The Reagan administration is planning sharp cutbacks in operating subsidies to U.S. steamship companies, which ballooned to $417 million this year even as the merchant fleet dwindled.
The subsidies probably cannot be eliminated completely, sources in the government and the maritime industry agree, but the administration is planning to limit their growth and reduce future obligations. Details may be included in President Reagan's 1983 budget, which goes to Congress in early February.
Industry officials warn that elimination of all operating subsidies could beach the maritime fleet.
The subsidies, which have existed since 1936, are paid to eight companies that operate U.S.-flag merchant ships on international routes. The purpose is to enable the American operators to compete against foreign carriers that have lower costs for labor, maintenance and insurance. The recipients include such firms as Delta Steamship Lines, a subsidiary of Holiday Inns, and Lykes Bros. Steamship Co., a unit of LTV Corp.
The outlays now amount to more than $2.53 million for each of the 165 ships in the U.S. international fleet, and have been rising geometrically as the cost differential between U.S. and foreign ships widens. With 5,810 personnel on board, "The cost per crew member is bigger than the salary of a Cabinet officer," said a senior official of the Department of Transportation. "We have to do something about those subsidies."
According to Maritime Administration figures, about 90 percent of this year's outlays will be for wage subsidies because American labor is far more costly than foreign crews. Vessels operating between U.S. ports are not subsidized because they are shielded by law from foreign competition.
Albert May, executive vice president of the Council of American-Flag Ship Operators, said it is understood in the industry that the adminstration will soon attack the subsidies. The only question, he said, is what form the proposed cuts will take, and when. "It is our understanding," he said, "that funding will be made available through 1983."
The subsidies cannot be terminated outright, industry sources say, because contracts with the Maritime Administration assure them into the 1990s. But the government can reduce the permitted number of subsidized sailings or the number of crew members per vessel whose wages it will underwrite.
During his election campaign, President Reagan pledged that he would revitalize the struggling merchant marine industry. His administration has not yet promulgated any comprehensive maritime policy, but it appears to be balancing a reduction in direct federal support with a relaxation of regulation to give the merchant fleet more competitive freedom.
Last year the administration persuaded Congress to eliminate funds for construction subsidies for vessels built in U.S. yards, but in exchange allowed the shipping companies to order new vessels in lower-cost foreign yards. Last month, Transportation Secretary Drew Lewis said the administration would support a package of regulatory and antitrust exemptions to strengthen the economic position of the merchant fleet, but the price of that may turn out to be a reduction in the subsidy payments.
Budget Director David A. Stockman "flagged these in his original proposed cuts last year, but he was persuaded to hold off because of their campaign promises on the merchant marine," a knowledgeable congressional source said. "They haven't abandoned their interest."
The administration has already cut out subsidies for vessels carrying U.S. grain to the Soviet Union. In the suspended U.S.-Soviet negotiations for a new grain agreement, one issue was who would pay the difference between the cost of shipping grain on a subsidized ship, $34 per ton, and the $60 cost without subsidies.
Because the U.S. fleet provides only 5,810 seagoing billets in international trade, a MARAD spokesman said, the subsidy cost per billet is over $60,000 per year. But, he said, the subsidies actually support about 12,000 persons members because each crew member is at sea only about half the year.
Frank Drozak, president of the Seafarers International Union, said that the manning level of the ships has already been reduced 30 percent since 1970, and he attributed the escalation of the subsidy bills to rising maintenance costs. "Cutting the subsidies and reducing the number of voyages won't save anything," he said, because it costs almost as much to lay up a ship as to sail it, and some crew members have guaranteed annual wages whether they go to sea or not.