Special Message to the Congress on a New Program for the United States Merchant Marine.

To the Congress of the United States:

The United States Merchant Marine-the fleet of commercial ships on which we rely for our economic strength in time of peace and our defense mobility in time of war is in trouble.

While only one-fourth of the world's merchant ships are more than twenty years old, approximately three-fourths of American trading vessels are at least that antiquated. In the next four years, much of our merchant fleet will be scrapped. Yet we are now producing only a few new ships a year for use in our foreign trade.

Building costs for American vessels are about twice those in foreign shipyards and production delays are excessive. Operating expenses also are high by world standards, and labor-management conflicts have been costly and disruptive.

Both government and industry share responsibility for the recent decline in American shipping and shipbuilding. Both government and industry must now make a substantial effort to reverse that record. We must begin immediately to rebuild our merchant fleet and make it more competitive. Accordingly, I am announcing today a new maritime program for this nation, one which will replace the drift and neglect of recent years and restore this country to a proud position in the shipping lanes of the world.

Our program is one of challenge and opportunity. We will challenge the American shipbuilding industry to show that it can rebuild our Merchant Marine at reasonable expense. We will challenge American ship operators and seamen to move toward less dependence on government subsidy. And, through a substantially revised and better administered government program, we will create the opportunity to meet that challenge.

The need for this new program is great since the old ways have not worked. However, as I have frequently pointed out, our budget constraints at this time are also significant. Our program, therefore, will be phased in such a way that it will not increase subsidy expenditures during the rest of fiscal year 1970 and will require only a modest increase for fiscal year 1971. We can thus begin to rebuild our fleet and at the same time meet our fiscal responsibilities.

THE SHIPBUILDING INDUSTRY

Our shipbuilding program is designed to meet both of the problems which lie behind the recent decline in this field: low production rates and high production costs. Our proposals would make it possible for shipbuilders to build more ships and would encourage them to hold down the cost of each vessel. We believe that these two aspirations are closely related. For only as we plan a major long-range building program can we encourage builders to standardize ship design and introduce mass production techniques which have kept other American products competitive in world markets. On the other hand, only if our builders are able to improve their efficiency and cut their costs can we afford to replace our obsolescent merchant fleet with American-built vessels. These cost reductions are essential if our ship operators are to make capital investments of several billion dollars over the next ten years to build new, high-technology ships.

Our new program will provide a substantially improved system of construction differential subsidies, payments which reimburse American shipbuilders for that part of their total cost which exceeds the cost of building in foreign shipyards. Such subsidies allow our shipbuilders--despite their higher costs--to sell their ships at world market prices for use in our foreign trade. The important features of our new subsidy system are as follows:

1. We should make it possible for industry to build more ships over the next ten years, moving from the present subsidy level of about ten ships a year to a new level of thirty ships a year.

2. We should reduce the percentage of total costs which are subsidized. The government presently subsidizes up to 55 percent of a builder's total expenses far a given vessel. Leaders of the shipbuilding industry have frequently said that subsidy requirements can be reduced considerably if they are assured a long-term market. I am therefore asking that construction differential subsidies be limited to 45 percent of total costs in fiscal year 1971. That percentage should be reduced by 2 percent in each subsequent year until the maximum subsidy payment is down to 35 percent of total building expenses.

We are confident that the shipbuilding industry can meet this challenge. If the challenge is not met, however, then the Administration's commitment to this part of our program will not be continued.

3. Construction differential subsidies should be paid directly to shipbuilders rather than being channeled through shipowners as is the case under the present system. A direct payment system is necessary if our program is to encourage builders to improve designs, reduce delays, and minimize costs. It will also help us to streamline subsidy administration.

4. The multi-year procurement system which is now used for other government programs should be extended to shipbuilding. Under this system, the government makes a firm commitment to, build a given number of ships over a specified and longer period of time, a practice which allows the industry to realize important economies of scale and to receive lower subsidies.

5. The increased level of ship construction will require a corresponding increase in the level of federally insured mortgages. Accordingly, we should increase the ceiling on our present mortgage insurance programs from $1 billion to $3 billion.

6. We should extend construction differential subsidies to bulk carriers, ships which usually carry ore, grain, or oil and which are not covered by our present subsidy program.

7. A Commission should be established to review the status of the American shipbuilding industry, its problems, and its progress toward meeting the challenge we have set forth. The Commission should report on its findings within three years and recommend any changes in government policy which it believes are desirable.

THE SHIP OPERATING INDUSTRY

My comments to this point have related to the building of merchant vessels. The other arm of our maritime policy is that which deals with the operation of these ships. Here, too, our new program offers several substantial improvements over the present system.

1. Operating differential subsidies should be continued only for the higher wage and insurance costs which American shipping lines experience. Subsidies for maintenance and repair and for subsistence should be eliminated. Instead of paying the difference between the wages of foreign seamen and actual wages on American ships, however, the government should compare foreign wages with prevailing wage levels in several comparable sectors of the American economy. A policy which ties subsidies to this wage index will reduce subsidy costs and provide an incentive for further efficiencies. Under this system, the operator would no longer lose in subsidies what he saves in costs. Nor would he continue to be reimbursed through subsidies when his wage costs rise to higher levels.

2. At the same time that we are reducing operating subsidies, it is appropriate that we eliminate the "recapture" provisions of the Merchant Marine Act of 1936, These provisions require subsidized lines to pay back to the government a portion of profits. If the recapture provisions are removed, the purpose for which they were designed will be largely accomplished by corporate taxes, which were at much lower rates when these provisions were instituted. We will also save the cost of administering recapture provisions.

3. Many bulk carriers presently receive indirect operating subsidies from the government because of the statutory requirement that certain government cargos must be shipped in United States vessels at premium rates. When the Department of Agriculture ships grain abroad, for example, it pays higher rates out of its budget than if it were allowed to ship at world market rates. We will propose a new, direct subsidy system for such carriers, thus allowing us to phase out these premium freight rates and reduce the costs of several nonmaritime government programs.

4. Ship operators now receiving operating differential subsidies are permitted to defer Federal tax payments on reserve funds set aside for construction purposes. This provision should be extended to include all qualified ship operators in the foreign trade, but only for well-defined ship replacement programs.

5. Past government policies and industry attitudes have not been conducive to cooperation between labor and management. Our program will help to improve this situation by ending the uncertainty that has characterized our past maritime policy. Labor and management must now use this opportunity .to find ways of resolving their differences without halting operations. If the desired expansion of merchant shipping is to be achieved, the disruptive work stoppages of the past must not be repeated.

6. The larger capital investment necessary to construct a modern and efficient merchant fleet requires corresponding port development. I am therefore directing the Secretary of Commerce and the Secretary of Transportation to work with related industries and local governments in improving our port operations. We must take full advantage of technological advances in this area and we should do all we can to encourage greater use of intermodal transportation systems, of which these high-technology ships are only a part.

EQUAL EMPLOYMENT OPPORTUNITIES

The expansion of American merchant shipbuilding which this program makes possible will provide many new employment opportunities. All of our citizens must have equal access to these new jobs. I am therefore directing the Secretary of Commerce and the Secretary of Labor to work with industry and labor organizations to develop programs that will insure all minority groups their rightful place in this expansion.

RESEARCH AND DEVELOPMENT

We will also enlarge and redirect the maritime research and development activities of the Federal government. Greater emphasis will be placed on practical applications of technological advances and on the coordination of Federal programs with those of industry.

The history of American commercial shipping is closely intertwined with the history of our country. From the time of the Colonial fishing sloops, down through the great days of the majestic clipper ships, and into the new era when steam replaced the sail, the venturesome spirit of maritime enterprise has contributed significantly to the strength of the nation.

Our shipping industry has come a long way over the last three centuries. Yet, as one of the great historians of American seafaring, Samuel Eliot Morison, has written: "all her modern docks and terminals and dredged channels will avail nothing, if the spirit perish that led her founders to 'trye all ports.'" It is that spirit to which our program of challenge and opportunity appeals.

It is my hope and expectation that this program will introduce a new era in the maritime history of America, an era in which our shipbuilding and ship operating industries take their place once again among the vigorous, competitive industries of this nation.

RICHARD NIXON

The White House

October 23, 1969