous studies in the field, the Ma- rine Board committee concluded that the overall trend has been toward improved safety during a period when crew sizes have been reduced (Marine Board 1990, 35, 85). The committee also found that while U.S. manning laws have not been a major impediment to crew reduction aboard U.S.-flag vessels to date, they have led to needless inefficiency and complexity and to unwarranted obstacles to most effec- tive manning that realizes the benefits of new ship operating technol- ogy. Furthermore, it is clear that these statutes will effectively prohibit manning reductions below current levels regardless of the opportunities offered by technology, such as those evident in state-of-the-art foreign- flag vessels. Thus, while not a major problem in the past, these statutes will block innovation in the future.'6 (Marine Board 1990, 67) The 1990 Marine Board report reiterates some of the basic findings of a 1984 report by a previous Marine Board committee, which exam- ined all aspects of ship manning and recommended that federal laws and regulations be changed "to remove barriers in laws and encourage manning experimentation and innovation" (Marine Board 1984, 5). The 1990 report, which focused on the issue of crew size and safety,

72 INTERMODAL MARINE CONTAINER TRANSPORTATION recommends that U.S. manning laws be modernized to "allow innova- tion without degrading safety" by Incorporating a statement of congressional intent linking vessel manning and safety, Removing unwarranted barriers to innovation (such as require- ments for three watches where impractical or not needed), and Establishing a clear federal role in reviewing the safety of vessel manning practices (Marine Board 1990, xx, 88). The committee endorses these recommendations and believes that they should be adopted as soon as possible. Although a complete solution to this problem may require legislative action to change cur- rent laws, the Coast Guard believes that it has sufficient leeway to interpret the existing statutes to give ship operators somewhat greater flexibility in manning than at present. It plans to take a closer look at manning requirements for all merchant vessels in the near future and approve appropriate manning levels on a more individualized basis (using the physical characteristics, type of operation, specific routes, and so on, of each ship as criteria) (telephone interview with Captain Frederic J. Grady III, Chief, Merchant Vessel Personnel Division, U.S. Coast Guard, December 6, 1990). The committee urges that this review be conducted as soon as possible. Some Coast Guard- sanctioned experiments in reduced manning levels might also be con- sidered. Consideration of federal ship-manning requirements should also be included in the comprehensive reevaluation of U.S. maritime policy recommended under the first issue discussed in this report. Topics relating to federal ship-manning requirements that should be addressed in a comprehensive study include, but are not limited to, the effects of continuing the 100-percent-citizen crew requirement and the economic impacts, including implications for seafaring employment, of reductions in ship-manning levels. MILITARY CARGO BIDDING POLICIES Issues Almost all nations possessing merchant fleets, whether state owned or privately owned, provide some form of special assistance to their maritime industries to further the nation's economic, political, and militaiy interests (MARAD 1988, V). The most common way that nations promote their national maritime interests is through cargo pref-

Key Issues 73 erence policies—reserving some or all of a particular trade or certain shipments for their own national flag carriers.'7 This provides those ocean carriers with a core business that is immune from foreign com- petition. Virtually all maritime nations, including the United States, have enacted some form of cargo preference laws. Historically, U.S. cargo preference laws have applied only to government-generated car- goes.'8 Generally, these are of two types: (a) government-owned or -procured cargoes shipped by a government agency, mainly Depart- ment of Defense (DOD) shipments of military supplies; and (b) government-financed or -subsidized cargoes such as Department of Agriculture Food for Peace shipments, Agency for International De- velopment shipments, and shipments of goods purchased with Export- Import Bank (Eximbank) loans. Except for Eximbank cargoes (almost all of which are liner shipments that move at conference rates), the majority of government-financed or -subsidized cargoes are bulk com- modities that do not use containerships and thus are not at issue here.'9 Military supplies, mostly containerized, are the cargoes that are at issue. The rationale for U.S. cargo preference laws, especially for military cargo preference, is to support a strong U.S. merchant marine primar- ily (but not exclusively) for national defense—government cargo is made available to U.S.-flag carriers during peacetime to help ensure that the ships will be available during wartime: The primary and compelling argument for cargo preference is that it is one of the prices paid to assure that the United States has a national-flag merchant fleet. The fleet is needed for strategic military reasons and must be supported either directly or indirectly by the Government be- cause it is unable to compete on a purely commercial basis. . . . One should not calculate the cost of cargo preference itself, only that cost as compared to the cost of other promotional schemes that would have to be instituted in its absence. (OTA 1983, 183-184) The only alternatives to assistance of this sort would be for the nation to forgo national defense sealift capability or for the Navy to maintain an entire fleet of dedicated cargo ships by itself, which would be much costlier than any form of cargo preference.20 Currently, the laws require that all military cargoes move on U.S.- flag ships and that 50 percent of such cargoes move on privately owned (i.e. nonmilitary) U.S.-flag ships, "to the extent such vessels are available at fair and reasonable rates..." [U.S. Code, Title 46, Appendix-Shipping, § 1241 (b)( 1)]. These cargoes have constituted a sizeable and increasing traffic for commercial U.S.-flag carriers in recent years. (The majority are outbound shipments of military equip-

74 INTERMODAL MARINE CONTAINER TRANSPORTATION ment and supplies for U.S forces in Europe and the Far East, but there are also significant inbound shipments of household goods of returning military personnel.) By far the largest military shipper is the Navy's Military Sealift Command (MSC), which has the responsibility of transporting the bulk of the military equipment and supplies needed by all the armed services overseas. In 1986 MSC contracted with com- mercial U.S.-flag carriers to move almost 12 million metric tons of DOD Troop Support Cargo, and this produced an estimated $806 million in revenue for those ship lines. This represented about 32 percent of total overseas tonnage carried by commercial U.S.-flag ships in that year (Commad 1988, 65). Although the exact percentage is not known, most of this cargo was probably containerized. The issue of bidding policies for this cargo is relevant to intermodal marine container transportation because these military shipments ac- count for a significant portion of U.S.-flag containership revenues. One report estimates that they may account for as much as 20 to 30 percent of the business handled by all liner companies, and perhaps closer to 100 percent for some small lines (Journal of Commerce 1989). Indeed, as a Commad report put it, the problem is that the reliance of American flag operators on DOD cargo has become so dominant that at times the competition has become destructive, driving DOD rates below a fair level of compensation for the costs of cargo carriage; short-term government savings are obtained only at long-term costs to U.S. flag operators. (Commad 1987a, 12) Although the issue has been framed in terms of government procure- ment policies, there is really a more basic, underlying question that needs to be addressed. This was succinctly stated in an OTA report: The question is whether national priorities require the existence of a merchant fleet which cannot compete in a free market under present conditions. If so, it must be determined whether cargo preference is the most desirable way to provide a needed subsidy. (OTA 1983, 174) In establishing policies and procedures for carriers to bid for its cargoes, the MSC has naturally tried to obtain the lowest rates. In fact, in recent years, MSC has been under strict instructions from the Penta- gon to hold costs down as much as possible. The MSC has two programs—a shipping agreement for chartering ships for a fixed period and a container agreement for shipping a fixed amount of cargo. Under both programs, contracts are awarded almost solely through a competi- tive bidding process that pits carriers against each other for most ship- ments. Container agreement contracts, however, are not usually

Key Issues 75 "winner-take-all" awards; on trade routes served by more than one U.S. -flag carrier, the low bidder receives no more than 75 percent of the cargo, thus ensuring that military preference cargoes are spread around. The ship operators argue that the strict competitive bidding process often forces them to submit exceedingly low bids in order to fill empty container slots. There is often overcapacity among U.S. -flag carriers on North Atlantic routes, and the carriers are driven to making such bids by the economics of the industry: Since the merchant marine is an industry that is devoid of inventory, it depends on filling the available slots with cargo. By bidding low, even below fully distributed costs, the carrier assures that he recovers at least a part of his cost and the empty slot does not become a total loss. (Commad 1987b, 22; OTA 1983, 68) The carriers contend that such low rates are not "fair and reasonable" to them, and such rates may further reduce the carriers' profitability by causing large commercial shippers with similar cargo volumes to de- mand that they be given the same price breaks. If true, these claims suggest that low MSC rates may be subverting the intent of cargo preference laws, which is to promote a strong U.S. merchant marine. On the other hand, it should be noted that in recent years some U.S. - flag carriers have made substantial investments in larger, modem con- tainerships (see Chapter 2, section on development of containerships), despite generally low returns on investment and the problem of over- capacity on some routes. Another concern cited by ship operators is the award of MSC con- tracts to domestic carriers without operating experience that have been formed solely to carry military preference cargoes and have no long- term commitment to the industry (Verdon 1989). The ship lines claim that such operators often have no intention of remaining in the busi- ness, use chartered vessels rather than making any capital investments in ships or port facilities, and can thereby enter low bids that force bona fide ship operators to do the same.21 The ship lines contend that, regardless of performance, contracts awarded to such carriers without operating experience do not enhance U.S. -flag commercial capability or increase national defense sealift assets, and they deprive bona fide ship lines of the necessary resources, undermining the intent of the country's cargo preference laws. Ship operators are also concerned that MSC could entertain bids from foreign carriers that might temporarily reregister foreign-built ships under the U.S. flag to make them eligible to carry military preference cargoes or that might gain control of already eligible U.S. -

76 INTERMODAL MARINE CONTAINER TRANSPORTATION flag ships.22 Having lower costs, the foreign owners could well be able to submit lower bids and win contracts, with the same consequences as those in the case previously cited. As Congressman Walter B. Jones, chairman of the House Merchant Marine Subcommittee, stated, this issue is "a classic case of the fed- eral government torn between two mandates: saving money and foster- ing the development of our merchant marine" (Conmiad 1988, 40). The issue is not whether the federal policy of promoting a strong merchant marine or the general mandate to keep government costs down should prevail, but whether a compromise position is possible. Can MSC procurement policies be modified to effectively achieve both goals? Background In one form or another, U.S. cargo preference laws go back almost to the beginning of maritime legislation in this country. Current military cargo preference policy is governed by two laws: (a) the Military Transport Act of 1904, which requires that all items owned or procured by military departments be carried exclusively on U.S.-flag vessels, and (b) the Cargo Preference Act of 1954, which specifies that at least 50 percent of U.S. government cargoes shipped for U.S. government accounts (such as military cargoes) be carried by privately owned U.S. -flag vessels if they are available at fair and reasonable rates (OTA 1983, 182-183; MARAD 1988, 163-164; Transportation Insti- tute 1986, 193-194). The problem of excessively low rates for military preference cargo, which has been a concern since at least the late 1950s, has become increasingly centered on container shipping as military shipments have increasingly used this technology. A major attempt to solve the prob- lem was undertaken in the early 1970s as part of a multiagency govern- ment study known as the Sealift Procurement and National Security (SPANS) Study. This effort brought together senior officials from the Office of Management and Budget, DOD (including the Joint Chiefs of Staff, Army, Navy, and Military Sealift Command), MARAD (then part of the Department of Commerce), and the Federal Maritime Com- mission (FMC). Although shipping industry representatives were not members of the study group, they were able to participate indirectly through an advisory committee. One of the basic findings of the SPANS study was that, considering all DOD procurement of commercial sealift, the only case in which DOD cargo was not compensatory to U.S. -flag carriers was "where

Key Issues 77 there was a substantial infusion of new technology [meaning container- ization] which resulted in overcapacity." From this, the following con- clusions were drawn: When overcapacity exists and when a competitive DOD procure- ment system exists which includes the possibility of one operator carry- ing a predominant share of the cargo, the conditions are ripe for incremental bidding and serious industry financial problems. Rates for DOD cargoes which were compensatory and also included a fair rate of return would probably aid in the preservation of the U.S.- flag merchant marine. (SPANS 1972, 1-2) The SPANS study examined alternative procurement systems that would permit the lowest-cost procurement of peacetime military sealift yet provide an opportunity for carriers to earn a reasonable rate of return. The alternatives studied represented either various restrictions on competitive bidding or the development of a new cost-based fixed- rate system. Some participants wanted to adopt the latter system im.me- diately because it appeared to be the only way to ensure an adequate return for all carriers, but other participants believed that such a move was premature. A compromise recommendation was ultimately adopted, which called for major modifications to the competitive bid- ding system but held out the possibility of considering a cost-based rate system if the changes set forth did not solve the problem (SPANS 1972, 8-12). Two specific recommendations were made. First, the SPANS report endorsed a quasi-allocation scheme that had already been tested, which eventually evolved into MSC's current policy of split- ting cargoes 75 percent to 25 percent between competing U.S.-flag carriers on major routes. The second recommendation was that FMC prohibit destructively low bids for MSC cargoes as "detri- mental to commerce" by its authority under the Shipping Act of 1916. Bids would be allowed that were below fully allocated costs but not below "operating cash-flow costs." (In other words, the carriers were to be saved from themselves.) Operating cash-flow costs would be defined in specific accounting terms, to be agreed upon by the industry, which recognized the uniqueness of military cargoes. This second recommendation was never fully imple- mented. FMC procedures established to determine if bids covered operating cash-flow costs took so long to accomplish that the bids lapsed before the procedures could be completed. Moreover, the shipping industry could never agree on uniform accounting pro- cedures by which to define costs.

78 INTERMODAL MARINE CONTAINER TRANSPORTATION Thus in the end, the changes recommended by the SPANS study did not solve the problem of noncompensatory rates, and every major merchant marine or sealift study since SPANS has found the same problem. The most recent such study was undertaken by Commad in the late 1980s. Its second report at the end of 1987 states: The Commissioners are particularly concerned about the adverse effects of current contracting practices upon the operators of commercial ships. To obtain Department of Defense cargo, upon which the industry is so dependent, in some cases ship operators, have been driven to submit bids so low as to be destructive—a practice that may have contributed to the financial failure of some operators. (Commad 1987b, 21-22) In a similar vein, ship operators continue to complain that "MSC's current procurement policy is directed solely at obtaining shipping services at the lowest short-term cost," and that this policy continues to undermine the viability of the U.S. -flag merchant marine and its na- tional defense sealift capability (Verdon 1989, 1). Possible Solutions Several strategies for resolving this issue by modifying MSC procure- ment policies have recently been suggested. Perhaps the most signifi- cant, simply because of the status of its source, is Commad's formal recommendation that DOD, in conjunction with FMC and MARAD, change the method of procuring ocean transportation services to a stable rate system using established commercial tariff rates (Commad 1987b, 22). In response to objections from MSC that this system would force DOD to pay higher-than-commercial rates because vir- tually all large-volume shippers move cargo under lower-cost service contracts (Commad 1988, 39), Commad revised its proposal in its final report and recommended legislation that would state the sense of the Congress that the rates paid. . . [for] . . .DOD cargo should be fuiiy compensatory and could be based on established commercial rates, including service contracts; and that. . . [MSC] con- tracts. . .should be awarded, to the maximum extent compatible with sound. . .procurement practice, but not necessarily for only least cost, to enhance the strategic sealift capabilities of the U.S. flag commercial merchant fleet. (Commad 1989, 37) The idea is that DOD should pay commercial rates but could receive volume discounts just like any other large shipper who has service contracts. In its objections, however, MSC made three other points that are worth repeating:

Key Issues 79 In 1988, MSC rates were approximately six percent lower than the commercial service contract rates available on the major trade routes. Since DOD is the countly 's largest single shipper, normal commercial practice suggests that MSC should expect to pay less than commercial shippers. It is unlikely that an increase in revenues from... DOD cargo would increase the number of militarily useful ships in the commercial fleet, since the types of ships most needed for strategic sealift are among the least efficient in commercial service. The current system of full and open competition based on open mar- kets and free enterprise holds far greater promise for success than would seeking to resolve problems. . .through artificial systems based on regulated prices. Shipping companies now are free to make their rate decisions based on company needs, efficiency, ingenuity, and business acumen. (Commad 1988, 39-40) In a cost-benefit analysis of its initial recommendation that DOD pay commercial rates, Commad found that a 6 percent increase in the rates charged to DOD would (in FY 1988) increase carrier operating revenues by $14 million. There would be a corresponding increase in government costs of the same amount, but Commad apparently be- lieved that this increase was justified to help support national defense sealift capability (Commad 1988, 70-7 1). In place of Commad's proposal to change the MSC procurement system entirely, U.S. -flag containership owners have suggested "an interrelated series of modest reforms to the MSC 's current procure- ment practices" (Verdon 1989, 1-12). Perhaps the most important of these calls for a broader distribution of military preference cargo on routes with more than one carrier. Rather than a 75-25 percent split, the shipowners want a 60-40 split in cases when two U.S. -flag car- riers are bidding, 50-30-20 when three are bidding, and 45-25-20-10 when four or more are bidding; the idea is apparently to ensure that all competing carriers receive some benefits from cargo preference. A second proposal calls for limiting bids to only those carriers that have at least one year of operating experience in U.S. foreign com- merce. This would help eliminate artificially low bids by carriers that are not bona fide operators and that do not have a long-term com- mitment to the industry. A related proposal would penalize carriers that fail to initiate service after winning a bid. A fourth proposal is to eliminate the possibility of bids by reflagged foreign-owned ships by requiring that ownership of all vessels carrying military cargo be at least 75 percent by U.S. citizens. Last, the owners ask that the MSC strengthen the policy of shipping by common carrier liner vessels rather than by chartered vessels. The combined effect of these proposals would certainly guarantee more cargo, and perhaps higher rates, for existing U.S.-flag liner carriers. This would come

80 INTERMODAL MARINE CONTAINER TRANSPORTATION at some additional cost to the government; just how much is not clear. Another suggestion for modifying the MSC 's procurement policies has been made by a member of the committee who has long considered this issue (communication from Paul F Richardson, President, Paul F Richardson Associates, Inc., and former President, Sea-Land Service, May 3, 1990). He proposes that bids submitted for MSC cargoes be analyzed to determine if the rate of return is "fair and reasonable," similar to the approach that was used by the Interstate Commerce Commission (ICC) in analyzing proposed truck line increases. For this purpose, a process could be used like the one set forth in the Motor Carrier Act of 1980, which directs the ICC to authorize revenue levels that are adequate under honest, economical, and efficient management to cover total operating expenses. . plus a reasonable profit. [Carriers shall be allowed to] achieve revenue levels that will provide a flow of net income, plus depreciation, adequate to support prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, attract and retain capital in amounts adequate to provide a sound motor carrier transporta- tion system in the United States, and take into account reasonable esti- mated or foreseeable future costs. [U.S. Code, Title 49, §10701(e)] The ICC has generally interpreted these provisions to allow a rate of return on investment (ROl) of about 21 percent, and a rate of return on equity (ROE) equal to a 4-year trailing weighted average of all indus- tries, the most recent being around 14 percent.23 Although this pro- posal would certainly guarantee compensatory rates to U.S.-flag carriers, the full costs and benefits to DOD of such a policy are not known and need to be carefully evaluated. In addition, the proposal should be evaluated in the broader context of the value of maintaining a U.S.-flag fleet and the most cost-effective means to do so. Conclusions Unlike the first two issues (ship procurement restrictions under the ODS program and federally imposed ship-manning requirements), which can be resolved by some measure of government deregulation of the shipping industry, the issue of military cargo bidding policies poses the more difficult dilemma of making a choice between two equally longstanding and worthy policies or of finding a compromise solution where none is obvious. The issue is similar to the first two, however, in that it may ultimately require legislative action to be resolved.

Key Issues 81 The issue of cargo preference is closely tied to the first two issues for ensuring the health of the U.S. maritime industry and cannot be fully assessed independently. For example, cargo preference would be less needed by ship operators and its costs would be lower if the federal requirements for citizen crews, U.S. -built ships, and uneconomical manning and deployment of vessels were modified or eliminated. Ac- cordingly, this issue should be included in the comprehensive re- evaluation of federal policy toward the merchant marine and the maritime industry that was recommended in the discussion of the first issue in this chapter. ENVIRONMENTAL POLICY CONFLICTS AND COSTS A broad issue that affects efficiency and innovation in the intermodal marine container transportation industry is the growing array of com- plex (sometimes conflicting) federal, state, regional, and local envi- ronmental laws and regulations. Among the most pressing examples of this problem are laws and regulations on dredging and disposal of dredged materials and on the preservation of wetlands. There are many other environmental issues that are also important to the industry, particularly local air quality controls that restrict container truck move- ments and airborne emissions from ships at berth. The dredging and wetlands issues seem more basic, however, because they could limit the capability of some U.S. ports to handle container traffic and thereby seriously affect the long-term economic health of those ports.24 These issues exemplify the complex interrelationship of envi- ronmental, transportation, and economic goals as well as the practical difficulties that result from the involvement of multiple government jurisdictions in the regulatory process. DOT's National Transportation Policy includes the following statement: The National Environmental Policy Act and other laws already require assessment of the effects of significant Federal transportation actions or Federal-aid projects on the environment, special attention to air pollu- tion, and protection of wetlands and coastal zones. . . . The Department of Transportation must continue to coordinate with other agencies to ensure timely and effective environmental review of transportation proj- ects built or funded as part of Federal programs, and to see that Federal environmental policies are reflected in transportation programs and de- cisions. . . . The Department of Transportation, in coordination with other agencies, is developing guidelines for carrying out the "no net loss" goal with respect to the effects of transportation on the Nation's wetlands. Additional methods must be explored for environmentally

82 INTERMODAL MARINE CONTAINER TRANSPORTATION sound disposal of the spoil material from harbor and channel dredging. (DOT 1990, 96-97) Few would disagree with the goals of these policies, which seek to protect and preserve the nation's valuable environmental resources. Nevertheless, because of the multiple permits required both for dredg- ing and for disposal of dredged materials, the present environmental regulatory process can result in long, costly delays in channel deepen- ing and port enlargement projects. Some industry observers believe that the "no net loss of wetlands" policy will make port expansion nearly impossible in areas where ports already abut coastal wetlands. Issues Dredging At many U.S. ports, the main navigation channels are not deep enough to accommodate the newest generation of containerships. This prob- lem is most acute at Oakland, New York-New Jersey, and Miami; it has been less of a problem at the southern California and Puget Sound ports. Channel deepening and port enlargement are the solution to this problem at affected ports, but these actions require approvals by multiple government agencies at the federal, state or regional, and sometimes local levels. This is by all accounts an extremely time- consuming process.25 Permits for dredging must be obtained from the U.S. Army Corps of Engineers with concurrence from the Environ- mental Protection Agency (EPA). In many cases, state, regional, and local water control agency approvals must also be obtained. The American Association of Port Authorities has urged that "redundant local pennitting requirements for construction of a federal project" be abolished: A federal project is subject to intensive review under the National Environmental Policy Act in order to assess direct and indirect impacts of the project, including the associated project sponsor contributions. Currently, nonfederal entities must seek additional. . permits to dredge access channels and berths, and to provide dredge material disposal areas when the federal channel project has been justified economically to serve the same terminals and an Environmental Impact Statement has been completed. This additional evaluation and permit requirement is not only redundant (in addition to the NEPA process, there are also a number of separate state and local project review requirements), but it delays realization of the project's benefits. (Failor 1988, 4)

Key Issues 83 Separate permits must also be obtained for the disposal of dredged materials. This presents problems in cases in which there is a large volume of material or in which some of the dredged material may be contaminated from, for example, chemical plant discharges or sewer runoff near the shore. Moreover, some state and local laws prohibit entirely in-shore and landfill dumping. In addition, cost-sharing ar- rangements may differ according to the disposal alternative chosen. One port industzy spokesman has concluded that "the disposal of dredged material is often the most difficult problem associated with a harbor channel improvement" (Stromberg 1 990a, 2).26 The severity of this problem is illustrated by APL's new deep-draft ClO container- ships, which cannot be berthed at the APL terminal in Oakland except when partially loaded and at high tide. This is because the Port of Oakland has been unable to obtain permits for disposing dredged mate- rials to undertake the dredging required to accommodate these new- generation ships. Wetlands In recent years, federal provisions protecting wetlands and coastal areas have been toughened and enforcement of existing regulations has been strengthened. These laws and regulations include the Federal Water Pollution Control Act (FWPCA) dredge and fill program (Sec- tion 404), a new federal wetlands delineation manual, and a memoran- dum of agreement (MOA) between the EPA and the Corps of Engineers. One aim of this increased regulation has been to achieve "no net loss of wetlands." Port industry spokesmen contend that ports have been affected by such a policy for many years: As a practical matter, full compensatoly mitigation of all port develop- ment requiring dredging or filling of "waters of the United States" has been the rule rather than the exception. To a substantial degree, the public port indusuy already has been living with "no net loss" for some time. (Stromberg 1990b, 2) Because feasible nonwetland alternatives are rarely available to sea- ports being considered for expansion, the emphasis in the permitting process under FWPCA Section 404 generally falls on the negotiation of a "compensatory mitigation" package, which specifies measures to be taken to offset or compensate for unavoidable loss of, or damage to, wetlands. This requires a consensus among several federal and state resource agencies, and the process of resolving their differences to

84 INTERMODAL MARINE CONTAINER TRANSPORTATION achieve consensus has proved time-consuming and difficult for port applicants: The decisionmaking authorities that an applicant must appease are frag- mented. Frequently each part is seeking to preserve, restore, or create habitats that are mutually exclusive, e.g., shallow bay bottom versus coastal marsh, fish versus avian habitat. Unfortunately, there is no exalted environmental czar to act as referee or to bring regularly a comprehensive environmental overview to the mitigation decisionmak- ing process. And as practical problems arise, regulatory paralysis sets in.27 (Stromberg 1990b, 4) The port industsy believes that the new MOA between the EPA and the Corps of Engineers will help streamline this process, in part by giving EPA a more active role, and lead to improved comprehensive regional planning, which should in turn help make the regulatory pro- cess more rational (Stromberg 1990b, 4-5). Conclusions Both the dredging and wetlands issues are complex problems for which there are no simple solutions. Further analysis of dredging-related issues is needed to identify the national and local trade-offs involved. Successful implementation of the new MOA between EPA and the Corps of Engineers on the wetlands issue could provide a model for developing a more rational and expeditious regulatory decision- making process for other environmental policy issues. Greater con- sistency in the interpretation and application of national EPA policy is needed, together with a more explicit systems-level view to assess the impacts of environmental laws and regulations on ports and other links in the intermodal marine container transportation chain and to evaluate the trade-offs between transportation efficiency and environmental goals. OVERWEIGHT CONTAINER TRUCKS Issues In March 1989, the Federal Highway Administration (FHWA) re- ported that fully one-third of a random sample of all marine containers entering and leaving the United States during a one-year period would exceed federal highway weight limits if transported by typical highway equipment. It is not just the container that is potentially overweight,

Key Issues 85 but the container as rigged for highway travel—that is, mounted on a chassis and pulled by a tractor (FHWA 1989). 28 The FHWA study was based on an analysis of Port Import-Export Reporting Service (PIERS) data collected from ship manifests and bills of lading filed with the U.S. Customs Service. This data base includes virtually all container imports and exports through virtually all U.S. ports. For the sample year, October 1987 through September 1988, one- third translates to 1,070,000 potentially overweight containers that could appear on the highway (FHWA 1989, 7). And the majority of these were transported on highways—relatively few containers nowa- days are stuffed or stripped on the docks, and although many are moved to or from port areas by rail, this almost always requires prior or subsequent highway movement by truck. According to the study, many of these container rigs would be considerably overweight on the highway; 41 percent would be no more than 1 ton overweight, but 50 percent would be from 1 to 5 tons overweight, and the remaining 9 percent more than 5 tons overweight. Clearly, 1 million or more overweight container rigs on the highway presents a serious problem.29 Truckers are affected most directly, but there are repercussions throughout the container transportation chain and beyond. For truckers, overloads increase maintenance costs, can severely damage equipment, may result in heavy fines, and, most important, compromise vehicle safety. Overloading degrades vehicle performance by significantly decreasing braking capacity and power to accelerate, by overstressing tires, and by causing mechanical failures. Moreover, if heavy cargo is improperly packed in the container, it may create a dangerously high center of gravity. All of these factors impair a driver's control of the truck and may place the driver and other motorists in jeopardy (FHWA 1988, 1-7; TRB 1990b). The effects of overweight container rigs are felt throughout the transportation chain as trucking firms pass on their increased costs from extra maintenance, equipment damage, fines, and accident lia- bility and litigation. To the extent that truckers are unable to pass these costs on, trucking service deteriorates and the system suffers anyway. Significantly overweight containers also can have a direct impact on containerships, terminals, and trains, causing similar equipment and safety problems. By sharply increasing pavement and bridge damage, overweight container rigs also adve'sely affect federal and state highway budgets and thus the taxpaying public. It is known that relatively small in- creases in axle loads or load repetitions can cause much larger in- creases in pavement wear (FHWA 1988, 7). If, as is thought true, the overweight violations result more from excessive axle weight than

86 INTERMODAL MARINE CONTAINER TRANSPORTATION from excessive gross weight, then overweight container trucks have an extremely deleterious impact on pavements because of the steeply inverted relationship between axle loadings and pavement life. Firms at evezy link in the container transportation chain bear some responsibility for the prevalence of overweight boxes. Of course, the originator of a shipment bears the primaty responsibility for loading or overloading the box. In fact, those who consistently and deliberately overload containers may be said to be engaging in an "unfair business practice" and taking "unfair advantage [of those] who make a good faith effort to comply with the weight limits ."3 Although the issue of overweight container trucks is generally rec- ognized as a problem by all those involved, the continued presence of significant numbers of overweight container trucks reflects how diffi- cult divided governmental responsibilities have made its resolution. Background The problem of overweight containers on the highway apparently first became a significant issue in 1985 when drayage firms and truck drivers in southern California complained that they were seeing grow- ing numbers of overweight containers and piggyback trailers, which they felt coerced into accepting, and that they were increasingly being pressured to bypass scales and run the risk of citations (California Assembly 1985). Subsequently, bills were introduced in the California Assembly to require weighing of containers and trailers, and hearings on these bills provided the first public evidence of the problem: We asked the California Highway Patrol for any information they could provide on the scope of the overweight truck problem. Statewide, only one percent of all trucks weighed by the CHP are overweight; but the Committee also received information showing that whenever the CHP weighs trucks with portable scales away from roadside weigh stations, 36.4 percent of the trucks are overweight. When the weighing takes place in port areas, the CHP reports a whopping 72 percent of the trucks they weigh are overweight. (California Assembly 1985, 1) At about the same time, on the East Coast, a newly formed state trucking conference composed of drayage firms serving the New York and New Jersey ports, apparently also faced with an increasing number of overweight boxes, took up the issue with the ship lines, terminal operators, and Congress (telephone interview with Tom Adamski, President, East Coast Intermodal Systems, and Chairman, Bi-State Harbor Carriers Conference, May 2, 1988). Since 1985, the problem has engendered considerable discussion among trucking, terminal,

Key Issues 87 ship line, and shipper interests on both coasts. These discussions even- tually led to the FHWA study and report. As indicated, it is not just the weight of the container that is in question, but the total weight of the container as mounted on a chassis and pulled by a tractor. Moreover, there are actually three federal highway weight limits subject to violation—the gross vehicle weight limit of 80,000 pounds; the axle weight limits of 20,000 pounds for a single axle and 34,000 pounds for a tandem axle; and the bridge formula weight limits, where maximum permissible axle weights vary by axle spacing. A container rig can be well within the gross weight limit but have an unbalanced load and exceed the tandem axle weight limit; or, even if those limits are satisfied, the spacing between two axles can be too short and violate the bridge formula weight limit. A container rig that exceeds 80,000 pounds gross is likely to exceed axle weight limits as well; and, if it does, it will certainly exceed the bridge formula limits. Indeed, the bridge formula limit is usually breached first. When the bridge formula is applied to the typical five-axle tractor- container-on-chassis combination, the most critical axle spacing, and the one most often violated, is from the front axle of the tractor tandem to the rear axle of the chassis tandem—the so-called "inner bridge" spacing. Because the formula is designed to spread out the weight of a load, the heavier the container, the longer this distance must be to satisfy the formula. The next most critical axle spacing is the "outer bridge" spacing from the steering axle to the rearmost axle. If outer bridge weight limits are violated, then inner bridge limits are very likely to be as well (FHWA 1984; TRB 1990b, 37-5 1). Given that three pieces of equipment are required for every over-the- road container movement, that each of these pieces—container, chassis, and tractor—has a wide range of tare weights, and that there are three separate weight limits to be met, what is the maximum legal cargo weight of a container? In other words, how much can a shipper load in each size box and be assured that his shipment will be legal on the highway? An extensive field study was undertaken in March 1988 to answer this question. The study was conducted at Port Elizabeth, New Jersey, through the cooperative efforts of the Port Authority of New York and New Jersey, the Steamship Operators Intermodal Com- mittee (SOIC), a marine terminal operator, and a drayage trucking association. Thirteen containers, all loaded with dense commodities, were se- lected to be married to 17 different chassis and 9 different tractors, and the combinations weighed. The containers included ten 20-foot boxes with manifest weights ranging from 38,500 to 47,400 pounds and three

88 INTERMODAL MARINE CONTAINER TRANSPORTATION 40-foot boxes having weights between 56,000 and 59,700 pounds. The 20-foot containers were mounted on 23-, 27-, and 40-foot-long chassis of five different types; and the 40-foot boxes were mounted on 40-foot gooseneck chassis, with "West Coast" axle positions (i.e., creating the longest possible wheelbase). The tractors included both tandem- and single-axle highway tractors fully loaded with fuel. In all, more than 75 combinations of equipment were tested. All weighing was carried out by an experienced team using a tandem-axle scale supple- mented by a platform scale. Gross, axle, and bridge formula weights were all taken and recorded. After much analysis, it was concluded that maximum practical load capacities that will comply with U. S. highway laws are as follows (SOIC unpublished report, 1988): 37,000 pounds for a 20-foot container on a 23-foot chassis, 38,000 pounds for a 20-foot container on a 27-foot chassis, and 44,000 pounds for a 40-foot container on a 40-foot chassis. These recommended maximum cargo weights were used as thresholds for defining potentially overweight containers in the FHWA study, except that a 38,000-pound weight limit was allowed for all 20-foot containers because such weights can be legally transported (FHWA 1989, 5-6). The FHWA study selected all containers moving through U.S. ports on the 15th day of each month for a one-year period—a sampling technique that ensured a representative sample of the PIERS data re- flecting variations by day of week while covering all seasons of the year. The analysis covered only 20- and 40-foot boxes, but together these account for about 96 percent of all U.S. containers and 91 per- cent of all container movements on the sample days. Some of the key findings of the analysis follow. Thirty-nine percent of exported containers (57 percent of the sample) were overweight, and 26 percent of imported boxes (43 percent of the sample) were too heavy. Among box sizes, 30 percent of the 40-foot containers (64 percent of the sample) and 40 percent of the 20-foot boxes (36 percent of the sample) were overweight. Exported 40-foot boxes made up 44 percent of all overweight boxes (and 39 percent of the whole sample). This category also accounted for almost all of the very heavy boxes- 84 percent of all containers more than 5 tons overweight were 40-foot export boxes. With the exception of paper products, there is no similarity between exported and imported commodities that are overloaded. Paper was the export commodity that was most frequently overloaded, and it was the

Key Issues 89 second most frequently overloaded import. Overloaded exports are concentrated among relatively few commodities, whereas overloaded imports tend to be spread among many commodities. In fact, if paper products, logs and lumber, wood pulp, and fiberboard (all among the top 10 exports) were combined into a single category called "forest products," that industry would account for 27 percent of all overloaded export boxes. Another grouping could be "chemical products," as plastic resins and chemicals rank second and third, and together ac- count for 17 percent of all overloaded export boxes. What all the overloaded commodities, imported or exported, have in common is, of course, their high density. By coastal range, the Atlantic Coast ports account for 66 percent of all imported overweight containers; the Pacific Coast ports, 24 per- cent; and the Gulf Coast, 10 percent, although more than half of all container imports enter through the Pacific Coast. For exported boxes, the percentages are much more as expected: 44 percent of the over- weights go out through the Atlantic, 45 percent through the Pacific, and 11 percent through the Gulf. Among foreign ports of origin, a few stood out as sources of overweight containers. Leghorn (Livorno), Italy, for instance, ranked second in this regard even though it was only tenth for total number of containers exported to the United States; it is a principal source of ceramic tiles and marble, two commodities that ranked high on the list of overloaded imports. Similarly, Santos, Brazil, ranked fourth for exporting overweight boxes, but ranked only 18th for total containers exported to the United States; apparently, coffee bean containers are consistently overloaded. If a pattern can be discerned, it is that a disproportionate number of overloaded imported containers come from Europe and enter through East Coast ports, and these tend to be concentrated in 20-foot boxes, whereas a proportionate number of overloaded exported containers go to both Europe and the Far East from both East and West Coast ports, and are spread proportionately between 20-foot and 40-foot boxes. Overall, exported containers are more often overloaded compared with imported boxes, and are also the greater problem in terms of actual number. Overall, 20-foot containers are disproportionately overloaded compared with 40-foot boxes, but there are more 40-foot boxes that are actually overloaded. Causes of the Problem Ignorance of Laws One obvious reason why containers are overloaded is that many ship- pers and intermediaries, and perhaps some carriers, are unaware of the

90 INTERMODAL MARINE CONTAINER TRANSPORTATION applicable laws and regulations. It seems unlikely that many foreign shippers know about the provisions of U.S. federal laws, let alone state laws, and it would not be surprising if a significant number of Ameri- can shippers and intermediaries were also uninformed. Even when shippers are aware of U.S. federal limits, and know the weights of their containers, they may have only a hazy notion of the specifications of tractors and chassis. And very few shippers anywhere have axle scales. All in all, it seems fair to say that ignorance of highway weight limits is a significant factor in the overweight problem. This difficulty is compounded by the fact that the federal limits can be exceeded under state laws. At least 20 states have statutory provi- sions permitting higher gross weights for trucks under various "grand- father" clauses, and almost all states allow higher limits for "nondivisible" loads under special permit procedures. Such permits are routinely granted for a single trip, or, in some states, even for multiple trips with the permit good for up to one year.3' Although not a cause of the overweight container problem, these numerous excep- tions, and several other disparities among state laws, are an obstacle to its solution. Different Weight Limits Another reason why shippers may load containers beyond highway weight limits is that the weight limits for the containers themselves are much higher. A 20-foot marine container can be loaded up to a gross weight of 44,800 pounds by International Standards Organization (ISO) standards. When such a container is mounted on a typical 23- foot tandem-axle chassis and pulled by even a light tandem-axle high- way tractor, the rig would have an "inner bridge" weight of about 57,350 pounds or about 1,350 pounds over the bridge formula maxi- mum (SOIC 1984, 11). (This assumes tare weights of 6,250 and 15,750 pounds for the chassis and tractor, respectively, plus a tractor wheelbase of 15 feet. In fact, tractor weight is likely to be higher than this because many owner-operators' tractors weigh 17,000 to 18,000 pounds or more.) Moreover, ISO weight limits were revised in 1986 to permit up to 24 metric tonnes, or 52,910 pounds, in any 20-foot container that is so rated and plated. Although this increase was de- signed specifically for Europe, such boxes loaded with dense com- modities to this limit appear in America as well. A 40-foot marine container can be loaded up to an ISO gross weight limit of 67,200 pounds and, when rigged for the highway, would violate all three federal weight limits. Adding the tare weight of a

Key Issues 91 typical 40-foot chassis (7,000 pounds, although many run higher) to the tare of a typical tractor (16,250 pounds with a 21-foot wheelbase) puts the whole rig more than 10,000 pounds over the 80,000-pound gross weight limit, more than 5,000 pounds over the tandem-axle limit on each pair, more than 10,000 pounds over the inner bridge weight limit, and almost 8,000 pounds over the outer bridge weight limit. (Again, much heavier tractors are often used, especially for container movements out of Chicago.) Many 40-foot container rigs that gross under 80,000 pounds and meet all bridge formula limits will still exceed axle limits because the loads are badly balanced. This is true of virtually all rigs weighing over 78,000 pounds, and also true of many well under that weight. Because of the tendency to pack in as much as possible, shippers often overload the front end of a container and underload the rear end. The differences between container and highway weight limits pose a problem for some shippers, who are asked to incur a direct economic penalty in the form of higher transportation costs to comply with highway weight laws. Another disparity in weight limits is that between U.S. and foreign highway limits. The weight limits of at least 20 of the 50 or so nations that have specifically stated maximums exceed those of the United States. These countries include many of the major trading partners of the United States. In Germany, France, Great Britain, and Spain the weight limit is 38 tonnes (83,775 pounds), whereas in the Netherlands, Belgium, and Italy it is 44 tonnes (97,000 pounds). There is some indication that the entire European Community will compromise on 40 tonnes (88,185 pounds). This disparity probably makes many Eu- ropean shippers less willing to conform to U.S. limits even if they are familiar with them. Indeed, foreign shippers have no reason even to weigh containers destined for America. On the other hand, all Far Eastern nations except Taiwan have significantly lower highway gross weight limits and, it is said, are beginning to enforce those limits as a direct result of seeing an increasing number of heavy containers arrive from the United States (American Shipper 1988, 40). Low-Level Enforcement Another cause of the problem is the low priority apparently given by some states to enforcing their own highway weight laws. In many states, ocean, rail, and motor carriers, and terminal operators, fully aware of the laws, are also aware that the states' enforcement policies and practices are such that overweight loads can easily escape detec-

92 INTERMODAL MARINE CONTAINER TRANSPORTATION tion. Shippers and consignees know this too, and because of the preva- lence of intense competition, they can pressure carriers into accepting overweight boxes. Low-level enforcement on the part of states is not, of course, con- fined to marine containers; it is part of the general failure of states to enforce weight laws on all trucks. This problem is an old and continu- ing one. The dimensions of the problem were summarized in a 1983 report by the DOT Office of the Inspector General, which found existing state law enforcement programs to be inadequate deterrents to overweight trucking. The report (DOT 1983) recommended that states improve these programs by Adopting higher fines and penalties, Enforcing weight laws in urban areas, and Establishing systems for identifying repeat violators. In addition to low levels of enforcement, most states routinely grant exemptions and special permits to carry overweight loads. In some cases, this may reflect a deliberate policy intended to improve the competitive position of a state's ports. Moreover, permits are often issued for so-called "nondivisible" container loads that really are di- visible (unless under Customs' seal), and the permit fees do not fully reflect the damage done to highways. Tariff Structure A major reason that shippers and intermediaries overload boxes is that most ocean (and rail) container freight rates are now based on flat charges per box regardless of weight. This places a premium on stuff- ing the container as full as possible because the per-unit costs of a shipment decrease as the amount of cargo increases. Conventionally, when liner cargo was shipped breakbulk, most ocean tariffs were commodity-specific, with rates determined by either the weight or the volume of the shipment. The exception was a freight-all-kinds (FAK) rate instituted for freight consolidators, who combine the goods of several small shippers into a single shipment. FAK rates, which are now common, are sometimes said to be the reason why many containers are overloaded. This may be true in a few cases, but most shipments handled by freight consolidators in the United States involve products that "cube out" before they "weigh out" (interview with Ron Corkery, Program Manager, Cargo Systems Technology, Maritime Administration, May 5, 1988). FAK rates,

Key Issues 93 however, may have paved the way for the introduction of per- container or "box rates" in the 1970s, and it is these rates that provide the incentive for overloading. Box rates are similar to the older volume-based rates because they vary by commodity and the amount of space used, but because containers are modular, the rates are standardized by box size. The role of box rates was strongly enhanced by the advent of service contracts permitted by the Shipping Act of 1984. Under these con- tracts, shippers commit to a minimum number of containers over a certain time period and ship operators guarantee a fixed rate per box as long as the quota is met. Some details of the contracts can be held confidential, but there is a "most-favored shipper" clause requiring carriers to offer essentially the same terms to all shippers similarly situated. These provisions have induced a high percentage of container shipments to move under contract at box rates. Intense Competition An underlying cause of overloading is the intense competition that pervades every segment of the intermodal marine container transporta- tion industry; it is not just that carriers and terminal operators believe they are at the mercy of shippers, but that many believe they are at the mercy of each other. Many ocean, rail, and motor carriers, and con- tainer terminal operators, are willing to accept boxes that they suspect are overweight out of fear of losing business to competitors. Shippers, often in sharp competition among themselves, would try to minimize their costs by loading as much as possible anyway. Carriers and termi- nal operators, on the other hand, have no particular incentive to accept overweight loads except to enhance their competitive position. In fact, carriers and terminal operators have every reason to want to handle only legal loads. Overweight boxes increase maintenance costs, can seriously damage equipment, create safety problems, raise issues of liability in case of an accident, and, at least for motor carriers, bring the possibility of heavy fines. Moreover, shipping only legal loads would require using more containers and would produce more work and presumably more revenue for everyone. Yet, for all of this, few in the industry are willing to step out in front and be the first to refuse to handle overweight boxes. Natural competition among ship operators has been exacerbated during periods of overcapacity in the industry. Along with a number of other problems, excess capacity built up in the 1970s and early 1980s to the point that several carriers were forced into bankruptcy. Although

94 INTERMODAL MARINE CONTAINER TRANSPORTATION the carriers disappeared, the ships remained and were sold at distressed prices to other carriers, thus continuing the overcapacity. Competition among container ports is even more pervasive. Natural rivalries between such ports as Baltimore-Hampton Roads, Charles- ton-Savannah, New Orleans-Houston, Los Angeles-Long Beach, San Francisco-Oakland, and Portland-Tacoma-Seattle were sharply mag- nified when carriers were selecting "load center" ports. Moreover, just as with containerships, there is sometimes excess port capacity along a coastal range. One way that state-run ports compete is to offer blanket exemptions from state highway weight limits for overweight container rigs. For example, in late 1987, Maryland, at the request of the Port of Baltimore, began issuing blanket overweight container permits on some routes for gross vehicle weights up to 90,000 pounds, and with increased axle load limits (Intermodal Age 1988). Similar overweight permit programs now exist throughout the South Atlantic seaboard states. Such exemptions are possible under various grandfather clauses of federal law or under special permit provisions of state laws that allow sealed containers to be classified as nondivisible loads. Obviously, a state port authority cannot establish such a program on its own; it requires concurrence by the governor's office, which must balance the concerns of highway officials against an assessment of the port's con- tribution to the economic health of the state. Perhaps the sharpest competition of all throughout the container transportation chain is within the waterfront drayage industry. This is attested to consistently by both participants and observers.32 Again, over-capacity in the industry—too many truckers chasing too few loads—has heightened usual levels of competition in some areas. As a result of trucking deregulation, many individual owner-operators and small firms entered trucking for the first time, and many of these went into the waterfront drayage industry. The owner-operators, who now dominate the drayage industry, are usually paid by the move rather than by the hour and so have an incentive to haul containers as quickly as possible without regard to weight (California Assembly 1985, 12-13, 37-38). Moreover, because the actual weight of loaded con- tainers is often not found on the accompanying documents, many truckers may not know the weights of the loads they are transporting. Possible Solutions Many proposals have been put forth for solving this problem.33 Many appear to need further exploration and evaluation. Some ideas have

Key Issues 95 obvious shortcomings, whereas the consequences of others are un- clear. What does seem clear at present is that no single solution is adequate by itself; a comprehensive solution acceptable to most parties will probably require some combination of approaches. The principal ideas can be grouped into six categories, discussed briefly in the following. Education Whatever other approaches might be tried, it would be useful to ac- company them with a serious education campaign designed to acquaint all concerned, and especially U.S. exporters and importers, with just what the highway weight limits are and just how much can be real- istically loaded to comply with those laws. This approach could also include disseminating infonnation on commodity densities and on the best ways to pack a container. The American Trucking Associations (ATA) and the National Industrial Transportation League (NITL) are already cooperating in a program focused on safe packing, which could perhaps be expanded.34 By itself, this approach offers only a long-range solution, but it is probably the least intrusive and least costly and can be combined with any other approach. Enforcement Through Weighing Several methods to enforce highway weight limits by comprehensive or selective weighing have been proposed. These include using private scales, adding scales near ports for voluntary weighing, installing weigh-in-motion (WIM) equipment at port gates and elsewhere, adding strain gauges to cranes and other lifting equipment, and ex- panding roving weight-enforcement teams with portable scales. A re- lated approach, which could be implemented through the International Maritime Organization (IMO), would be to require weighing at the port of loading and the transmission of certified gross weight data with the container to identify containers that might violate highway weight limits. Unfortunately, it appears that the more effective these methods are, the more costly they are. They are costly not only in terms of the money involved but also in terms of the delays and disruptions that could result, especially at marine terminals. Perhaps the most effective and least intrusive method over the long run would be widespread installation of WIM equipment, which would, however, involve major capital outlays. States' use of WIM scales as an aid in enforcing truck weight laws has been increasing in recent years (TRB 1990b, 136-37).

96 INTERMODAL MARINE CONTAINER TRANSPORTATION Because of the high cost of such equipment, however, it is uncertain whether widespread use of WIM equipment will occur, especially in light of states' fiscal constraints and the variation among states in the priority given to weight law enforcement. State Cooperation in Enforcement Even without additional weighing, if the states would cooperate with one another in a concerted program, the problem could be quickly resolved. If the states along a coastal range agreed on uniform weight laws and regulations (especially on guidelines for divisible and non- divisible cargo and the requirements for special permits and exemp- tions) and coordinated their efforts to enforce those laws, shippers and carriers would soon learn to be very careful about weight. Because of the extreme difficulty of getting states to cooperate in this way, a federal role is probably necessary. Nevertheless, improved state en- forcement should not be overlooked as a possible approach. Assigning Weight Responsibility Another approach is to assign responsibility for container weights by requiring that whoever loads a container certify the net weight of the contents of each container in a shipment. This certification would accompany the shipment and would be provided to all carriers along the way. If a motor carrier determined that the gross weight of a container as rigged for highway travel would exceed highway weight limits, he could refuse to move the load without suffering any eco- nomic penalty. The certifying party, or his agent, would be responsible for corrective action and for any costs incurred. If the certified weight was found to be materially incorrect, the certifying party would also be penalized by forfeiting a bond. This idea of bonding is modeled on the European "carnet" system and would have to be administered by a neutral body. A variation on this idea would be for whoever loads the container merely to certify that he is in compliance with some weight standard without any automatic penalty being imposed. To make this approach work, carriers would have to be willing at least to spot-check weights and set aside any boxes found to be overweight. Modified Tariffs Yet another approach is to modify ocean and rail tariff structures to remove or minimize incentives for overloading containers. This mod-

Key Issues 97 ification could range from simply stating the maximum gross weight limits that would conform to U.S. highway laws in the tariffs to instituting a complete ban on per-container rates. Two petitions sub- mitted to the FMC by shipping conferences and the ATA in 1989 took positions somewhere in the middle. One sought to prescribe maximum container weights and make shippers responsible for complying, whereas the other would have abolished box rates for commodities "shown to contribute to overweight container abuses" (Petitions P3-89 and P4-89, both dated August 18, 1989). Although the peti- tions were supported by a major container railroad and the FHWA and MARAD, the FMC decided that it lacked jurisdiction and turned them back. Because most carriers supported these ideas and agreed on the wording of the petitions, perhaps they can try to implement this ap- proach voluntarily. Although neither of the proposals would have solved the problem completely, they would have gone a long way in that direction, and the committee urges that the parties explore the ideas further. Specialized Equipment Perhaps the best approach over the long run, because it would solve the problem permanently, would be for the intermodal transporta- tion industry to invest in all of the heavy specialized equipment necessary to make overweight container rigs legal on the highway. This includes 23- and 27-foot slider and triaxle chassis for heavy 20-foot boxes and adjustable four-axle chassis for heavy containers 40 feet and longer. It is also possible to design tractors that provide better weight distribution for hauling heavy loads. Clearly this can only be a long-range solution, because such equipment is costly and the industry already has a large investment in existing equipment, which still has many years of useful life. Perhaps incentives could be made available to induce carriers to purchase such equipment before they otherwise would. Conclusions It appears that none of the approaches just discussed offers a complete solution by itself and that some combination of approaches will be necessary. Comparative evaluation of the possible approaches is rec- ommended. Whatever combination of approaches is arrived at, at least four important criteria must be met. The solution to the problem of overweight container trucks should (a) deal with both inbound and

98 INTERMODAL MARINE CONTAINER TRANSPORTATION outbound containers, (b) apply uniformly to all segments of the indus- try, (c) cover all areas of the country equally, and (d) be compatible with existing laws and regulations governing tmck size and weight. Although the problem exists primarily at the state and local levels, these criteria imply that the federal government must take the lead in resolving the issue and that the problem may, in fact, require a federal solution. CUSTOMS CLEARANCE PROCEDURES Issues Increasingly during the early and middle 1980s, delays and other prob- lems in clearing imported cargo through the U.S. Customs Service began to occur at major container ports, especially on the West Coast. At times, and at some ports, the clearance process became a bottleneck and significantly interfered with the flow of import trade. A national survey of customs brokers in 1986 showed that, of cargo requiring simply a review of the entry documents and not a physical examination (about 80 percent of the total), only 40 percent was cleared within one working day, whereas 42 percent required up to two days, and 18 percent more than two days. For cargo that was targeted for physical inspection, only 14 percent was cleared within one day, 26 percent took up to two days, 22 percent up to three days, and 38 percent more than three days. The slowest Customs districts appeared to be Houston and Los Angeles-Long Beach, but the phenomenon occurred nation- wide (Booz-Allen & Hamilton 1987, Ch. V, 3-7). Although an additional day or two may not seem like much, when the total transit time for the longest regular import container movement—from the Far East to the East Coast by dedicated contain- ership and double-stack train—has been reduced to two weeks, even one day can loom very large. Significant delays to a shipment at any point in a container transportation chain have a direct economic impact on the shippers, consignees, and carriers involved and, in- deed, can have a ripple effect throughout the chain if other shipments are backed up as a result. If cargo is not cleared through Customs expeditiously, importers lose, at a minimum, the benefits of the just- in-time inventory systems that have been widely established in recent years and suffer increased inventory carrying costs and the cost of additional stock needed to avoid running out of stock. Importers may also incur storage charges for their cargo at a Customs examination

Key Issues 99 station. At the worst, they may lose customers and a substantial part of their business. This is all in addition to the lost opportunity costs that the carriers incur. The other problems besides delays concerned the wide varia- tions and sudden changes from district to district in the applica- tion of Customs regulations and procedures, especially those dealing with tariff classifications, enforcement of quotas, criteria for cargo inspections, and the use of privately owned centralized examination stations (CESs). As a result, some importers and customs brokers switched their containers to other ports of entry where the cargo clearance process was thought to be less disrup- tive and less costly (Booz-Allen & Hamilton 1987, Ch. III, 7-8, Ch. VI, 4-6). Quite apart from delays, clearing cargo can be costly if the importer must pay for drayage from a marine termi- nal to a CES or for stripping and restuffing containers because they were inspected. Even greater costs may be incurred if quota enforcement is more restrictive or if different tariff classification decisions are made. It is no wonder that experienced importers and brokers "port shop" to try to find the least restrictive Cus- toms district. Because of intense competition among ports, how- ever, port authorities believe strongly that customs regulations and practices should be uniformly applied and should not be a factor in port selection (Leach 1988, 13). Background In 1985, the eight largest Pacific Coast ports formed a coalition to call attention to the delays and problems with clearance of imported cargo and to seek solutions. This group retained Booz-Allen & Hamilton in February 1986 to research and analyze the issues and develop recommendations. The consultant's report was issued in August 1987. Earlier in 1987, the Customs Service asked McKinsey & Company to identify the needs of importers and how Customs might attempt to meet them. That report was issued in February 1988. In November 1987, the Oversight Subcommittee of the House Ways and Means Committee began a two-year investigation of Customs' commercial operations, which included five hearings, four member fact-finding missions, and extensive staff work. Its report is dated February 8, 1990. As a result of these three studies, many problems have been ameliorated. Nevertheless, the major problems outlined in the following have not been fully resolved.

100 INTERMODAL MARINE CONTAINER TRANSPORTATION Current Status and Possible Solutions Inadequate Staffing The Booz-Allen & Hamilton study found, and the Oversight Subcom- mittee investigation confirmed, that the principal cause of delays in clearing cargo was inadequate Customs Service staffing of commercial operations at the local or Customs district level. This was especially true at West Coast districts, where workloads are the highest and had increased the most during the 1980s. Nationally, total formal customs entries (including containers) increased 65 percent between 1979 and 1986, whereas the number of cargo inspectors and import specialists increased only 3 percent. On the West Coast, formal entries rose 90 percent, whereas the trade-related staff grew only 2 percent (Booz- Allen & Hamilton 1987,. App. D, 2_3).36 This disproportionate in- crease in West Coast entries (stemming from the dramatic rise in U.S. imports from Asia and the Pacific rim) pushed average workload levels per inspector to about twice those of inspectors on other coasts (Booz- Allen & Hamilton 1987, Ch. I, 5-6, Ch. IV, 7-14). Three reasons have been cited for the problem of inadequate staff- ing. The first is that funding levels for commercial operations have not kept pace with increased workloads. While Customs' overall budget grew 67 percent between FY 1980 and FY 1987, the Oversight Sub- committee estimated that spending for commercial operations in- creased only 16 percent (U.S. Congress. House. 1990, 11). Customs has not asked for additional trade specialists for several years, in the belief that its automation programs will permit the handling of increas- ing volumes of international commerce with minimal adjustments in resources. Congress, however, has consistently appropriated more than Customs and the administration have requested for commercial operations every year since 1985 (Booz-Allen & Hamilton 1987, Ch. II, 10-11, App. A3). Second, throughout the 1980s the Customs Service's top manage- ment emphasized enforcement activities, particularly drug interdic- tion, often at the expense of commercial functions. Funds were diverted from commercial to enforcement and interdiction activities, personnel were transferred to districts where narcotics smuggling was prevalent, and cargo inspectors were regularly given enforce- ment duties and their performance ratings were based on those duties rather than on their facilitation of cargo entry (U.S. Congress. House. 1990, 9-13). Finally, Customs appears to have no uniform procedure for allocat- ing inspection personnel to regions and districts (Booz-Allen & Ham-

Key Issues 101 ilton 1987, Ch. 1V 1-3). Although some improvements have been made recently, by all accounts, understaffing and unbalanced staffing continue, and further study and corrective action are required to rem- edy these problems.37 Lack of Unformiiy Historically, each Customs district has had considerable autonomy in carrying out its functions. Customs Service headquarters determines broad policies and basic procedures but has not established perfor- mance standards for, or conducted regular evaluations of, the districts. District directors have wide discretion in interpreting and implement- ing central office directives. Although this flexibility has allowed the districts to respond better to local conditions, it has also encouraged them to develop independent operating procedures. As a result, in such key areas as cargo examination criteria, trade law enforcement prac- tices, and decisions on classif'ing goods for tariff purposes, the dis- tricts may differ sharply and there is a marked lack of uniformity nationally (Booz-Allen & Hamilton 1987, Ch. III, 2, 3, 7, and Ch. VI, 4; U.S. Congress. House. 1990, 13-14). These differences can have significant economic consequences. In his testimony before the Oversight Subcommittee, a port authority president gave the example of Customs districts along a coast that are instructed to inspect all cargo from Country X. At one port, Customs requires that all these containers be completely unloaded—at a cost of more than $500 per box chargeable to the importer—but at another port, in another district, Customs inspects only the entry documenta- tion (Leach 1988, 3). Another example is the implementation of the CES program, which is designed to reduce Customs Service inspection costs by requiring that cargo travel to a limited number of sites rather than customs inspectors travel to numerous sites. The added cost of draying the cargo is borne by importers. This cost varies drastically from port to port, however, because some districts are already central- ized and have not changed their operations, some have designated only one or a few sites, some have designated several sites, and some have reduced the number of sites but still retain mobile inspectors (Booz- Allen & Hamilton 1987, Ch. III, 8; U.S. Congress. House. 1990, 3 1-34, 50-5 1). In the face of such different requirements and costs, it is not surprising that importers and brokers seek to avoid certain dis- tricts. Thus employment and economic benefits at one port may be lost to another, and the conduct of commerce is artificially and unfairly skewed.

102 INTERMODAL MARINE CONTAINER TRANSPORTATION Customs believes that its automation programs, specifically the Au- tomated Commercial System (ACS), will eventually solve the problem of the lack of uniformity among districts. ACS, which encompasses most of Customs' cargo and document processing functions, includes a "selectivity" module that determines which cargo should be physically examined. The Oversight Subcommittee report found that the module is not used in the same way by all districts, has a number of flaws that still need to be worked out, and is often (legitimately) overridden by cargo inspectors (U.S. Congress. House. 1990, 25-29; Booz-Allen & Hamilton 1987, Ch. V, 2, Ch. VII, 1). In any case, cargo examination criteria represent only one area in which uniformity is lacking. Equally important is the need for standardization of tariff classification deci- sions. To increase classification uniformity nationally, the McKinsey & Company report recommended that Customs enhance existing pro- grams designed for this purpose, initiate additional training for the import specialists who make classification decisions, and institute con- sistent management controls in this area (McKinsey & Company 1988, 4-61 through 4-64). The committee endorses these recommendations. National Program Implementation A third major problem area concerns some of the national programs initiated by Customs Service headquarters. These programs were de- veloped in response to particular needs and began with great promise, but by all accounts, there have been problems in their planning and implementation (U.S. Congress. House. 1990, 14-15, 19-21, 25-29; Booz-Allen & Hamilton 1987, Ch. VII, 1-4, Ch. VIII, 3; Leach 1988, 5-6). Probably the most important is the ACS program mentioned in the preceding section. ACS has been under development since 1970 and is designed to automate virtually all of Customs' commercial operations, and Customs is relying on that automation to solve its staffing and uniformity problems. ACS enables transactions with the international trade and transportation community to be handled elec- tronically and is intended to lead to a paperless operating environment. The basic idea of this program is strongly supported by the industry. Indeed, ship operators, ports, terminals, and brokers, as well as large importers, have invested millions of dollars to develop parallel systems that will interface with ACS. At present, a substantial portion of pre- liminary data is transmitted to Customs electronically. Nevertheless, according to both the Booz-Allen and the Oversight Subcommittee reports, the system is not working as it should.

Key Issues 103 ACS became operational in late 1983, but in an incomplete form that linked but did not integrate seven separate automated systems, which contained 15 discrete sets of programs or modules (U.S. Con- gress. House. 1990, 19). From the beginning, the system has suffered from frequent turnover of ACS personnel; has undergone basic changes in direction, including many false starts; and has been sub- jected to almost daily revisions, sometimes major ones, often without any testing or documentation. The trade and transportation community has not been consulted or notified about many of these revisions, although this community is the source of the input data and the changes often require expenditures by the private sector. Although ACS is still incomplete and unintegrated and contains numerous design flaws, there does not appear to be a clear set of goals or a plan for improving the system. The Oversight Subcommittee report recommended that Customs revamp its current approach to ACS and involve users in designing and developing a system that would meet the needs of both the Customs Service and users, develop an implementation plan that clearly defines every ACS module and establishes goals for phasing the modules in, document and test all modules before they are put into operation, regularly disseminate information on ACS to the private sector, estab- lish a training program for the federal employees who will use ACS, and identify and report to Congress all impediments to electronic filing by importers to help Congress remove any statutory or budgetary obstacles to complete automation (U.S. Congress. House. 1990, 21-22). Another Customs Service program that has had problems and was probably implemented too hastily is the CES program, begun in the mid-i 980s. The Oversight Subcommittee investigation found the CES program to be poorly managed, unnecessarily costly to importers, and susceptible to fraud. Customs itself could not say whether the CES program was accomplishing its avowed goals of reducing agency costs, saving inspectors time, and improving examinations, because Washington headquarters did not regularly review or evaluate its na- tional programs. The Oversight Subcommittee report recommended strengthening the CES program by clarifying which parties are respon- sible for each step in the process, establishing uniform and equitable procedures for selecting examination stations, accepting only those free facilities from CES operators that are essential to Customs' mis- sion, regularly evaluating the CES program and individual CES opera- tors, and setting up procedures to control CES costs charged to importers (U.S. Congress. House. 1990, 14, 31-34, 50-5 1).

104 INTERMODAL MARINE CONTAINER TRANSPORTATION Conclusions During the past two years, the Customs Service has made some prog- ress on resolving the issues of inadequate staffing, lack of uniformity, and national program implementation. In particular, commercial oper- ations at Customs districts have received greater attention from Cus- toms. headquarters since early 1990, and increased financial resources and personnel have been channeled into commercial operations. In addition, the trade specialists at each district office, who classify im- ported goods for tariff purposes, have been given greater leeway to classify cargo, which, has helped speed up cargo clearance. Neverthe- less, there still appears to be a need for several more trade specialists at a number of major ports (communication from U.S. Customs Service headquarters, Januaiy 29, 1991). The administration and Congress should consider providing funds for additional trade specialist posi- tions, as well as giving the Customs Service greater flexibility in staffing by not earmarking the positions for specific locations. For their part, Customs Service headquarters and the Regional Commis- sioners should ensure that all Customs districts follow similar pro- cedures and practices in their commercial operations and, in particular, maintain uniformity in classification decisions. To do this, interre- gional communications within the Customs Service should be strength- ened, and joint industry-Customs Service committees (reflecting the recently created national committee) should be established at major ports to improve communication and to help coordinate the implemen- tation of the recommendations discussed in the preceding. Such coor- dination is especially needed to implement changes in ACS. PART B: OPPORTUNITIES FOR IMPROVEMENT INTERMODAL EQUIPMENT INTERCHANGE PROCEDURES Issues One important result of the deregulation of the marine container trans- portation industry was the vacuum created in the area of equipment control as the conventional carrier-to-carrier legal relationships that had developed under ICC regulations began to break down when the ICC started deregulating TOFC and COFC services in late 1979 (see Chapter 2). Thus it was left to the marketplace to sort out the working

Key Issues 105 relationships between the various participants in the intermodal interchange. This lack of an established legal structure governing the flow of intermodal freight creates problems for intermodal marine container transportation. For example, there is currently no single clear legal document, such as the bill of lading, that governs responsibility for protection of and payment for intermodal freight shipments. Some participants in intermodal transportation rely on the principles of com- mon law that predated the Federal Bills of Lading Act (the Pomerene Act), whereas other participants believe that state laws, such as the Uniform Commercial Codes, may now govern by default. Similarly, there is no clear definition of the parties to intermodal transactions and their respective rights and obligations. This lack of a clear and estab- lished legal structure bears directly on equipment interchange pro- cedures, discussed in this section; exacerbates the problem of overweight container trucks, discussed previously; and is an integral part of the issue of cargo liability and responsibility, discussed in the following section. Existing agreements governing the intermodal interchange of container-handling equipment between railroads and motor carriers present a barrier to more efficient use of marine containers and to the future growth and competitiveness of intermodal transportation. As intermodalism has evolved, it has become increasingly clear that solid long-term relationships are needed between railroads and motor carrier drayage firms to develop improved service and reduce costs to users— key factors in establishing the long-term competitiveness of intermodal transport. Existing Trailer Interchange Agreements (TIAs), which were created by the railroads in the early days of intermodalism, currently stand in the way of building such durable long-term partnerships. Background Early in the evolution of intermodalism, railroads made the initial capital investment in trailers and trailer-handling facilities. During this period there were virtually no intermodal departments within railroad companies, and terminals were run by boxcar operating personnel, who could be expected to be unenthusiastic about marketing contain- erized freight because much of it was being diverted from boxcar. There was also a concern that the motor carriers would use rail trailers for their own business unrelated to rail. Therefore, in an effort to protect their capital investments and to cover their potential contingent

106 INTERMODAL MARINE CONTAINER TRANSPORTATION liability while their trailers were in the control of unrelated motor carriers, the railroads created what is now commonly known as a TIA. Although the provisions of TIAs vary, most make the interchanging motor carrier solely responsible for the container-handling equipment (even when in the possession of third parties) and its return in good condition to the rail carrier. (Similar agreements also exist between marine carriers and motor carriers.) Overtime, these TIAs have become a major source of concern for the truckers, who argue that the agreements are unilateral and unfair. The motor carriers, however, have little leverage: the railroad companies are large and few in number, whereas there are many small trucking firms involved in drayage of containerized freight; any cooperative attempts by the truckers to consolidate their approach have run afoul of antitrust legislation (G.P. Steffire, unpublished paper, 1990, 1). In the mid- to late 1970s, rail intermodalism showed strong signs of its profit-making potential, and railroads began to market intermodal containerized freight service as a unique service. Because their sales departments had been cut back, most of the intermodal sales were entrusted to shipper's agents (often former railroad employees), who bought space wholesale from railroads and sold it retail. These ship- per's agents packaged truck-rail-truck door-to-door programs and, in so doing, became the link between the rail and intermodal motor carriers. In the late 1970s and early 1980s, deregulation of the various types of intermodal freight eliminated any administrative protections the motor carriers might have had from potential abuse by other parties of the intermodal equipment interchange process. Thereafter, market forces and economic leverage dictated the bargaining processes by which TIAs were offered and accepted. A customer relationship devel- oped between rail marketing personnel and shipper's agents, with mo- tor carriers holding a relatively unimportant role in the process. In 1984, apparently as the result of the railroads' inability to compel their shipper's agents to collect trailer storage and use charges from the shippers, several railroads altered their TIAs to make the intermodal motor carrier directly liable to the raUroad for all equipment charges without regard for fault. That action began a multiyear process during which the free market attempted to adjust the burdens imposed by those unilateral railroad decisions. Each of the motor carrier industry mechanisms created or modified to accomplish this, however, suffered from a common problem: if effective, such instruments would violate antitrust laws. Thus no single, industxywide solution has evolved.38

Key Issues 107 Recent Developments Today, intermodal motor carriers, stack-train operators, and railroads all have capital invested in intennodal service and all have direct involvement with shippers and consignees. All parties have recently acknowledged the need for a rationalized, productive interchange of intermodal container-handling equipment because it is clear that con- sistent, reliable door-to-door service is essential to the growth of the intermodal marketplace. To be competitive with the service provided by high-quality truck- load carriers, the interlocking intermodal freight industiy providing door-to-door service requires that each mode contribute its expertise to the movement and commit itself to achieving high performance and reliability. This requires the involvement of the shipper, shipper's agent, consignee, and rail and motor carriers at the beginning of the freight flow, and it requires the establishment of a mutually binding agreement, so that all know what is expected of them and what they may expect from the others. Transfers between railroads and motor carriers at the terminal probably offer the best opportunity today to improve door-to-door intermodal service. In the past two years, increasing attention has been focused on the need for improved equipment utilization and thus on the need for improvement in the railroad-motor carrier interchange. A recent study for the Federal Railroad Administration and MARAD concluded that drayage is a major cost element in double-stack operations and that, if railroads are to improve their service and enhance their door-to-door reliability, they must establish partnerships with intermodal motor carriers through improved relationships that stress mutual benefit (Manalytics 1990, 106). Acting on a similar conviction, the ATA's Intermodal Council re- cently established a committee that is now meeting with Class I rail- roads in an effort to determine proactive ways to improve the level of intermodal door-to-door service. In this approach, the ATA Intermodal Council has focused on the negative effects that TIAs have had on efficiency and productivity, and the potential benefits to both motor carriers and railroads of alternative interchange agreements that ad- dress motor carrier concerns. The railroads' reaction to this service-oriented approach has been positive. The Atchison, Topeka, and Santa Fe Railway openly dis- cussed its current TIA revisions with the ATA Intermodal Council committee and has made changes to improve productivity. The Santa

108 INTERMODAL MARINE CONTAINER TRANSPORTATION Fe has also initiated a program of semiannual meetings with its motor carrier partners to discuss operating inefficiencies and ways to make door-to-door service more reliable. The Sante Fe has decided that it will achieve a greater intermodal market share by working with motor carriers and offering incentives in place of the traditional TIA disin- centives. The Burlington Northern Railroad began a similar program in October 1990, and the Southern Pacific has indicated its interest in initiating such a program. Conclusions The recent ATA initiative and railroad response are encouraging and support the goal of promoting better (nonadversarial) long-term rela- tionships between the railroads and intermodal motor carriers. As a general principle, all of the modes involved in intermodal transporta- tion should be represented in planning the logistics of intermodal moves and the assignment of responsibilities should ensure that no mode is unreasonably burdened. The industry should develop partner- ships based on service and equitable cost-responsibility arrangements. The relationship between the modes should be continuous and flexible, to allow for adequate exchange of data to facilitate planning and rea- soned response to market changes. The lack of an established legal structure to govern the flow of intermodal freight is an issue with ramifications that exceed the scope of this study. The committee believes that a comprehensive examina- tion of this issue should be undertaken, with the goals of understanding the problems created and determining how best to address them. In particular, a comprehensive study of the intermodal interchange (among rail, marine, and motor carriers) is needed to provide the basis for further analysis of the problems stemming from the absence of a clear legal framework governing the interchange. CARGO LIABILITY AND RESPONSIBILITY REGULATION Issues A barrier to improved efficiency in marine container shipping is the lack of uniform cargo liability and responsibility regulations for inter- national intermodal shipments. Numerous international agreements and national laws have been established or proposed on this topic, many of which set forth differing rules and limits of liability for loss or

Key Issues 109 damage to cargo in international movements. Under existing law, although an ocean carrier or conference may have responsibility for an entire through movement, the carrier's liability differs according to the leg of the journey on which the damage or loss occurred. Thus, al- though "single responsibility" may nominally exist for intermodal movements, in practice the liability is still somewhat uncertain. In addition, shippers and carriers hold sharply differing views on the allocation of risk for the ocean leg ("nautical fault") and thus on the desirability of changing the existing rules and limitations. Background For many years, the maritime law covering shipowner liability in the event of loss or damage to cargo has been governed by the 1924 Hague Rules. The United States ratified the Hague Rules in 1937 and imple- mented them into U.S. statutory law by the Carriage of Goods at Sea Act (U.S. Code, Title 46, § 1300 and the following). The Hague Rules and the Carriage of Goods at Sea Act set out the bases for shipowner liability to cargo, preclude contractual exemptions of liability on the part of shipowners, provide shipowners with 17 specified defenses to liability, and establish a limit on the shipowner's liability of $500 per package or customary freight unit. Several international bodies have been working since at leastthe early 1960s to resolve problems and points of contention that have arisen between shippers and shipowners on cargo responsibility and liability. Key issues have been the inefficiencies stemming from the application of many different international agreements and national laws to a single intermodal movement and the debate between shippers and carriers about the allocation of risk and desirable limits of liability. To date, however, none of the proposed international agreements has attracted sufficient support to be adopted by all interested parties. In 1968 a diplomatic conference convened in Brussels, Belgium, and adopted a protocol to amend certain provisions of the Hague Rules. This protocol, the Visby Amendments, contained two principal features: An increase in the per package limit from approximately $500 to approximately $600, with an alternative limit of approximately $1.95/ kilo; the shipper is entitled to use whichever method (per package or per kilo) that produces a higher recovery. Adoption of a "container clause" specifying that each individual package in a container—and not the container and all its contents

110 INTERMODAL MARINE CONTAINER TRANSPORTATION collectively—be considered a package for the purposes of the per- package limitation, provided that the shipper enumerates on the bill of lading the number of packages or units in the container. The Visby Amendments do not change the Hague Rules in other re- spects, and they preserve the general scheme of liability and the car- rier's 17 defenses. The Visby Amendments, which entered into force on June 23, 1977, have never been ratified by the United States. In 1978 a diplomatic conference convened in Hamburg, Germany, and adopted the Hamburg Rules, which are composed of 34 separate, detailed articles that would replace the Hague Rules and the Visby Amendments by (among other provisions) Creating a presumption of carrier negligence in the event of dam- age to goods, and Eliminating specific reference to most of the 17 defenses, includ- ing the defense that exonerates a carrier from liability when damage to the cargo is caused by the negligence of the carrier's servants or agents "in the navigation or in the management of the ship." The Hamburg Rules also increase the limits of liability to approxi- mately $835 per package or, alternatively, at the shipper's option, to $2.50/kilo. The last of the 20 nations needed to bring the Hamburg Rules into effect recently ratified the treaty; the Hamburg Rules will take effect one year after that ratification.39 In 1980 a Multimodal Convention was adopted with the same ap- proach to liability as that contained in the Hamburg Rules. The United Nations Convention on the Multimodal Transport of Goods allows for the creation of a new entity, called a multimodal transport operator (MTO), who could offer to shippers, at their option, a through bill of lading with a door-to-door system of liability. The Multimodal Con- vention establishes limits of liability of approximately $920 per pack- age, or $2.75/kilo. These limits apply in all instances in which (a) the mode on which the damage occurred cannot be determined or (b) the mode on which the damage occurred can be determined and the limits under that mode are lower than those under the Multimodal Conven- tion. Under this convention, shippers would bring their claims and lawsuits against the MTO, who could, in turn, bring a subrogation action against the underlying actual carrier. At present, only 5 of the 30 countries required to bring the Multimodal Convention into effect have adopted the treaty.

Key Issues 111 Recent Developments The U.S. government signed both the Visby Amendments and the Hamburg Rules but has not taken steps to recommend either of the treaties to the U.S. Senate for ratification. Shipowners and cargo underwriters have indicated their support for immediate ratification of the Visby Amendments and their opposition to the Hamburg Rules. Shippers, on the other hand, have indicated their support for the Hamburg Rules and not the Visby Amendments; they urge immediate ratification of the Hamburg Rules and the Multi- modal Convention. The carriers favor the agreement that would give them the most limited liability, and they hope that ratification of the Visby Amendments would put an end to the debate. On the other hand, the shippers believe that it would be best to establish a new, more clear-cut regime; they seek to impose greater liability on the carriers; and they oppose the Visby Amendments because they believe that adoption of that Protocol would preclude adoption of the Hamburg Rules, which they favor. Several meetings were conducted during 1989-1990 between U.S.- flag carrier and shipper executives to reach a compromise position on revising the Carriage of Goods at Sea Act. Although the participants were unable to reach an overall agreement, discussions were beneficial and the gap between their positions was narrowed. Carrier and shipper representatives agreed on the need for the following: A worldwide uniform liability system applicable to all ocean car- riers in all trades, Any liability system to minimize transportation cost, Facilitation of multimodal transportation, and A reasonable minimum and maximum limit of liability, with the option to contract below the minimum and above the maximum. Agreement was not reached on the allocation of risk for the ocean leg of a shipment (nautical fault). The carrier position holds that it is fair to allocate fortuitous risk between the carrier and the shipper: the carrier loses the ship and the shipper loses the cargo. The shipper position holds that higher liability and risk belong with the party that has control of the cargo during transit, that is, the carrier. The carrier-shipper deliberations concluded with a recommendation that DOT (a) initiate a cost-benefit analysis of the experience under the Carriage of Goods at Sea Act, including cost, occurrence, and litiga- tion data on claims involving nautical fault and catastrophic experi- ences for a reasonable past period; and (b) conduct a comparable

112 INTERMODAL MARINE CONTAINER TRANSPORTATION evaluation of the Visby Amendments and the Hamburg Rules to the extent possible. A possible compromise, calling for ratification of both the Visby Amendments and the Hamburg Rules, was proposed in discussions by officials of the U.S. Departments of State and Transportation and industiy representatives including shippers, carriers, and marine in- surers in 1989. Under this proposal, the U.S. government would trans- mit both agreements to the Senate for ratification, with the proviso that the Visby Amendments would take effect immediately and the Ham- burg Rules would become effective once they were also ratified by a substantial number of countries that are trading partners of the United States. To date, however, there has been no agreement by shipowners, cargo underwriters, and carriers to accept this or any other compromise. Conclusions Under these circumstances, the U.S. government (acting through DOT) should continue its efforts to evaluate the costs and benefits of these treaties, assess the actions taken by other countries in complying with the terms of the treaties, and, when appropriate, bring forth a specific proposal to transmit to the Senate including its recommenda- tions for ratification. It seems clear that an effective resolution will require compromise between the shipowners and cargo underwriters on the one hand and the shippers on the other. At present, however, the remaining differences in the views of shippers and carriers on changing the rules and limits of cargo liability and responsibility are unresolved. CREATION OF A FEDERAL INTERMODAL COORDINATING OFFICE Issues For several years, many in the intermodal freight transportation indus- try have believed that better coordination of public policies affecting the industry is needed. One of the avowed purposes of establishing DOT in 1966 was to facilitate "the development and improvement of coordinated transportation service" [U.S. Code, Title 49, § 101(b)]. It was widely expected that the Office of the Secretary of Transportation would perform an integrating function to accomplish this goal. How- ever, a recent report by OTA has found that "DOT agencies still manage each mode as a separate, independent system, rather than a

Key Issues 113 contributor to an integrated system that has complex intermodal con- nections in large, metropolitan areas" (OTA 1991, 11). Intermodal marine container transportation continues to grow, and if domestic containerization spreads widely (as many believe is now happening), intermodal movements will become an even larger portion of all freight movements. With greater growth come greater problems and a more urgent need for federal attention to intermodal issues. These concerns were raised earlier in a 1987 report prepared for the National Council on Public Works Improvement, a body established by Congress to review the state of the nation's infrastructure. Interrnodal transportation was one of nine major areas singled out for separate study. The report stated: "Perhaps the most important conclusion that emerges from this review of intermodal transportation is the lack of intermodal coordination particularly at the national level. [There is a] lack of a central focus point where the national implications of intermodal trans- portation can be taken into account" (Revis and Tarnoff 1987, 143). To rectify this, the following recommendations were made: A federally centralized agency could provide direction and initiative for many intermodal activities for which the federal government would need to take the lead. The primary objective of the agency would be to identify national intermodal needs and policies, and stimulate and promote intermodal transportation consistent with national objectives and policies. Indicated functions include: Encourage an integrated and coordinated port access/urban planning process as a means of assuring the development of a systemic and intermodal approach.... Provide leadership in the development of intermodal standardization. Undertake an information collection and dissemination program to develop an intermodal transportation data base. Initiate and stimulate research and development on intermodal trans- portation. As part of this program, prepare a research and development agenda. Undertake studies on the relationship between intermodal transporta- tion and development of national policies in growth and trade, and serve as an ombudsman. Monitor and evaluate the interacting intermodal impacts on public works infrastructure in transportation and identify needs in terms of design standards (e.g., vehicle clearance, truck weight and sizes, etc.). (Revis and Tarnoff 1987, 144-145) To carry out this program, the report recommended establishing an Office of Intermodal Transportation Coordination in DOT that would report directly to the Secretary, and a separate Productivity Council on Intermodal Transportation Coordination that would develop a productivity-oriented research program.

114 INTERMODAL MARINE CONTAINER TRANSPORTATION Although the committee does not disagree with most of these goals, it envisions something on a more modest scale—a small office dealing only with freight transportation that would serve as a focal point within DOT and the government and perform mainly a facilitating and coor- dinating role. Such an Office of Intermodal Freight Transportation would probably best be located within the Office of the Assistant Secretary for Policy and International Affairs •40 At that level, it should command the attention of the modal agencies without threatening their domains, and, equally important, it could work closely with the other offices in that division: International Transportation and Trade, Trans- portation Regulatory Affairs, and Economics. As now envisioned, the office would perform the following five functions. Information Collection and Dissemination An important task would be to create an intermodal freight transporta- tion data base, including statistics on container trade, by compiling and publishing data that are already being collected by federal agencies and private sources.4 ' In addition, the office would collect and disseminate to the industry information on the latest technological and organiza- tional innovations in intermodal freight transportation, especially ad- vances made in Europe and Japan. Facilitation and Mediation The office would provide a protective umbrella for the intermodal freight industry to come together to discuss problems of mutual con- cern; this could include bringing shippers together as well as carriers. An example of the kind of issue in which the office could be of great value is the problem of intermodal equipment interchange discussed previously. Coordination A principal function would be to serve as a catalyst to coordinate the policies and actions of federal agencies and mitigate interagency con- flicts, particularly concerning conflicting regulations that impede the transportation process. Examples include helping FMC and ICC agree on a definition and format for through bills of lading, helping the Customs Service and the U.S. Department of Agriculture inspection services coordinate their cargo inspection programs, and bringing to- gether federal, state, local, and regional environmental agencies to try

Key Issues 115 to smooth out and speed up the permitting process for disposal of dredged materials. In the same way, the office could work with the states to tiy to bring greater uniformity to their highway weight limits and enforcement practices. The office could also provide leadership to help industry in such areas as coordinating electronic data interchange programs and standardizing container types and sizes. Research and Analysis Most of the efforts should be focused on identifying major research needs and resources, and drawing up a comprehensive research agenda for other agencies and private organizations to carry out. The office might have a small budget to fund a few short-range analytical studies (e.g., to determine the benefits of neutral chassis pools) that would otherwise not be performed. It is not envisioned that the office would have a major research role. Provision of Technical Expertise Finally, the office would serve as a resource center of technical exper- tise on questions about intermodal transportation for other government agencies, particularly those agencies that promote U.S. commercial interests abroad or negotiate with other nations (the U.S. Departments of Agriculture, Commerce, and State, and the Office of the U.S. Trade Representative). Conclusions Creation of a federal intermodal coordinating office is an opportunity for government to assist intermodal marine container transportation in a manner that could be relatively quickly and easily realized—the office could be established by executive order and funded from the current DOT budget. [Note: Establishment of such an office within DOT was mandated by the Intermodal Surface Transportation Effi- ciency Act of 1991, which was enacted subsequent to the development of this recommendation.] COLLECTION AND PUBLICATION OF CONTAINER TRADE DATA Issues As previously mentioned, one major function of the proposed Office of Intermodal Transportation would be to collect and disseminate sta-

116 INTERMODAL MARINE CONTAINER TRANSPORTATION tistics on marine container transportation. Currently, key container data, especially container flow data, are either unsuitable for many purposes or have not been collected. This data problem is part of a large and growing information gap on all types and modes of freight transportation. The situation has been well documented in the mar- itime area in recent studies (Weiers and Kelleher 1987, 169-178) and is the focus of a recent TRB paper: At present, due to continuing economic regulation of U.S. foreign trade, data are collected on movements by mode and product to and from the United States. As worldwide economic bathers decline, for- eign trade data collection is likely to decrease in the 1990s. For freight flows moving in the domestic transportation system, little, if any, public information is available on a timely basis. For right-of-way or safety planning purposes, transportation analysts generally do not know what products are moving where by what carrier. This results in a curious paradox for national freight transportation planning and policy analysis during the 1990s. Individually, private firms have substantially increased their collection and use of origin- destination freight flows and carrier performance data to enhance global competitiveness. Many federal, state, and local transportation authori- ties, on the other hand, have substantially reduced freight flow and carrier data collection activities. As a result, most private companies are planning freight movements under the assumption that modal capacity will be available in the 1990s, while public agency transportation plan- ners have littlç or no information on which to base plans for emerging right-of-way and facility capacity requirements. (Anderson 1990, 26-27) An information gap specifically in the intermodal area was noted in the 1987 Report on Intermodal Transportation prepared for the Na- tional Council on Public Works Improvement: Intermodal data information is practically non-existent, and this condi- tion has been compounded by a loss of some modal data as a result of deregulation. The need for intermodal data has been noted by everyone concerned, and the federal government cited as the only place where such information could be collected and the confidentiality of individual data providers assured. (Revis and Tarnoff 1987, 102-103) DOT has now recognized the need to improve federal collection and dissemination of transportation data. In its recently issued Statement of National Transportation Policy, DOl says that it will, as part of its short-term program agenda, Develop a comprehensive assessment of data needs and priorities of the Department and the transportation community. Develop more effective and permanent institutional mechanisms within the Department to en- sure that transportation-related data collected by different agencies can

Key Issues 117 be effectively linked, to collect data on multimodal passenger and freight transportation flows, and to integrate and disseminate transportation-related data collected by DOT and other public agencies. (DOT 1990, 124) To assist in developing this program, DOT asked TRB to assess current and anticipated transportation data resources and to recom- mend improvements needed to support informed decision making in transportation. As part of this effort, TRB's Task Force on Freight Transportation Data cosponsored (together with the Washington Chap- ter of the Transportation Research Forum) a November 1989 confer- ence to examine the changing federal role in this area. Several background papers were issued in preparation for that conference or as a follow-up to it. One is a comprehensive inventory of the transporta- tion data reports that the federal government regularly requires (Recur- ring Transportation Data Sources 1989). A second identifies information needs and issues in freight transportation, and includes an extensive list of public and private data sources (Anderson 1990). The proceedings of the conference were published in December 1990 (TRB 1990a). In addition, DOT asked TRB to conduct a special policy study on data requirements for national transportation policy making. The pur- pose of the study was to examine the availability and quality of data, particularly multimodal data, for national transportation policy making and to assess the need for more effective institutional mechanisms within DOT to improve the collection and management of these data. The final report of the study was published in January 1992 (TRB 1992). Conclusions The efforts just discussed are promising, as is recent Congressional attention to intermodal freight transportation data requirements.42 The potential exists to enhance ongoing trade data collection efforts, for example, by adding container size to current Census waterborne trade data or expanding the scope and detail of the automated manifest system, which already contains extensive container information on imported goods. The needs of the private sector should also be incor- porated, as highlighted in the 1987 report prepared for the National Council on Public Works Improvement: [The federal] program for collecting, processing and disseminating in- termodal transportation data. . . should be organized around data users who could assist in identifying the specific data requirements, and help

118 INTERMODAL MARINE CONTAINER TRANSPORTATION set priorities on specific data and/or information needs of both the public and private sectors. The primary objective of the project would be to develop an on-going data base that would meet the combined needs of public and private users. (Revis and Tarnoff 1987, 103) NOTES The cost differential between U.S.- and foreign-built ships may not, how- ever, be as great as the price differential, owing to subsidization of many foreign shipyards by their governments. U.S. crew costs are higher because of both higher manning requirements (prescribed by law) and higher wage rates for most ratings. The next section deals with the issue of manning requirements; this section is focused solely on the subsidy programs. The historical parts of this section are largely based on an OTA report (1983), especially Chapter 6, and on a GAO report (1981). The ODS program is administered by MARAD through contracts with vessel operators covering individual ships. The contracts normally run for 20 years but can be extended for five additional years. See the several studies and examples cited in the GAO report (1981). Ship- yards of many European and Far Eastern nations that are major competitors of the United States continue to be subsidized in various ways by their national governments. Both the CDS and ODS programs are applicable only to ships in U.S. foreign commerce; ships engaged in purely domestic commerce, which by the Mer- chant Marine Act of 1920 (the Jones Act) must be U.S. built, registered, and crewed, are not eligible for either of these subsidies. Likewise, ships receiv- ing these subsidies are not permitted in the domestic trades, although there are some exceptions. The 1936 act exempted trade with the Virgin Islands from all Jones Act restrictions, and it allowed liner vessels receiving ODS to carry domestic cargoes to and from Hawaii, Guam, and Puerto Rico with a partial repayment of the subsidy. Furthermore, trade with U.S. Pacific island possessions can be carried on foreign-built ships if they are U.S. registered and crewed. The U.S. price represented an average of three different costing methods covering five shipyards, whereas the foreign price was a composite of ship- yards in four nations. In all cases, the estimates included the appropriate national inflation rate, and interest charges on borrowed funds (all calculated at the same rate) that must be paid while a ship is under construction (infor- mation furnished by APL in March 1990). Information on ages, propulsion, and crew sizes is taken from the ship register in Containerisation International Yearbook (1990). For their part, ship operators prefer to employ U.S. crews rather than foreign crews, not just because they receive a subsidy, but because they believe that American merchant seamen are the most skilled, best trained, and highest performing, and the presence of a U.S. crew helps a camer sell its services to its best customers—American shippers. However, there is no denying that U.S. merchant seamen are paid more and that an operating subsidy is neces- sary if U.S.-flag ships are to remain competitive.

Key Issues 119 Shipbuilders are likely to oppose any bill that gives foreign-built ships ODS eligibility unless it also provides for at least some new construction in U.S. shipyards. The shipbuilders might agree to such a bill if the United States were able to negotiate an international agreement to end all foreign shipyard subsidies—a possibility currently under discussion. See article in Journal of Commerce (1991). A minimum of at least one year is needed for planning, negotiating a con- tract, and designing a ship even before construction begins. No more precise figure can be given for the percentage of total costs attributa- ble to this or other cost elements because the percentage varies depending on underlying differences in factors such as carrier operations and fleet age, and on whether shoreside activities such as cargo handling are included. It is difficult to determine the relative impact of each component on total crew costs; there are apparently no studies on this question. It does appear that U.S. wage rates are as much higher than foreign wage rates as U.S. crew sizes are larger than foreign crew sizes [see GAO report (1981, 29-31) and study by Ackerman (1982)]. Because nonunionized carriers pay almost the same rates, these rates probably reflect the competition among ship lines for a shrinking pool of qualified merchant seamen as much as they reflect the success of union bargaining [see MARAD report by Ernst & Whinney (1979, 5-7)]. This background section is based on a Marine Board report (1984, 20-23, Appendix Q. This requirement could be eliminated in the near future if an amendment to the international convention is ratified by a sufficient number of nations and if the U.S. statute is changed accordingly. The amendment would allow but not require automated signalling equipment to replace the radio officer. It can be expected that seamen's unions will oppose changing the U.S. law. These concerns are also recognized by the administration (DOT 1990, 67). Cargo preference policies refer only to foreign trade and are to be distin- guished from cabotage policies, which refer only to domestic trade. In the United States, all domestic waterborne trade, including coastal, intercoas- tal, and domestic offshore, is reserved for U.S.-built, U.S.-owned, U.S.- registered, and U.S.-crewed vessels by the Merchant Marine Act of 1920 (Jones Act). For the many means that nations have used to support their maritime industries, see the introduction and country summaries in the MARAD (1988) and Transportation Institute (1989) reports on maritime subsidies. Several bills have been introduced in recent years to extend U.S. cargo preference to purely commercial cargoes, especially liquid- and dry-bulk commodities, but none has been enacted. For an analysis of cargo preference for government-financed bulk commodity shipments, see the Congressional Research Service report by Ek (1989). According to testimony by General Duane Cassidy, Commander in Chief, U.S. Transportation Command, before the Senate Merchant Marine Subcom- mittee on July 13, 1989, the Navy has already invested, since 1980, "nearly $7 billion in sealift improvements to increase government owned sealift capacity to offset declining civilian capacity." Nevertheless, several billion dollars more would be required to replace the civilian cargo ships that the Navy is counting on for wartime use. The example is given of American Coastal Lines, which had no operating experience when it received an MSC contract, never carried much commer- cial cargo, and went out of business in a short time (Verdon 1989, 8).

120 INTERMODAL MARINE CONTAINER TRANSPORTATION Under MARAD regulations, a foreign-built and foreign-registered ship would generally not be eligible to carry most types of preference cargo until it had been reregistered under U.S. law for 3 years. Apparently, however, the 3-year waiting period can be avoided when a foreign carrier acquires or establishes a subsidiary U.S. corporation, incorporated under U.S. laws, that in turn owns or acquires U.S.-built and U.S.-registered ships. As long as certain officers and board members are U.S. citizens, such a corporation could be wholly owned by foreign economic interests, but its ships would be immediately eligible to carry U.S. preference cargoes. In cases in which an operating ratio (expenses, excluding taxes and interest, divided by revenue) was used as the standard, the ICC identified a group system ratio that it considered to be a reasonable revenue level. Richardson believes that some equivalent of this operating ratio of motor carriers could be developed to apply the rate of return approach to sealift procurement contracts. Another basic issue with relationships to environmental policy is that of impediments to landside intermodal access to U.S. general cargo ports. This issue is currently being examined by another TRB study committee. These and related concerns were addressed in an earlier NRC study, Dredg- ing Coastal Ports: An Assessment of the Issues (Marine Board 1985), which found that "the complexity of the institutional decision making system for port dredging reflects the need to address and manage a large and difficult set of real needs and concerns. But the system does not allow timely port devel- opment, either of federally or locally funded projects. Actions need to be taken by Congress, the regulatory agencies, and the ports to achieve speed, predictability, and stability in decision making, as suggested in succeeding findings" (page 7). See also paper by Davis et al. (1990, 47-83). See also discussion by Wessel and Hershman (1988, 253-286). The term "potentially overweight" is used "because of the variety of state and municipal highway weight limits that may allow vehicles to transport these containers under special operating permits and/or 'grandfathered' weight limits that exceed the federal bridge formula" (FHWA 1989, 16-17). In fact, all of these container movements would exceed federal highway weight laws unless very specialized (and very expensive) equipment like three-axle slider chassis were used. Overweight container rigs are only a part of the more general problem of overweight trucks; although no definitive studies are available, the FHWA has informally estimated that overweight trucks constitute from 15 to 20 percent of all trucks on intercity highways. A new provision of the California Business and Professions Code allows criminal prosecution of consistent violators of highway weight limits (Cal- trans 1989, 30-3 1, 46, 61-62). For details see the 1989 report of the American Trucking Associations. Personal communication with Tom Adamski, President, East Coast Intermo- dal Systems; personal communication with Al Mascaro, Executive Director, Intermodal Transportation Association, Washington, D.C., April 25, 1988; personal communication with Jim Johnston, President, Owner-Operators In- dependent Drivers Association of America, April 20, 1988; see also testi- mony before the California Assembly (1985, 2).

Key Issues 121 Many of the proposals have been discussed in detail elsewhere (Caltrans 1989; Containerisation International 1989; Container News 1989). Along these lines, an International Container Loading Task Force was estab- lished in 1990 bringing together NITL members (shippers) and representa- tives of ocean, rail, and highway carriers and terminal operators. Thus far, this group has not reached any consensus recommendations on the over- weight container truck issue. The committee relied extensively on data and analyses provided in these three studies (Booz-Allen & Hamilton 1987; McKinsey & Company 1988; U.S. Congress. House. 1990). It would have been useful, but was not possible given limited study resources, to conduct a comprehensive analysis of Cus- toms' history of inspections at various ports, including breakdowns by com- modity, shipper, and country of origin. The Oversight Subcommittee report (U.S. Congress. House. 1990, 5, 11) indicates that, for the period 1980-1989, formal entries grew 133 percent nationally, but the total commercial operations staff (including both headquarters and the field) remained roughly constant or actually declined. For discussion of continuing problems, see the Oversight Subcommittee re- port (U.S. Congress. House. 1990, 11-12) and press release issued by West- ern States Coalition for Effective U.S. Customs Service (December 5, 1989, "Trade Forums Critical of U.S. Customs"). For recommendations, see Over- sight Subcommittee report (U.S. Congress. House. 1990, 12-13). The Uniform Intermodal Interchange Agreement, promulgated by the Inter- modal Transportation Association, was created in an attempt to establish generic intermode duties and responsibilities. Although it has existed for a decade, it has not been widely adopted as an alternative to individual inter- changes. More recently, the Uniform Storage and Detention Code was cre- ated in an effort to establish an industry definition of responsibility for storage and per diem payments. This agreement is in its infancy, and, to avoid antitrust implications, it contains no references to economic issues and permits signatories to avoid the code's terms through separate agreement (information provided by Greg P. Steffire, Executive Vice President, Law, Rail Delivery Services, Los Angeles). Although the United States has not ratified the Hamburg Rules, some imports will be affected insofar as "cargo shipped under bills of lading in Hamburg Rule countries will travel under a liability regime that is far more shipper- friendly than most regimes in effect today" (American Shipper 1991, 54). As a follow-up to its 1990 Statement of National Transportation Policy (DOT 1990), DOT established a working group on Improved Intermodal Access and Coordination, to advise on the establishment of such an Office or Divi- sion of Intermodal Transportation or, alternatively, an Intermodal Council with representation by all of the modal agencies. In addition, the Intermodal Surface Transportation Efficiency Act of 1991 directs the Secretary of Trans- portation to establish an Office of Intermodalism within DOT. See section on collection and publication of container trade data for more details. The 1991 surface transportation reauthorization legislation, which requires a DOT Office of Intermodalism to be established, directs that office to develop and maintain an intermodal transportation data base.

122 INTERMODAL MARINE CONTAINER TRANSPORTATION REFERENCES ABBREVIATIONS Caltrans California Department of Transportation Commad Commission on Merchant Marine and Defense DOT U.S. Department of Transportation FHWA Federal Highway Administration GAO General Accounting Office MARAD Maritime Administration OTA Office of Technology Assessment SOIC Steamship Operators Intermodal Committee SPANS Sealift Procurement and National Security Study TRB Transportation Research Board Ackerman, P. 1982. Comparative Operating Costs for U.S. and Foreign-Flag Ships. Society of Naval Architects and Marine Engineers, New York. American Shipper. 1988. Overloading Boxes is Risky Business. Feb. American Shipper. 1991. New Arrival Will Change Insurance Coverage. July. American Trucking Associations. 1989. Summary of (State) Size and Weight Limits. Alexandria, Va., Jan. Anderson, D.L. 1990. Freight Transportation Data Needs, Resources, and Issues. In Transportation Research Record 1253. TRB, National Research Council, Washington, D.C., Jan. Booz-Allen & Hamilton, Inc. 1987. U.S. Customs Service Research Paper. West- ern States Coalition for Effective U.S. Customs Service, Oakland, Calif., Aug. California Assembly. 1985. Overweight Truck Containers, Who's Responsible? Assembly Transportation Committee Hearing, Oakland, Dec. 4. Caltrans. 1989. Overweight Intermodal Containers and Piggyback Trailers— Report to the Legislature. Sacramento, Dec. Commad. 1987a. First Report of the Commission on Merchant Marine and De- fense: Findings of Fact and Conclusions. Washington, D.C., Sept. 30. Commad. 1987b. Second Report of the Commission on Merchant Marine and Defense: Recommendations. Washington, D.C., Dec. 30. Commad. 1988. Third Report of the Commission on Merchant Marine and De- fense: Findings of Fact and Conclusions. Washington, D.C., Sept. 30. Commad. 1989. Fourth Report of the Commission on Merchant Marine and Defense: Recommendations. Washington, D.C., Jan. 20. Containerisation International. 1989. Waiting on Weight.. .U.S. Truckers Grow Tired. London, May. Containerisation International Yearbook. 1990. National Magazine Co., London. Container News. 1989. FMC Weighs Overweight Container Problem. Oct. Davis, J.D., et al. 1990. The Environmentally Sound Disposal of Dredged Mate- rials. In Environmental Considerations for Port and Harbor Developments, World Bank Technical Paper 126, pp. 47-83. DOT. 1983. Report on Audit of Vehicle Size and Weight Enforcement Program in the Federal Highway Administration. Office of the Inspector General. DOT. 1990. Moving America: New Directions, New Opportunities—A Statement of National Transportation Policy and Strategies for Action. Feb.

Key Issues 123 Ek, C. 1989. Cargo Preference and Agriculture. Congressional Research Ser- vice, Nov. 26. Ernst & Whinney. 1979. Cost Impact of U.S. Government Regulations on U.S. Flag Ocean Carriers. MARAD, U.S. Department of Transportation, Dec. Failor, G.L. (American Association of Port Authorities). 1988. Statement before Subcommittee on Water Resources, Transportation, and Infrastructure, Com- mittee on Environment and Public Works, U.S. Congress, Senate, March 17. FHWA. 1984. Bridge Gross Weight Formula, 2nd rev. ed., July. FHWA. 1988. The Problem of Moving Overweight Containers Carrying Interna- tional Cargo Over America s Highways. Draft Report, U.S. Department of Transportation, Nov. 30. FHWA. 1989. Analysis of Port Import/Export Reporting Service (PIERS) Data to Reveal Potentially Overweight Container Movements on America's Highways. Transportation Studies Division, Office of Policy Development, U.S. Depart- ment of Transportation, March 20. GAO. 1981. Maritime Subsidy Requirements Hinder U.S. Flag Operators' Com- petitive Position. U.S. Congress, Washington, D.C., Nov. Intermodal Age. 1988. Cargo Overload Solutions Sought. Jan/Feb. Journal of Commerce. 1989. Cutbacks Will Be Costly To Some. Dec. 27. Journal of Commerce. 1991. Build-Foreign Authority Linked to Shipyard Sub- sidy Initiatives. April 1. Leach, R.P. (Port of Houston Authority) 1988. Testimony before Oversight Sub- committee, Ways and Means Committee, U.S. House of Representatives, Au- gust 9. McKinsey & Company. 1988. Developing A Strategic Vision of U.S. Customs' Commercial Operations. U.S. Customs Service, Feb. Manalytics, Inc. 1990. Double Stack Container Systems: Implications for U.S. Railroads and Ports. Final Report. Federal Railroad Administration and MARAD, U.S. Department of Transportation, June. MARAD. 1988. Maritime Subsidies. U.S. Department of Transportation, June. MARAD. 1991a. MARAD '90-Annual Report of the Maritime Administration for Fiscal Year 1990. U.S. Department of Transportation, April. MARAD. 1991b. Inventory of American Intermodal Equipment-1990. U.S. Department of Transportation, April. Marine Board. 1984. Effective Manning of the U.S. Merchant Fleet. National Academy Press, National Research Council, Washington, D.C. Marine Board. 1985. Dredging Coastal Ports: An Assessment of the Issues. National Academy Press, National Research Council, Washington, D.C. Marine Board. 1990. Crew Size and Maritime Safety. National Academy Press, National Research Council; Washington, D.C. OTA. 1983. An Assessment of Maritime Trade and Technology. U.S. Congress, Oct. OTA. 1991. Delivering the Goods: Public Works Technologies, Management, and Finances. U.S. Congress, Washington, D.C., April. Recurring Transportation Data Sources: U.S. Domestic and International by Mode and Collecting Agency. 1989. Presented at Special Conference on Freight Transportation Data, November 14-15, Washington, D.C. Revis, J.S., and C. Tarnoff. 1987. Report on Intermodal Transportation. Na- tional Council on Public Works Improvement, Washington, D.C., May. SOIC. 1984. The Federal Bridge Formula: Its Effects on the Foreign Trade of the United States. New York, Sept.

124 INTERMODAL MARINE CONTAINER TRANSPORTATION SPANS. 1972. Sealift Procurement and National Security Study—Executive Sum- mary. August 2. Stromberg, R.E. (American Association of Port Authorities). 1990a. Statement before the Subcommittee on Water Resources, Committee on Public Works and Transportation, U.S. House of Representatives, March 7. Stromberg, R.E. (American Association of Port Authorities). 1990b. Few Sur- prises for Seaports. National Wetlands Newsletter, Vol. 12, No. 2, March- April. Transportation Institute. 1986. America's Vanishing Merchant Mariners. Camp Springs, Md., Sept. Transportation Institute. 1989. Assistance Given by Nations of the World to Their Merchant Fleets. Camp Springs, Md., May. TRB. 1990a. Transportation Research Circular 367: Proceedings of the Special Conference on Freight Transportation Data: The Changing Federal Role Since Deregulation. National Research Council, Washington, D.C., Dec. TRB. 1990b. Special Report 225: Truck Weight Limits: Issues and Options. National Research Council, Washington, D.C. TRB. 1992. Special Report 234: Data for Decisions: Requirements for National Transportation Policy Making. National Research Council, Washington, D.C. U.S. Congress. House. 1990. Oversight Subcommittee of the House Ways and Means Committee. Report on Abuses and Mismanagement in U.S. Customs Service Commercial Operations. Feb. 8. Verdon, W.P. (United Shipowners of America). 1989. Testimony before Mer- chant Marine Subcommittee, U.S. Senate, July 13. Weiers, B., and J. Kelleher. 1987. Forecasting Trade and the Merchant Fleet— Final Report. Transportation Systems Center, U.S. Department of Transporta- tion, April. Wessel, A.E., and J.J. Hershman. 1988. Mitigation: Compensating the Environ- ment for Unavoidable Harm. In Urban Ports and Harbor Management, Taylor and Francis, New York, pp. 253-286.

Study Committee Biographical Information W. Bruce Allen, Chairman, is Professor of Public Policy and Man- agement and Transportation at the Wharton School, University of Pennsylvania. He holds a bachelor's degree from Brown University and a Ph.D. in economics from Northwestern University. Dr. Allen was Lecturer of Economics at Roosevelt University from 1966 to 1968. He served as an economist in the Office of the Secretary of the U.S. Department of Transportation from 1972 to 1973. His research interests include the impact of transportation regulation on economic efficiency and industrial organization. Dr. Allen is past chairman of the Transportation Research Board (TRB) Freight Transportation Sec- tion and Freight Transportation Planning and Marketing Committee, and he also serves on TRB's Committee on Surface Freight Transportation. L. Stanley Crane is former Chairman of the Board and Chief Execu- tive Officer of the Consolidated Rail Corporation (Conrail). He holds a bachelor's degree in engineering from the George Washington Univer- sity. Mr. Crane was employed by the Southern Railroad in 1937, beginning as a Laboratory Assistant and eventually becoming the Chief Executive Officer in 1977. On his retirement from Southern in 1980, he served as Chairman and CEO of Conrail from 1981 until his retirement in 1988. Under his leadership, Conrail was transformed from a money-losing ward of the federal government into a successful business, which became a public company in 1987. Mr. Crane was elected to the National Academy of Engineering in 1978. He was named Financial World's Chief Executive of the Year in the Railroad Industry in 1979 and Modern Railroads' Man of the Year in 1983. He has also received the Transportation Association of America's Seley Award, the National Defense Transportation Association Award, the American Railway Development Association's Distinguished Service Award, and the Association of Railroad Advertising and Marketing's award for outstanding service to the railroad industry of the United States and Canada. Mr. Crane is currently a member of TRB's Execu- tive Committee. He is also a fellow and past president of the American Society for Testing and Materials, a fellow of the American Society of 125

126 INTERMODAL MARINE CONTAINER TRANSPORTATION Mechanical Engineers, and a trustee of The George Washington University. Michael Diaz is Executive Vice President and Chief Operating Officer of American President Domestic Company, Ltd., Oakland, California. He holds a bachelor's degree from Dartmouth College. Mr. Diaz worked for Sea-Land Service from 1971 to 1978 and subsequently held various management positions at American President Companies, in- cluding Vice President of Special Services; Vice President, North America Region; Senior Vice President for Marketing and Logistics; and President of American President Intermodal. He has been Execu- tive Vice President and Chief Operating Officer of American President Domestic since 1990. Henry S. Marcus is Associate Professor of Marine Systems and Chairman of the Ocean Systems Management Program in the Ocean Engineering Department, Massachusetts Institute of Technology. He holds a bachelor of science degree from the Webb Institute of Naval Architecture, two master's degrees from the Massachusetts Institute of Technology, and a doctorate in business administration from Harvard University. Dr. Marcus has held various positions at MIT since 1971 and has worked as a consultant to the industry and to various govern- ment organizations. He served in the Office of the Assistant Secretary of the Navy, Shipbuilding and Logistics, during part of his sabbatical from 1987 to 1988. Dr. Marcus is the author of more than 50 articles, papers, and books in the field. He is a former member of the Maritime Transportation Research Board and the Committee on Productivity of Marine Terminals of the National Research Council's Marine Board. James J. O'Brien is Port Director, Port Everglades Authority, Flor- ida. He holds a bachelor's degree with honors from the United States Merchant Marine Academy and a master's in business administration from New York University. He was employed for 15 years by the Port Authority of New York and New Jersey. From 1978 to 1991, he held various positions at the Port of Oakland, California, including Execu- tive Director for Transportation Services and Acting Chief Executive Officer. Mr. O'Brien is a former Chairman of the American Associa- tion of Port Authorities and is a presidential appointee to the Advisory Commission on Conferences in Ocean Shipping, which is reviewing the Shipping Act of 1984. Paul F. Richardson has been President of Paul F Richardson Associ- ates, Inc., an international maritime consulting firm located in

Study Committee Biographical Information 127 Holmdel, New Jersey, since 1977. He holds a bachelor's degree from Boston University. Mr. Richardson held top management positions with Sea-Land Service, Inc., from 1960 to 1977. He is active in many industry organizations, including the National Maritime Council and the International Council of Containership Operators. He is a former member of the National Research Council's Marine Board and has served on several Marine Board committees. Stanton P. Sender is a partner in the law firm of Morgan, Lewis, and Bockius, Washington, D.C. He holds a bachelor's degree from Har- vard College and a bachelor of laws degree from Harvard Law School. He served in various positions at Sears, Roebuck and Company, in- cluding Assistant General Counsel and Transportation Counsel, and was Director of Legislative Affairs for Sears, Roebuck from 1987 to 1989. He served as Transportation Counsel for the U.S. Senate Com- merce Committee and Counsel for its Surface Transportation Subcom- mittee (1963-1969) and in the Office of the General Counsel, Interstate Commerce Commission (1961-1963). He has also served in leadership positions in the National Industrial Transportation League and as a presidentially appointed member of the Board of Directors of the U.S. Railway Association. Mr. Sender is currently a Vice- Chairman, Transportation Committee, Administrative Law Section, American Bar Association, and is a former chairman of the Federal Bar Association's Transportation Council. Mr. Sender has taught trans- portation regulation as an Adjunct Professor at Georgetown University Law Center and has testified before various congressional committees. Greg P. Steffire is Executive Vice President, Law, at Rail Delivery Services, a West Coast intermodal carrier, and he maintains a private law practice specializing in intermodal transportation law. He holds an associate's degree from El Camino College and a Juris Doctor degree from Southwestern University. He was admitted to practice in Califor- nia in 1970 and has held his position with Rail Delivery Services since 1980. He is a past officer of the California Trucking Association Intermodal Conference, a founder and member of the California Inter- modal Coordinating Committee and the Drayage Division of the Inter- modal Transportation Association, a member of the National Industrial Transportation League International Container Loading Task Force, and a founding member and 1990 Chairman of the American Trucking Associations' Intermodal Council. He is involved in many transporta- tion organizations and a frequent speaker at industry meetings on mat- ters pertaining to intermodal transportation.

128 INTERMODAL MARINE CONTAINER TRANSPORTATION Roger W. Wigen is Manager of Transportation Policy and Industry Affairs of the 3M Company, St. Paul, Minnesota. He holds a bache- br's degree from the University of Minnesota. He 'is a member of the Board of Directors of the National Industrial Transportation League, Chairman of Shipper Representation for the Federal Maritime Corn- mission Advisory Committee, and a presidential appointee to the Ad- visory Commission on Conferences in Ocean Shipping. Mr. Wigen has testified before congressional committees and at federal and state gov- ernment hearings on domestic and international transportation issues.

The Transportation Research Board is a unit of the National Research Council, which serves the National Academy of Sciences and the National Academy of Engi- neering. The Board's purpose is to stimulate research concerning the nature and performance of transportation systems, to disseminate the information produced by the research, and to encourage the application of appropriate research findings. The Board's program is carried out by more than 300 committees, task forces, and panels composed of more than 3,700 administrators, engineers, social scientists, attorneys, educators, and others concerned with transportation; they serve without compensation. The program is supported by state transportation and highway departments, the modal administrations of the U.S. Department of Transportation, and other organizations and individuals interested in the development of transportation. The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to. their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Frank Press is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal govern- ment. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Robert M. White is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressio- nal charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Kenneth I. Shine is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Acad- emy's purpose of furthering knowledge and advising the federal government. Func- tioning in accordance with geheral policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both the Academies and the Institute of Medicine. Dr. Frank Press and Dr. Robert M. White are chairman and vice chairman, respectively, of the National Research Council.

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