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U.S. shippers are left in wake of cargo program

By Eric Lichtblau

New York Times


WASHINGTON >> It began in the mid-1990s as a way to boost America's vanishing international shipping business. But an obscure program to subsidize the shipment of U.S. military cargo around the world has become something quite different: a $2 billion operation that, paradoxically, is dominated by a handful of shipping giants all owned overseas.

Sixty ships get millions from the government for hauling tanks, Humvees, fuel, munitions and other equipment across the seas. The vast majority of the ships — at least 45 — fly the U.S. flag but are owned by foreign parent companies like Maersk, a Danish shipping company that commands almost half the fleet, records show.

With government financing up for renewal in Congress for another decade, the program's foreign flavor has set off a debate about its future and, more broadly, about the volatile issue of foreign ownership in U.S. industry.

"Somewhere along the way, the purpose of this program has gone off track," said Philip J. Shapiro, who owns a Long Island shipping company with a single ship in the program. "It's effectively shut out American companies."

Many American-owned shippers, without the capital to build the enormous modern tankers and container ships hauling the cargo, or the revenues to run them, have simply been unable to compete with foreign shippers, who often have lower operating costs.

Nonetheless, Shapiro has started a campaign to challenge the program and give U.S. shippers a bigger role. His charges have angered some fellow shippers, who accuse him of trying to boost his own business, but they have also caught the ear of his home-state lawmaker, Sen. Charles Schumer, D-N.Y.

While their parent companies may be in Europe and Asia, shippers in the program boast a strong U.S. presence, both commercially and politically.

They have large U.S. subsidiaries that run their operations here, employing more than 2,000 U.S. merchant marines to sail ships and a number of retired U.S. military officers to run their operations here and sit on their boards.

The shippers have also hired some of Washington's best-known lobbyists, like J. Dennis Hastert, the former House speaker, to plead their case to the government. Executives and industry groups, meanwhile, have donated hundreds of thousands of dollars to congressional candidates, many of them longtime supporters of the program.

Even the ship names have an American feel. Maersk, the Danish conglomerate, has named most of its ships in the program after U.S. states, sailing the Maersk Missouri, the Maersk Carolina and many others under the U.S. flag. APL Marine, owned by a Singapore conglomerate, prefers ex-presidents like the President Truman and the President Polk.

Retired Air Force Gen. John W. Handy, appointed in June as president of Fidelio, a New Jersey-based shipping arm of Wallenius Wilhelmsen of Norway, said he feels dual allegiances to the military and to the U.S.-flagged ships he runs.

"I would not be doing what I do unless I believed passionately in the U.S.-flagged fleet," he said in a telephone interview.

While his top bosses are in Norway, he said, "I don't feel intimidated or at all controlled by them, but they clearly are the owners, no doubt about that."

Administration and congressional supporters say the program, which provides both routine transportation of military cargo and a backup war fleet in times of emergency, has proved a financial boon and a national security asset.

The program began in 1996, growing out of the Persian Gulf war five years earlier. The U.S. had to rely on nearly 300 foreign-flagged ships during the war, leading to the realization that the U.S.-flagged maritime fleet — which boasted some 2,000 ships in the World War II era — was essentially disappearing from international waters.

In contrast, more than 90 percent of military cargo in and out of Afghanistan and Iraq since 2009 has traveled on U.S. commercial ships under the program, officials said, and the United States has become less dependent on foreign-flagged ships.

"I can't imagine wanting to kill a program recognized as so valuable to the economic security and the national security of this country," said Albert J. Herberger, a retired vice admiral who helped create the program and now works as an industry adviser.

To avoid foreign interference, shippers owned by overseas companies must demonstrate that their U.S. operations are controlled by U.S. citizens.

But Shapiro, president of Liberty Maritime Corp. on Long Island, maintains that this requirement is routinely abused and that 49 ships are effectively owned or controlled overseas. His company filed a complaint this month with the U.S. Maritime Administration.

"To allow 82 percent of the program to be controlled by foreign-owned companies?" Shapiro said. "This is not how the program should work."

Officials at the maritime agency declined to respond to the specific charges raised by Shapiro, but they said they have never had an incident of foreign interference with any vessel in the program.

"The ships themselves are U.S. flagged, owned, controlled and staffed," Meghan Keck, a spokeswoman, said in a statement. "Some of them may have parent companies overseas, but the companies employ all U.S. mariners and meet the definition for carriers put in place by Congress."

Shapiro has a clear financial interest in the outcome. Beyond the one ship his firm operates, he says that two new ships it purchased for a total of $175 million deserve to be included as well.

The debate is now in the hands of Congress. A provision passed by the House and pending before the Senate would provide $2 billion through 2025 and eventually raise each ship's annual stipend to $3.9 million from $3.1 million.

In what he calls "a David versus Goliath" battle, Shapiro has a Washington lobbyist seeking to block the measure and is threatening legal action.

Yet his best hope may rest with Schumer.

Schumer's office said he has met with military and maritime officials to "relay the concerns" expressed by Shapiro.

Schumer, who has received $6,800 in campaign contributions from Shapiro, has been influential on such issues in the past. In 2006, in a politically charged battle, he succeeded in blocking a Dubai firm from running U.S. ports.

Hastert, then the House speaker, also helped kill the Dubai deal. Now Hastert is on the other side of the issue, working as a lobbyist for Maersk as it seeks increased federal subsidies. He did not return calls seeking comment.

Foreign ownership of U.S.-flagged ships rankles people like Gene Taylor, a former Mississippi congressman active in maritime issues. "Our nation has to prevent the vulnerability of relying on foreigners to move our supplies," he said. "We want to be counting on our fellow Americans to move our goods."

But that may not be possible because of the shrinking number of shippers based in the U.S. that are big enough to carry cargo across the seas.

"There'd be no way that pure American companies could carry all this cargo," said Herberger, the retired vice admiral. "That's the reality of today's world."

The dispute has taken on personal overtones, with some of the program's supporters charging that Shapiro has put his company ahead of national interests.

"What Phil is doing here is outrageous," Herberger said. "He's willing to let the whole program die just to get two more ships."

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