Higher costs keep US-flagged ships’ numbers down

April 13, 2009 at 12:26 am Leave a comment

Despite waterways crowded with thousands of ships operated by international shipping companies, only a handful are U.S.-flagged vessels. The main reason? Dollars and cents.

The recently pirated Maersk Alabama, a food aid ship, is one of those U.S.-flagged ships. Vessels that carry relief aid on behalf of U.S. organizations, or those that are chartered under the direction of the U.S. government, must be registered in the U.S. — or be U.S. flagged.

Douglas J. Mavrinac, the head of maritime research at investment firm Jefferies & Co, estimates that only about 5 percent of ships sailing in international waters fly a U.S. flag.

The cost difference between a U.S. vessel and one built offshore starts at the shipyard — it can cost much more to construct a ship in the U.S. because of the cost of materials and workers’ wages to build it.

And those higher costs continue all the way through a ship’s service. With a crew of often higher paid workers, the price of a U.S.-built ship often makes it unreasonable for a company to build in the U.S. if it is not required.

But the biggest costs, analysts say, can be traced to long-standing regulations.

Most ships carrying food aid from American agencies are legally required to be U.S.-flagged. At least 75 percent of agricultural cargo and at least 50 percent of civilian agencies’ cargo is required to travel on U.S. flag vessels, according to U.S. Maritime Administration. All military cargo is also required to be transferred on U.S. ships.

Cornell University professor Christopher Barrett estimates that these regulations, known as cargo preference, make it anywhere from 40 to 80 percent more expensive to operate a ship because they restrict competition in the market.



Entry filed under: Dive In, Maritime. Tags: , , , .

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