increasing knowledge of the sea, weather forecasting, lightweight structures, and high-powered, lightweight powerplants are giving the ship designers new flexibility to provide for future ocean shipping requirements. Among new ship concepts that are being studied are:

(a) Tractor ships, or large ships that would have a disconnecting feature that would permit the aft engine room propulsion section to be detached from the cargo section or sections of the ship, and immedi ately attached to waiting loaded cargo sections.

(b) Catamaran cargo carriers may possibly prove feasible in the handling of containerized cargo. The twin hull configuration lends itself to a large deck area and higher propulsion efficiencies.

(c) Surface effect ships are currently under study by Navy and MarAd to determine their role as a highspeed ocean cargo carrier. Studies to date indicate that speeds approaching 100 knots may be technically feasible. These crafts are relatively small, but if developed they would require power in the range of 200,000 to 500,000 shaft horsepower in commercial usable sizes.

(d) Submarine cargo vessels, or possibly submarine trains, utilizing a submarine tug and a series of cargo carriers may well provide a system for sea transport of the future.

All of these systems require compact, high-powered propulsion systems. Moreover, fuel requirements for fossil fuel propulsion systems account for large portions of the load on long voyages. In addition, the fueling problem at each end of the voyage would be time consuming and costly. A lightweight, high-powered nuclear propulsion unit obviously would benefit these applications.

NUMBER OF SMALL CONTAINER SHIPS, SPECIAL PURPOSE AND BREAK BULK SHIPS NEEDED 1970-90

The current merchant shipbuilding program for the U.S.-flag subsidized general cargo fleet is about 14-15 ships per year. The projec tions discussed in section D indicate that 2 or 3 per year will be large or giant containers ships (1,500,000–3,000,000 cubic feet). Current trends indicate the smaller ships will require powerplants in the 30,000-45,000 shaft horsepower range.

Thus the total number of merchant ship powerplants which can be projected for U.S. subsidized construction between 1970 and 1990 at this time are 25 to 64 in the range 50,000 to 140.000 shaft horsepower, depending upon the size and speed of large and giant container ships built and approximately 235 to 250 plants of 30,000 to 45,000 shaft horsepower.

F. THESE TRENDS IMPROVE THE COMPETITIVE ECONOMICS FOR U.S.-FLAG SHIPS AND U.S. INDUSTRY

The U.S. operator of merchant ships faces economic costs determined uniquely within the United States. The cost of ship construction domestically is over twice that of foreign competition based upon the lowest domestic bid as compared with the lowest foreign shipyard cost. U.S. shipboard wage costs are four to five times equivalent for

1 Surface Effect Ships for Ocean Commerce, U.S. Department of Commerce, Washington, D.C., 1966.

en wage costs based upon our "parity" operating differential subsidy rmula for measuring wage differentials.

However, U.S. costs of capital are lower. The U.S. operator can also semble large amounts of capital and competent, sophisticated manement groups more easily than elsewhere in the world. Fuel costs e about the same for oil-fired plants here and abroad.

The revenues from shipping service are determined by the forces international competition. The amount of revenue is independent internal production factor costs.

Under these economic conditions, the U.S. operator must assemble economic package which will permit him to compete in terms of st per unit of service or, failing that, depend on subsidy payments. Other U.S. exporting industries face a similar problem and over ne it. These industries combine large amounts of capital, superior anagement, and highly productive labor to achieve internationally mpetitive unit cost outputs. An example in transportation is the ccess of aircraft manufacture and commercial air carrier service he U.S. merchant marine must use similar techniques to achieve truly mpetitive cost output. Like other export industries, a merchant rine based on high capital investment, low unit labor cost, and ghly complex integrated systems would minimize U.S. unit output sts, improve our competitive position, and minimize required overnment subsidy.

The trends in world trade, ship technology, and cargo handling ethods are opening the way for a more competitive U.S. merchant rine under U.S. cost conditions. The development of integrated ean transportation systems require specialized high-speed, fast turnound ships which carry containers or barges to facilitate rapid loadg and unloading. These ships and shipping systems also change the uctures of cost factor inputs to fit the criteria for most effective mpetition by U.S. operators.

In addition, nuclear power compares most favorably to fossil fuel wer at high-shaft horsepower in trades where there can be a high lization of the powerplant potential. High-speed ships sailing at power on long runs with fast turnaround most nearly satisfy the ditions for most favorable use of nuclear power. (See ch. II and

[.)

The changes in the structure of economic cost factors resulting from stype system are discussed below.

LOADING AND UNLOADING

A recent study of the components of ocean freight costs by loading, loading, and vessel segments showed a wide variation depending on port pair and commodity. In all cases, however, estimated U.S. ding and unloading costs were in excess of similar foreign costs. S. loading costs in some ports for some commodities were estimated more than half the total freight bill. On the other hand, foreign ding costs for some commodities were less than 5 percent of the al freight bill.

a) For all commodities studies in the report, cargo handling costs ged from 25 to 67 percent of total unit ocean freight costs.

b) Cargo handling costs ranged from 138 to 1,224 percent higher

for loading and 135 to 1,200 percent higher for unloading in United States as compared to foreign ports for the same commodity.

(c) Cargo loading costs generally exceeded unloading costs for a given commodity in a given port ranging from 14 to 36 percent higher for the commodities shown.

U.S. shippers and ship operators stand to gain more than their foreign counterparts from improvements in cargo handling. Dock wages are higher in the United States so there will be greater stevedoring savings in the United States than abroad and U.S. shipboard_wage are 4 to 5 times foreign costs so there will be greater savings to United States than to foreign ships.

INCREASED SHIP UTILIZATION

The study estimated vessel costs at from 33 to 75 percent of unit ocean freight costs. In the latest year for which data are available to make estimates, U.S.-flag subsidized liners spent about 46 percent of total voyage-days in line haul service and about 54 percent of voyagedays in port or steaming between ports in the same geographic area.

The expense of maintaining and operating a ship while in port may be imputed to the port costs. Costs are higher at sea for fuel but there are no port charges. If we assume for approximation purposes that added costs in port balance added fuel costs at sea we may imput ship costs on the basis of voyage-days. Thus, for U.S. subsidized ships about half the vessel cost was incurred in port or 16 to 37 percent (33 to 75 percent over 2). When the imputed vessel costs are added to the direct loading and unloading costs total port costs range from 62 (25 plus 37) to 83 percent (67 plus 16) of the ocean unit costs for shipping commodities to and from the United States.

The rapid ship turnaround resulting from containerization will enable ship operators to increase the line haul portion of voyage-days from the current average of less than 50 percent to 70 or 80 percent de pending on the length of voyage and progress in container handling techniques. The decrease in nonproductive time in port will be an incentive to increase ship speed because a 5-knot increase in sea speed will result in an average increase in effective speed of 4 knots at 80 percent sea time but only a 2.5-knot increase with 50 percent sea time. The earning power of the investment capital in the ship is also increased by faster turnaround time. A vessel at sea 80 percent of the time has a 60 percent greater revenue potential than one at sea 50 percent of the time. Both these factors, better use of available speed and increased revenue capability from faster turnaround, will permit U.S.-flag owners to build and operate higher capital cost, higher speed ships than would be possible under conventional break bulk operating patterns.

The increase in potential utilization of capital invested in ships made possible by containerized handling techniques for cargo will make investments in high-speed more expensive ships feasible regardless of whether they use oil or nuclear energy. The increased potential utilization makes high-speed container ships a logical application for nuclear power because a part of the nuclear fuel is a fixed cost and

1A substantial portion of the cost of nuclear fuel is represented by investment charges in the nuclear fuel. These are incurred whether or not the ship is underway.

only part is variable as contrasted to oil where the whole charge is variable.

The figures assembled for the recent study of ocean freight costs agree with two independent sources. The Office of Business Economics made a study of 1962 gross ocean freight payments and receipts which indicated about 34 percent were attributable to the flag of the ship and about 66 were attributable to stevedoring, port expenditures, and so forth. A MarAd study, "Ship Design for Improved Cargo Handling," had figures showing that about 68 percent of total costs were due to the cargo handling function when both the direct stevedoring costs and the costs of the ship in port were attributed to the cargo handling function.3

The economic basis for the U.S.-flag move to containerized ships can thus be clearly laid.

About two-thirds of unit ocean shipping costs are associated with the cargo handling function and only about one-third with the line haul ship function. A disproportionate share of the cargo handling function costs is at the U.S. end because U.S. loading and unloading costs are three to 12 times those of foreign countries. If we assume, for example, that a hypothetical commodity moves between United States and Europe at $100 per M/T, U.S. loading cost may be $50, vessel cost $40, and foreign unloading $10. If we allocate the $40 vessel cost into $20 in port and $20 at sea, and allocate the port time equally between the United States and Europe, the costs become: $60 U.S. loading cost, $20 vessel cost in line haul and $20 foreign unloading cost. (Table 8.) A 40-percent increase in overall efficiency in the system would benefit the U.S. participants by $32, the foreign participants by $8 and the ship operator in line haul by $8. This wide potential leverage for the U.S. operator explains the reason for the switch to containers and more efficient systems.

TABLE 8.-HYPOTHETICAL SHIPPING COSTS, UNITED STATES TO EUROPE

1 Assumes vessel spends 50 percent of total voyage-days in port and spends equal time in U.S. and European ports.

CREW COST PER UNIT OF OCEAN SHIPPING

The United States is at an economic disadvantage with foreign competitors largely with labor costs in building and operating of U.S.flag ships. It is not possible to predict the actual crew on future U.S.flag ships, therefore, it is not possible to predict actual crew costs on future ships. (See ch. VI, on manning.) We can, however, approach

2 "Survey of Current Business," August 1963.

"Ship Design for Improved Cargo Handling," SNAME, October 1961.

the answer by looking at the possible crew cost component of current versus proposed ship costs. If the largest container ship proposed so far is actually built, the six conventional ships it could displace are likely to have a combined crew of about 300 men. Even if automation reduced the crews on conventional ships to 35 billets per ship, it would still be 210 billets.

Under today's conditions the largest tankers are being automatically controlled and monitored to be operated by crews of about 30 men. It is reasonable to assume large, high-speed container ships can be built for approximately the same size crew. Even if we assumed a crew of 50 on the future large automated container ship and the low crew (35 per ship) for conventional ships, the crew cost component of the large ship would be reduced to less than a fourth of what it would be for equivalent shipping capacity in conventional break bulk ships. If it were possible to assume the most favorable conditions the large, high-speed container ship would have only one-sixth of the costs of equivalent conventional ships.

If the large, high-speed container ships were to be nuclear powered and nuclear power required either more men or higher priced men than were required on equivalent oil-fired ships, the effect on total costs would be minimized compared to conventional break bulk ships because of the smaller relative size of the crew cost component of total shipping system costs.

These advantages can accrue to U.S.-flag shipping firms and U.S. exporters in greater degree than to foreign-flag shipping firms and shippers because U.S. labor costs are two to five times higher and capital costs are lower than in competing foreign nations.

CAPITAL

It is difficult to document the exact difference in capital costs between the United States and European and Japanese capital markets. Container ships systems will require not only highly capitalized ships but also a large container and bogie pool. Container cost varies with size and type from $2,400 (20 foot) to $3,600 (40 foot) per unit and $10,000 for a 40-foot refrigerated unit. Future container ships may carry 1,000 or more large boxes including some specialized types, such as refrigerator boxes. The container equipment required to support such a ship could range from $10 to $12 million or more.

A container shipping system will require the ship operator to assemble, invest, and manage a much larger amount of capital than has been necessary in the past. The United States has had far more experience with large enterprises than any other country in the world. It should be easier to assemble the complex management group required in the United States than in any other competing maritime nation. The United States has the lowest capital costs in the world (for both borrowed and equity money)-so low, that it has been necessary to impose a 15-percent foreign investment tax on capital exports for balance-of-payments purposes.

It is usually possible to finance a larger share of the total capital costs of an enterprise on borrowed money in the United States than abroad. U.S. banks usually are willing to loan a larger share of total

1 Monthly Labor Review, May 1963, p. 487.