MarAd highlights the cost differences between US and foreign-flagged fleets

Nov 09, 2011, 11:02PM EST
MarAd highlights the cost differences between US and foreign-flagged fleets
Crew costs are predictably the main reason, but some anomalies show up

No surprises should be expected over the MarAd analysis on cost differences between US and foreign-flagged ships. The conclusion that wages are the main factor is hardly a lightbulb moment.

But, closer reading provides a couple of surprises. Average crew costs are indeed higher, but at more than five times higher (almost $15,000 a day for a US container ship and $14,000 a day on average for all types) the difference is more than most people thought.

Making it more puzzling is the revelation that average crew size is actually marginally LESS for US vessels (they're all between 20 and 23).

There is virtually no difference in stores/lubrication costs and in fact US costs are half those of foreign box ships, while being much higher for other vessel types,

US maintenance/repair costs are 30 percent higher overall than their foreign counterparts, despite being almost 10 percent lower for container ships.

Insurance costs are 30 percent higher for US ships.

The big number is that average daily operating costs for US ships were $20,000 in 2010 (down from $22,000 the year before) as against $6,000 for foreigners.

Wages make up 72 percent of US costs and 28 percent of foreign-flag costs for the container fleets, while the comparable proportions for all types of ships are 68 percent and 35 percent.

And then there is the Maritime Security Program, which is popularly thought to be a nice, cushy income earner for US ships. In fact, there is a $4,000 a day gap, even taking into account the new rate of $3.1 million per ship per year for the 60 vessels that are eligible.

Amazingly, the infamous Smoot-Hawley tariff of the 1930s plays a part in the huge difference in operating costs. This comes from the 50 percent duty for non-emergency repairs by US ships in foreign ports – most people thought the measure only came in after the Korean War.

"Eighty-nine percent of survey participants indicated that the ad valorem duty negatively impacts their decision to flag under the U.S. registry," says the report. "In fact, the carriers stated that foreign shipyards are still used for American-flag ship repairs since the cost of having repairs performed overseas and paying the duty is often lower than the cost of having the repairs performed in U.S. shipyards," says MarAd

The maritime industry is bound to question the need for going to a private sector consultancy, Price WaterhouseCoopers, to do the survey. Between the FMC, MarAd, and all the other government agencies with a finger in the pie, the means were there to get all the information themselves.  Paying, at a guess, a couple of million to get answers already known is vivid proof of the insidious influence of K Street and governmental incompetence and bureaucracy.



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