[FONT=Arial]By: Stephanie Gallagher, President, World City America Inc.
The Obama Administration has announced a policy prohibiting the use of its Title XI ship financing program for American-flag cruise ships. World City America Inc., the parent organization of the American Flagship Project the organization of the American Flagship Project (www.americanflagship.com), has devoted more than fifteen years and invested $60 million in an effort to claim for the American economy and American jobs a share of the U.S.-driven but foreign-dominatedcruise industry. In May of 2012, the company was told by the U.S. Maritime Administration (MARAD) that the agency had adopted a policy of prohibiting the financing of overnight passenger vessels (i.e., cruise ships).
In an Open Letter to President Obama, dated August 28, 2012 to coincide with the opening of the Republican National Convention, World City challenged Obama to explain the Administration’s position that effectively excludes American shipowners from competing in a huge industry that is almost entirely supported by U.S. passengers and U.S. dollar revenues.
The whole purpose of Title XI is to make it possible for American shipowners to obtain long-term financing on terms and conditions and at interest rates comparable to those available to large corporations, which is in 60 Federal Regulations 20592. Furthermore, the purpose of that, of course, is to support job creation, not only in shipbuilding and supply but in operating ships under the American flag.
The only sector of the international shipping industry that is doing well and has consistently done well year after year after year is the cruise sector. “Why would you want to exclude Americans from that activity?”
Except for small coastwise vessels and riverboats, none of the 200+ ocean-going cruise ships operating in the North American cruise market were built here; none hire American officers or crew, and none pay U.S. income tax on their multibillion-dollar annual profits – unlike every other U.S. hospitality organization.
In its ‘Open Letter to President Obama,’ World City forwarded a copy of Devils on the Deep Blue Sea by Kristoffer A. Garin and quoted the following from it: Carnival and Royal Caribbean, which together account for more than 85% of the North American cruise industry, have achieved something truly remarkable. As public companies headquartered in the United States, traded on the New York Stock Exchange, earning a vast majority of their revenue from U.S. citizens making round-trip voyages originating in U.S. ports, they have managed to maintain, for tax purposes, the status of foreign corporations engaged in the international transportation of people and goods… In response to claims that they are effectively being subsidized by the U.S. government, industry spokespeople point to the economic contributions they make in their “homeports,” the cities where they embark and disembark passengers. Billions of dollars annually, they say… (p.204)
[I]In 1999, it (the foreign-flag cruise industry) paid $66 million in port fees. But no federal taxes. Critics find this argument “absurd” … any other American corporation could make the same arguments they’re making, which is to say, ‘Well, gee, because we buy food from caterers, we buy advertising, we buy this, we buy that, we shouldn’t have to pay taxes…/I
Mr. Garin’s book points out that “this profoundly American industry” is in fact not American at all. It also is “not transportation.” In fact, according to Garin, “the story of the modern cruise industry has as much as anything been that of its steady and prosperous retreat from the transportation industry.” It competes directly with U.S. hotels and resorts, which are required to hire Americans and pay income taxes on their U.S. operations. Both Sides Are to Blame
World City doesn’t blame the Obama Administration for this predicament. For decades, both sides of the aisle have been major recipients of the foreign-flag lobby largesse and, for the most part, have closed their eyes to this unfair situation.
But we do blame the Obama Administration for throwing down the gauntlet…for precluding America’s long-delayed entry into this booming, U.S.-driven market; for shutting the door on what we have proven is possible and viable if the government applied the Title XI regulations as intended – not as a subsidy for special interests, but as a job-creating, economy-boosting and tax revenue-generating program and policy.”
Why did President Obama choose this, of all times, to lock out American shipbuilders, hotel construction companies, hundreds of U.S. suppliers in all fifty states, and thousands of long-term self-sustaining new jobs for our dwindling Merchant Marine and U.S. hospitality workers?
Why when there are twenty-three million Americans out of work, would the president decide to announce a policy that America and Americans can’t participate in this booming U.S.-driven market that has grown steadily at 7% or more every year, recession or no recession, for decades?
I’ll tell you why, politics and special interests. The rich, non-taxpaying foreign-flag cruise industry does not want an American entrant into this market because it will focus the spotlight on the reality that these hospitality companies are operating unfairly in competition with American hotels, resorts and entertainment facilities. Period. And, they especially don’t want the American Flagship Project to happen because it promises to build the largest, safest and greenest passenger ship in the world, to fly the Stars & Stripes, to hire Americans, and to pay taxes like every other U.S. hospitality organization. That’s why.
The World City “Open Letter to President Obama” ended with a request that the Administration “not only reverse this shocking anti-American policy but instruct MARAD/DOT to reinstate World City’s fully-reviewed, economically sound Title XI application that was terminated without cause and theoretically ‘without prejudice’ after the disgraceful American Classic Voyages Title XI fiasco, which was MARAD’s own doing and which cost American taxpayers over $500 million.”
The Obama Administration apparently wants to throw the baby out with the
bathwater and would prefer to use limited Title XI resources to enable large corporations to refinance ships that are already built and which will not create any new jobs, either in shipbuilding or on the ships. This approach defies the statutorily mandated purpose of Title XI and would be a double whammy for entrepreneurial start-ups like World City America Inc.
ABOUT THE AMERICAN FLAGSHIP PROJECT
World City America Inc. was formed to design, build and operate a new class of passenger vessel that could be constructed competitively in the United States and compete successfully in the foreign-dominated cruise sector under a US-flag operation. More information about the American Flagship project can be found on its website: www.americanflagship.com
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Could it be that MarAd will not guarantee the mortgages of any more cruiseships because the Federal Government has had to fork over close of a BILLION DOLLARS to bail out US flagged cruiseship failures over the past dozen years and has finally gotten religion here. Look at the record for Christ’s sake
>PRIDE OF AMERICA
>PRIDE OF HAWAII
>INDEPENDENCE
>AMERICAN QUEEN
>COLUMBIA QUEEN
>CAPE COD LIGHT
>CAPE MAY LIGHT
>HULUKAI
>ALIKAI
>QUEEN OF THE WEST
>EMPRESS OF THE NORTH
They will never again fund cruise ships with Title XI. Trent Lott muscled through the whole Project America financing with John McPain balking and scoffing the whole time. Then when it blew up in everyone’s faces after 9/11 McPain wagged his finger at everyone saying I told you so. I don’t understand what a hard on that guy has for the Jones Act and American Shipbuilding. He’s ex navy for christ sakes you would think he would have a little sympathy for sailors. Maybe the CIA loaned the VC the MK Ultra device and turned him into a Manchurian Candidate. Maybe they realized Asia would be the future power house of shipbuilding.
I do not know anything about the history of this, but I think the point that c.captain is making is that every attempt to run large American built and America flagged flag cruise ships with American crews has ended in bankruptcy. Carnival and the others are well entrenched in the market place with huge economies of scale, low cost foreign crews, and subsidies from foreign governments for building in lower cost foreign shipyards. This is a very difficult business for anyone to break into.
If the federal government wants to subsidize an American cruise ship industry — and I would support this ---- it should just subsidize a hostile take over on Wall Street of one of the biggest publicly traded foreign cruise lines, grant Jones Act waivers for those foreign built ships, and require 100% American crew. That might stand a good chance of success, but would probably still requires something like a reauthorized ODS subsidy to off set the higher crew costs.
I did my wiper time on the SS Independence listed above by c.captain. It had a sister vessel the SS Constitution and both sailed the Hawaiian islands on week long cruises. I can tell you back then the crew was a rainbow coalition of nationalities. The argument that it would be a boon for US seaman is laughable. The majority of the crew is steward department. You will be hard pressed to find to many AB’s and QMED’s throwing in for the coveted laundry steward job. You don’t need a lot of qualified merchant seaman to be waiters and dishwashers.
Note that all the vessels I listed had their mortgages guaranteed by MarAd under Title XI so in each case after the operations went bankrupt, MarAd paid off the note and took possession of the ship. Ultimately all the vessels were sold off for a small fraction of what MarAd was into them for ()including the two fast ferries which ultimately went to the Navy). Again, I estimate with all mortgages added together there is close to a billion dollars down the sewer!
If we are going to guarantee the mortgages for commercial ships those ships must have charters in place before any risk is assumed by the taxpayer. It should be as close to a NO RISK proposition as possible1
I’m usually not a fan of the US government doing ANYTHING, but if they are going to subsidize things like Soylandra and GM and the banks, then why not maritime business too? Yes, I do know about those other failed attempts you listed c.captain and normally I would say thats enough, but since they are STILL bailing out all kinds of other failed companies, again, why not take a chance on this? Personally, I think it would be a lot more beneficial to the country than the rest of that stuff was/is (but maybe thats just cause I’m a mariner).
As for the numbers of actual mariners onboard a cruise ship, I realize most cruise ship employees are not mariners, they are hospitality workers, that was addressed in the article. But, there would still be SOME more jobs for US mariners, probably at least 10 officers and 10 unlicensed in each crew. Thats a lot better than nothing. Then there is the HUGE number of “hospitality workers”, those might not be great paying jobs but they’re still jobs! We could put all those people on welfare to work on there and train them up to get REAL jobs later once they learn how to do something useful (since the ship is getting government funds, they would have to do it). Then there is the help for the shipyards too. Our Jones Act and the idea to help finance US shipping is not all about making a profitable business. In fact, I think it is to ensure that even when they’re not profitable, they will be helped to stay in business so that they can benefit society in other ways such as in our defense. The idea was to support the ships, shipyards, people, etc so all would still have the training, skills, equipment, and people to be used in any war that we got into. Cruise ships have been commandered in the past and if we had any now, I’m sure they would be used again if we ever get into WWlll (for example). All the other countries with those cruise ships have huge government help for their maritime business, the Jones Act and MARADs financing help is a sick joke compared to what the rest of them get.
[QUOTE=JP;81376]I’m usually not a fan of the US government doing ANYTHING, but if they are going to subsidize things like Soylandra and GM and the banks, then why not maritime business too? Yes, I do know about those other failed attempts you listed c.captain and normally I would say thats enough, but since they are STILL bailing out all kinds of other failed companies, again, why not take a chance on this? Personally, I think it would be a lot more beneficial to the country than the rest of that stuff was/is (but maybe thats just cause I’m a mariner).[/QUOTE]
The RISK for guaranteeing the mortgage on something like WORLD CITY AMERICA is so unbelievably greater than any possible benefit as to make the whole thing laughable! Do you seriously want to taxpayers to get stuck with a a more than ONE BILLION dollar white elephant? What on earth would they do with the monstrosity once it went bankrupt? Did you ever hear of the ship GREAT EASTERN in the 1800’s? Look it up here if you haven’t…the world’s largest ship at the time and a complete utter financial failure.
If MarAd wants to guarantee vessels that have certain futures and low risk then guarantee the mortgages on US built heavylift DP construction ships and deepwater pipelayers. Give the guarantees to companies with proven track records like ECO for Christ’s sake. They got a Title XI loan guarantee when they built the old MARGARET P. CHOUEST (now the AKIRA).
MarAd finally has learned to stop backing these ridiculous shipbuilding projects that could never get financing without the Feds backing the paper. If the commercial banks won’t touch it, neither should the taxpayer!
Im with c.captain on this one. An american flagged cruise ship cant make money because of all of the regulations (and the unions) that would bog it down and the high price of the marine crew. Smaller ships have a nitch market and seem to do well on short coastwise trips but they a normally under 200 tons and the bulk of the regs dont apply.
I think there’s valid points on both sides here. But, I take issue with “World City America” calling out “special interests” as they are a special interest.
I wish that American created and crewed vessels could be used for these. Yes, there are more regs, but because of that our ships are higher quality, better manned, and would be safer than any foreign vessel. Enough other Americans would have to realize that to justify the increased fares, however. I just don’t think it would ever happen.
In lieu of risky investments, why not pass a law that any cruises departing from an american port have to pay a tax on their fares? Maybe even lower this “fare tax” for ship that actually are american crewed, and/or offset this “fare tax” if the company is truly U.S. based and pays other taxes?
