Richard K. Bank — What the Merchant Marine Can Teach the Auto Industry

By Richard K. Bank
Sunday, May 31, 2009

Once, the U.S. merchant marine included hundreds of ships that regularly transported a significant portion of U.S. imports and exports and employed tens of thousands of Americans at sea and on land. Today, only a handful of such liner vessels plying regularly scheduled routes still fly the Stars and Stripes and employ crews of U.S. citizens. But these ships (including the recently pirated Maersk Alabama), though subsidized by the U.S. government, are actually owned by Danish or Singaporean interests, and U.S. taxpayers enjoy little or no benefit from them. Essentially, the U.S.-owned and -operated merchant marine liner fleet no longer exists. And in its demise lies a lesson for the U.S. auto industry.

Despite the car manufacturers' critical state, the United Auto Workers are resisting concrete steps to help the industry that has provided their livelihood for 70 years. Instead, they look to the government for subsidies to help their employers survive, at least for the near term. Reports from the annual AFL-CIO conference earlier this year detailed the UAW's search for support from other unions -- primarily the teachers unions -- in lobbying Washington for more funds to stave off bankruptcies in Detroit.

Shades of the U.S. maritime industry, which began its death spiral in the 1970s, a time when it was massively subsidized by the federal government and when laws guaranteed that U.S.-flag vessels would carry all government-related cargo. Yet even with these subsidies and guarantees, the dozen or more U.S. companies -- including such once well-known names as American Export Lines, Grace Lines and Pacific Far East Lines -- failed, one after another, in the face of competition from more efficient carriers as more and more countries entered the international shipping market.

Initially, the unions and their congressional supporters pointed to "cheap foreign competition" as the source of their troubles. But those cries persisted even into the late '70s and '80s, when European and Japanese carriers were paying higher total wages per seafarer than U.S. flag vessels. It's widely believed that along with less-than-stellar management, union demands for ever-higher wages and excess manning levels -- such as insisting on crews of 35 or 40 when crews of 18 are sufficient to operate safely -- doomed the U.S. flag industry. Even with all the subsidies, even with technical innovations, containerization and other pioneering cargo advances, U.S. companies couldn't survive the financial burdens of the union demands.

I was frustrated watching all this unfold when I served in the State Department's Office of Maritime Affairs. Instead of fixing the problem and meeting the competition, industry officials offered excuse after excuse and repeatedly trekked to Capitol Hill in search of more money. They sought protectionism as a remedy. That might have helped the industry, but only at the expense of American consumers and exporters, as it would have resulted in higher, less competitive prices for U.S. exports.

Ironically, all this happened not in a time of economic downturn like today, but over a two-decade period when international trade and shipping were experiencing their greatest growth. The only U.S.-owned liner shipping company that did well during those times, SeaLand, was the one carrier that held out longest without taking subsidies and sought out profitable trade lanes.

The lesson this experience teaches is simple: In an open economy, the most efficient providers of goods or services that are similar in price or quality will succeed, and those with costs that outpace their earnings will fail. The parallels between the auto industry and our departed maritime industry are bright beacons.

Foreign carmakers with plants in the United States, such as Honda, Toyota and Hyundai, have a total average hourly cost of $55 an hour per worker, whereas GM, Chrysler and Ford spend close to double that figure. GM loses money on every car it sells. Sadly, the UAW leadership, now buoyed by the prospect of Washington ownership and control of Chrysler and GM, has appeared reluctant to negotiate in a meaningful way to reduce the companies' costs.

Although executives who fly private jets in troubled times are not blameless, the UAW, instead of looking for help in its lobbying efforts, should unilaterally announce its willingness to accept the same employment terms as those offered by foreign auto manufacturers operating in the United States. Such an announcement would remove one of the most difficult barriers to restructuring the industry. It could also open a whole new era of U.S. automaking. A positive effect on the stock market and on overall consumer confidence would follow.

The maritime example has shown that trying to keep a whole loaf instead of settling for half a loaf will result in no loaf at all. UAW-management labor negotiations over the past 30 years have (after difficult and strike-threatened periods) ballyhooed the ultimate "partnership" between management and labor. We now see that those pronouncements were window dressing even more illusory than announcements of bipartisan achievements in Washington. As unemployment figures continue to climb, it's time for the UAW to protect its members, provide a true service to all its workers and become a real partner with Washington in the recovery the entire nation is waiting for.

Or else be prepared to go down with the ship.

Richard K. Bank, president of Millennium International Consultants, LLC, and a longtime international transportation and trade lawyer, was director of the State Department's Office of Maritime Affairs from 1972-79.

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