The world's fastest merchant ships, eight giant container vessels that were once the pride of the fleet of Sea-Land Industries Inc. and are not yet 10 years old, are going out of active service in the American merchant marine, victims of the high cost of fuel.
Sea-Land, the largest container-shipping company in the world, is selling them to standby status in the Military Sealift Command. It may cost the Navy more than $900 million to buy the ships and convert them to military use, and the House of Representatives is trying to scale down the modification program, but one congressional expert who monitored the sale said it was still "the steal of the century" for the Navy, because such ships would cost more than $200 million each to build.
The story of the ships, known as SL-7s, illustrates the dramatic impact that rising energy costs and changing marine technology are having on American shipping. It also shows the commercial implications of the Reagan administration's military build-up, the planned expansion of the Navy from 461 to 600 ships and the development of the Rapid Deployment Force for short-notice military engagement in remote parts of the world.
"These were great ships. They are great ships," said William F. Ragan, Sea-Land's Washington lawyer. "There are no ships in the world the Navy could get to match these." But for Sea-Land, he said, they were "terribly expensive to operate" and destined to get more expensive each year as fuel costs rise.
Sea-Land, a New Jersey-based subsidiary of R.J. Reynolds Industries, is an aggressive maverick that has revolutionized American merchant shipping through its development of containerized shipping and its refusal to participate in the network of federal subsidies and restrictions that define the operations of other carriers. Sea-Land owns 47 container ships, including the SL-7s, and leases 19 others; its 80,000 containers are familiar sights in ports from Yokohama, Japan to Rotterdam, Netherlands.
Earnings from operations in 1980 were $65.8 million on revenues of $1.43 billion. But five years earlier, earnings were $123.2 million on revenues of only $920.7 million. The escalating cost of operating the SL-7s is part of the reason for that decline in performance. The ships, according to Sea-Land's annual report, are "no longer fuel-efficient for commercial purposes." They are powered by high-consumption steam turbines. Sea-Land is converting its fleet to fuel-efficient, low-speed diesel engines, which most of the modern merchant ships in other countries adopted years ago.
For the Navy, however, fuel cost is a much less important consideration, since the ships will spend most of their time "tied up at the pier" as one officer put it. What the Navy wants is the capability to move large amounts of cargo in a hurry when necessary. The SL-7s seem to fill the bill. They are almost the size of an aircraft carrier, at 946 feet, and have a top speed of 33 knots or 38 miles per hour, about twice the speed of conventional vessels.
"These ships have high capacity and unique speed," said Marine Col. Eugene E. Shoults, SL-7 program manager for the Naval Sea Systems Command. "There is no other commercial cargo ship whose speed can approach this." The ships, which can use the Suez and Panama canals, can reach Persian Gulf ports from New York in 11 days. According to Ragan, they can move in 11 days what it would take 50 days for the military to move by air.
The SL-7s were built in Europe in 1972 and 1973 at a cost of $53.4 million each. Most American-flag carriers use ships built in the United States because that is a requirement for obtaining federal operating subsidies, but Sea-Land's policy is to take the lower price and quicker delivery schedules offered by foreign shipyards and forgo the subsidies.
Each of the ships can carry 1,096 freight containers, 180 of them refrigerated, and can be unloaded, reloaded and sent back to sea after only 24 hours in port. They were literally made to order for Sea-Land's high-speed, high-volume operations.
But at the time they were ordered, bunker fuel cost about $3 per barrel. Now it is more than $30, and engineering consultants have told Congress that steam-powered ships can cost $1 million a year more to operate than diesel ships. According to Sea-Land, a new diesel-powered ship of the D-9 class is 41 percent more fuel efficient than an SL-7, even though its capacity is smaller.
Conbgress appropriated $254 million in the 1981 fiscal year to purchase six of the eight SL-7s. For 1982, the requested appropriation is $668.4 million to buy the remaining two and convert all eight to military use. The contract to convert the ships from all-container configuration to what is known as Ro-Ro, or Roll On-Roll Off, could represent a half-billion dollar plum for for whatever shipyard wins the contract.
The conversion is required, according to Shoults, because the ships now carry only containers and are dependent on dockside cranes for hauling them on and off the ship. Unlike the conventional freighter of tramp-steamer romance, the container ship carries no on-board cranes or hauling equipment.
"Obviously," Shoults said, "a lot of things can be loaded and unloaded faster if they can roll on and off, like tanks and trucks." Container ships are useful in modern ports such as Rotterdam, he said, "but in a war, these ships won't always be in Rotterdam."
Fortune magazine, in a recent article about Sea-Land, described the SL-7s as "nautical white elephants" that the company was trying to "unload" on the Navy, but Ragan rejected that criticism as unfair.
"This is not a boondoggle or a bailout," he said. "We have told the Navy we would just as soon keep them," he added, because Sea-Land has so much cargo waiting to be hauled that "we have a problem on how to move all that we have accumulated."