flying its flag should not be conceptually confused with the territorial sovereignty a government exercises within its own geographical borders. The degree of control in the case of territorial sovereignty is clearly greater than in the case of personal sovereignty. In this regard it should be noted that the choice of registry is generally one for the vessel owner. While some countries have laws requiring vessels owned by their nationals and built within the country to be registered there, normally under international law a shipowner is free to register its vessels where it chooses and registration can be cancelled on demand of the shipowner. B. The extent to which a country exercises jurisdiction over a vessel within its territorial waters. A private ship is subject to the laws of the country visited in the absence of treaties to the contrary. The jurisdiction of a country over a ship present within its territorial waters partakes more of the characteristics of territorial than of personal sovereignty. The laws of the nation of registry have little application in foreign territorial waters beyond what is affirmatively or tacitly permitted by the local sovereign. In essence, governments of nations of registry can exert control over vessels of their registry in foreign waters only to the extent that the local sovereign allows the assertion of such control. C. The legal effect of a Contract of Commitment entered into between a Panamanian, Liberian, or Honduran flag vessel and the U.S. Maritime Administration. An owner's Contract of Commitment is entered into when the owner of an eligible (Panamanian-Liberian-Honduran) vessel seeks war risk insurance through the U.S. Maritime Administration. Nearly all vessels of such registry have such war risk insurance in effect and therefore are bound to the U.S. Government under the terms of the Contract of Commitment. A copy of such Contract of Commitment is set forth in § 308.5 of Title 46 CFR. The material portions of the Contract which obligate the owner to make the vessel available to the U.S. in time of national emergency require the owner to commit itself as follows: "(1) The Owner hereby commits itself to make the Vessel available to the United States during any period in which vessels may be requisitioned under section 902 of the Merchant Marine Act, 1936, as amended, i.e., whenever the President of the United States of America shall proclaim that the security of the national defense makes it advisable or during any national emergency which may have been declared by proclamation of the President of the United States, and expressly agrees that any charter or other contract covering the use of the Vessel during the period covered by the interim war risk insurance binder and the period of any insurance attaching thereunder shall be subject to termination or suspension without notice in the event the United States requests the use of the Vessel under this voluntary Contract of Commitment. "(2) Upon the request of the United States, acting through the Department of Commerce, Maritime Administration, or its successor, or through the Department of the Navy, pursuant to authorization from the Department of Commerce, Maritime Administration, the Vessels shall be made available as directed by such Department, wherever the Vessel may then be, whether at sea or in port, at the option of such Department, for purchase or for use (under a time or bareboat form of charter) for such period or periods of time as required by the United States." As between the vessel owner and the U.S. Government, the foregoing terms of the Contract of Commitment are enforceable against the vessel owner in the courts of the U.S. The replies to other questions raised at the hearing, together with the replies to three questions subsequently forwarded to me by your Committee will be furnished by the American Petroleum Institute. Very truly yours, J. W. KINNEAR, Senior Vice President. [The document supplied by Mr. Kinnear follows:] 31-583 - 74-32 The American Petroleum Institute's "Statement of Policy - Energy" contains the following position on ocean transportation: "Expansion of the U. S. flag fleet is in the national interest and deserves government support. This goal can be accomplished best by modifying current merchant marine laws and regulations to encourage tanker construction and operation rather than by imposing mandatory flag requirements on petroleum imports." The API represents about 250 U.S. companies involved with the petroleum business. Many of these companies are dependent upon and deeply involved in the tanker business. Member companies including independent U. S. flag tanker companies own and operate 158 U. S. flag tankers with an aggregate capacity of 5.2 million deadweight tons. This is 38 percent of the carrying capacity of the total U. S. flag ocean-going merchant marine and 67 percent of the U. S. flag tanker fleet. In addition, our member companies have under construction or have announced plans for building 35 new U.S. flag tankers with a capacity in excess of 6.2 million deadweight tons. API companies also charter the bulk of the independently owned U.S. flag fleet. The successful operation of many API member companies is strongly dependent upon reliable transportation of crude oil from foreign sources. API is opposed to legislation which would require the carriage of commercial cargoes in international trade on U.S. flag ships. Of course this does not mean that API is opposed to expanding the U.S. flag fleet. On the contrary, the API strongly supports an orderly and efficient expansion of the U.S. flag tanker fleet and firmly believes this to be in the national interest. The API is convinced that the best way to achieve this expansion is through government support programs which provide economic inducements to both U. S. shipyards and U.S. flag owners and operators. Such inducements are not unlike those provided by other nations, particularly the strong maritime nations. They are granted, where necessary, to construction, ownership and operating segments of the maritime industries to permit them to compete effectively with international operators from all parts of the world. The Merchant Marine Act, 1936 was amended in 1970 to include bulk carriers. This Act specifically permits the granting of economic inducements to both U. S. shipyards and U. S. flag shipowners. It has already proved effective in revitalizing and expanding the U. S. merchant marine. However, the Act does contain onerous provisions that discriminate against international tanker fleet operators and prevents them from fully utilizing it to expand their U. S. flag operations. If suitable amendments are enacted which remove these discriminatory provisions, the Act would definitely satisfy the very objectives for which it was established. While expansion of the U. S. flag fleet is considered to be a commendable goal for this nation to pursue, attempting to achieve it through imposition of cargo preference legislation must be opposed for a number of reasons. Those which support API's opposition to such legislation are as follows: 1. 2. 3. Cargo preference legislation will result in an uneconomic U. S. tanker The U. S. tanker fleet size requirements called for under cargo preference Cargo preference legislation imposes unnecessarily large direct cost 4. 5. Cargo preference legislation is an ineffective means of improving the U. S. balance Cargo preference legislation is in sharp conflict with U. S. national security 6. 7. 8. 9. 10. Cargo preference legislation is inconsistent with established foreign trade policies and objectives and would contravene international treaties Cargo preference legislation in itself will not contribute to an improvement It is unlikely cargo preference legislation will create additional jobs versus Cargo preference legislation cannot be effectively administered or equitably The Merchant Marine Act as amended in 1970 is already proving to be a very successful means of expanding the U.S. flag fleet and further minor modifications to it will insure its continued success. There simply is no need for a cargo preference "Supplement" to existing U.S. flag expansion law. This report provides statistical and economic data in support of the API posture on the question of expanding the U. S. flag tanker fleet and upon the matter of cargo preference legislation. The information used in this report was by and large drawn from published sources. In some instances judgement was used to correct or modify published data where this was warranted by new events and the passage of time. It is possible that some readers may not completely agree with certain of the statistics contained herein. However, it must be emphasized that in many instances, the conclusions are not sensitive to the absolute levels of demand, supply, shipbuilding capability, ship construction costs and the like. PROJECTED WORLDWIDE TONNAGE SUPPLY AND DEMAND CONSIDERATIONS Expansion of the U. S. flag tanker fleet, as it develops, will provide an increasing number of vessels for international movements of oil. While many of these vessels will be used to transport oil from foreign supply sources to U. S. ports, many, because of their size or particular design, may be employed in foreign to foreign trades. In fact, it should not be necessary for a U. S. flag tanker to be restricted to transporting oil in any particular trade. Whether a U. S. flag tanker ever carries a drop of oil import cargo or not, it represents U. S. flag support of imports by its very existence. How is this possible? If a U. S. flag tanker is available for charter in the U. S. import trade and if, instead, it is chartered for an exclusively foreign trade, the U. S. trade which it could have served would then be covered by a foreign flag vessel. The substitution of vessels in effect acts like a simple exchange of services with the U. S. flag owner, thus effectively supporting the oil import requirement. The importance of the projected international tanker environment to U. S. tanker operators cannot therefore be ignored in considering expansion possibilities for the U. S. flag fleet. Projected tonnage requirements are essentially based on two important factors. The first is the total volume of oil which must be moved by tankers. The second is the varying lengths of haul associated with such movements. Figure 1 shows the trend for the worldwide waterborne oil movements for the time period 1970 through 1985. It also shows the trend for U. S. oil imports by tanker in relation to foreign movements. These trends are referenced to millions of barrels per day. The U. S. oil import statistics are These oil flows have been converted to the tanker tonnage required for their movement. The tonnage requirements take into consideration the critical distance factors which significantly influence necessary fleet carrying capacity. A projection of the tonnage requirements for international movements is shown in Figure 2. Also shown is the potential availability of tonnage based on full utilization of both existing shipyard capacity and planned shipyard expansions. Figure 2 also takes into consideration the size and age of vessels in the current free world fleet and makes allowance for normal scrapping and ship repair time. World tanker fleet availability is based on reports published by John I. Jacobs, H. P. Drewry and Lloyds Registry. New construction capability is keyed to a berth by berth analysis of every shipyard in the world used for tanker construction. The trends shown in Figure 2 are referenced to millions of deadweight tons of tanker carrying capacity. Actual tonnage requirements in 1970 amounted to 144 million deadweight tons of carrying capacity. Incremental supplies of oil required to satisfy demand growth are projected to originate from the far distant Mid-East producing sources. Consequently tanker tonnage requirements are expected to grow at a higher rate than oil movement requirements. Tonnage requirements are estimated to grow at an average annual rate of 10.5 percent during the period 1970 through 1975 and at a somewhat lower rate thereafter. Tonnage requirements will reach a level of more than 400 million deadweight tons of carrying capacity by 1985. This represents an average annual growth for the time period 1970 through 1985 of 7 percent. Oil experts believe that future demand for oil as a source of energy will be limited only by producing capability. In evaluating the reliability of tonnage requirement projections, one must not lose sight of the fact that international political pressures will likely result in the exploration and possible development of new reserves at locations closer to demand centers. Such a development would serve to lessen to some extent the projected worldwide requirement for tonnage carrying capacity. Further, the tonnage requirement projections have been based on the assumption the Suez Canal will remain closed for the entire time period. Figure 2 shows that assuming existing and planned shipyards are operated at capacity, a potential surplus tonnage situation would develop. This is not surprising since the world's shipyards of late have been contributing to an increase in tonnage availability at an annual rate of about 20 percent. |