SIC 4424
DEEP SEA DOMESTIC TRANSPORTATION OF FREIGHT



This industry consists of establishments primarily engaged in operating vessels for the transportation of freight on the deep seas between ports of the United States, the Panama Canal Zone, Puerto Rico, and U.S. island possessions or protectorates. Also included are operations limited to the coasts of Alaska, Hawaii, or Puerto Rico. Establishments engaged in operation of vessels for transportation on the deep seas between the United States and foreign ports are included in the entry for SIC 4412: Deep Sea Foreign Transportation of Freight. Establishments primarily engaged in transportation of freight on the Great Lakes and St. Lawrence Seaway are included in SIC 4432: Freight Transportation on the Great Lakes—St. Lawrence Seaway. Establishments performing transportation of freight on the intracoastal waterways paralleling the Atlantic and Gulf coasts are classified in SIC 4449: Water Transportation of Freight, Not Elsewhere Classified.

NAICS Code(s)

483113 (Coastal and Great Lakes Freight Transportation)

Industry Snapshot

Deep sea domestic transportation of freight is part of a massive interrelated system of transport of manufactured and raw materials. According to the U.S. Army Corps of Engineers, there were more than 7,850 vessels operating on coastal and noncontiguous waters in 2000. Among them were 3,916 dry cargo barges; 1,612 towboats; 1,311 dry cargo and passenger/offshore support vehicles; 618 tanker barges; 240 vehicular ferries and railroad cars; 128 tankers; and 27 railroad car floats.

Although the health of the industry depends in large part on the health of the U.S. economy, domestic deep sea transportation plays an important role in the nation's private and public interests. Oceangoing domestic vessels facilitate business between various areas of the country by providing relatively low-priced shipping service and are part of the vast network of trains, trucks, and inland water carriers that keeps the nation's commerce moving. The industry also supports millions of other jobs at shipbuilding yards, seaports, and terminals. In addition, the domestic waterborne shipping industry is vital to national defense interests, as it has relieved rail congestion and provided transport of military equipment and supplies during periods of national emergency.

In 2000, the deep-sea sector of the U.S. domestic transport industry carried approximately 1.1 billion short tons (2,000-pound tons), according to the U.S. Army Corps of Engineers. Total coastal waterborne commerce for that year (by type of traffic) was 229 million metric tons.

Much of the success of the U.S. deep sea domestic industry over the years has been reliant upon oil drilling in Alaska. Since the 1989 oil spill disaster involving the Exxon Valdez in Alaska's Prince William Sound, new laws aimed to prevent oil spills in U.S. waters have become a serious concern for U.S. shipping companies. The Oil Pollution Act of 1990 required that all oil products be conveyed in double-hulled ships in order to prevent a repeat of the Exxon Valdez spill. The law also required each carrier to provide a guarantee of financial responsibility in the event of a spill. Ship owners claimed that the law, as written, threatened the survival of domestic shipping.

Organization and Structure

The U.S. deep sea fleet consists of three categories of service: liner, nonliner (or tramp), and tanker service.

Liner service includes regular, scheduled stops at ports along a designated route. The operators either own or charter the ships and must accept any legal cargo they are equipped to carry, unless it does not meet the minimum freight requirements. Liner service usually carries manufactured goods. Often, two or more carriers form "conferences" in order to regulate rates and competition along a route. All conference members must charge the same freight rates, although the laws of supply and demand may affect rates from one sailing to the next. Frequency of trips depends upon the demands for shipping along the route.

Nonliner, or tramp, service is scheduled individually by a customer who, in essence, is chartering the ship to carry its cargo. Tramps generally carry only one type of bulk cargo, usually a raw material such as coal, ores, grain, lumber, or sugar. On occasion, two shippers of the same commodity charter a ship jointly.

Merchant ships have become increasingly more specialized, especially during the last half of the twentieth century. Special ships were designed to carry bulk cement, coal, iron ore, liquefied natural gas, wood chips and pulp, refrigerated foods, and heavy equipment. These ships, operating as nonliner service, were often on long-term lease by one company. Because the ships were so expensive to build, the ship owner could require the company to sign a long-term lease for most of the life of the vessel before beginning construction.

Tankers carry shipments of liquid cargoes, especially crude oil and petroleum products. Oil companies could own and operate their own tanker fleets and charter privately owned ships as needed. The transport of oil in bulk began in the late 1880s. Tankers in the 100 years since then have changed dramatically, with ship work handled more by computers, thus cutting back on the size of the crew. The enormous size of the tankers of the modern era has also increased the risk of oil spills and the impact such spills can have on the environment. The infamous Alaskan oil spill in Prince William Sound by the Exxon Valdez in 1989, which caused significant ecological damage to the area, thus served as a catalyst in the institution of strict environmental regulations for tankers and other vessels.

One innovation in oil product shipment was the tug-barge. The bow of the tug fits into a notch in a barge weighing up to 20,000 tons and pushes the barge. This vessel was devised as a way to cut shipping costs on tanker routes from the Gulf of Mexico north along the eastern seaboard of the United States. The tug-barge requires only a fraction of the crew needed aboard a tanker.

Domestic shipping includes coastwise, intercoastal, and noncontiguous services. Coastwise shipping refers to movement of cargo along the coastlines of the 48 contiguous states, which includes shipment of goods between the Atlantic and Gulf coasts. For the most part, tankers and ocean tug-barge systems carry petroleum and tramps carry dry bulk cargoes along this route.

Intercoastal shipping includes movement of cargo between Gulf and Pacific ports and between Atlantic and Pacific ports. Most traffic of this type consists of oil tankers carrying their cargo from Alaska to Gulf ports. Noncontiguous shipping includes service to Alaska, Hawaii, and U.S. territories and possessions. Outbound Alaskan shipping consists largely of petroleum products and crude oil; inbound service carries consumer goods for state residents. Hawaii and Puerto Rico rely on deep-sea freight to transport goods in and out of their islands.

Several federal agencies promoted and regulated the U.S. merchant ships before the Maritime Administration (MARAD), part of the Department of Commerce, was given jurisdiction in 1950. The Merchant Marine Act of 1970 strengthened and expanded the MARAD's function. It brought the many facets of the merchant marine together in order to ensure the strength of the industries involved, including shippers, shipbuilders, and ship owners, as well as the various unions in each of those industries. MARAD guarantees loans for shipbuilding as well as providing other subsidies and tax benefits for construction of new ships by fleet owners.

Background and Development

Cargo ships showed little design improvement between 1850 and the late 1950s. Cargo of various shapes and sizes was stored in five different cargo holds. But in the late 1950s and the 1960s, ship design and the shipping industry were revolutionized.

In 1956, when the T-2 tanker Ideal X left Houston, Texas, a new era of deep-sea shipping was launched. Ship owner Malcolm P. McLean had initiated a new approach to shipping cargo by which the functions of both truck and ship were combined in an integrated transportation system. McLean had modified a 35-foot long tractor-trailer, so that the "container" holding the cargo could be lifted off the tractor-trailer chassis. These containers could then be loaded onto the ship by crane and stacked in rows. When the cargo reached its destination, each container was lifted off the ship and put back on a truck chassis. The cargo no longer had to be loaded and unloaded onto trucks at the ship terminal. The containers were packed and sealed by the shipper, then unpacked by the recipient of the goods at its ultimate destination rather than at the terminal. The containers could also be transported aboard freight trains. This new integrated transportation system saved time and drastically reduced the number of times a crate or pallet of packages was handled, thus eliminating instances when damage could occur.

Further development brought the addition of a shipboard crane so that the ships could unload at any port as long as there was a dockside apron large enough to accommodate a truck-tractor. The use of the container shipment method also cut down on the number of hours a ship had to be in port loading and unloading, thus resulting in less "down time." This improvement reduced the number of ships needed to maintain a specified frequency of service on a scheduled route. This revolutionary method of shipping quickly caught on among domestic and foreign carriers.

Roll-on/Roll-off (Ro-Ro) ships were a variation of the container ship: containers were placed on wheeled conveyors that are driven aboard the ship through huge cargo hold doors in the sides and stern of the ship. The containers were moved by ramps and elevators to their places in the cargo hold. The driver's cab was detached from the conveyor and driven back on shore. The container and conveyor remained on board to be unloaded at their destination. Roll-on/Roll-off ships were used to convey vehicles or other large cargo.

A speedier version of the container ship is the LASH (Lighter Aboard Ship) vessel. LASH ships are about 800 feet long. Barges (lighters) loaded with cargo are hoisted on board the LASH vessel by a crane on board the ship and stored in cargo holds.

The federal government has long held that a strong merchant marine was in the best interest of the country, both militarily and economically. Various laws and acts have been passed by Congress to protect and promote the merchant fleet operating in foreign and domestic trade. The Merchant Marine Act of 1920, which included the Jones Act, called for a merchant marine of "the best equipped and most suitable types of vessels sufficient to carry the greater portion of its commerce and serve as a naval or military auxiliary in time of war or national emergency." According to this law, ships carrying cargo between domestic ports must be U.S. flag ships, owned by U.S. citizens and built in U.S. shipyards, thus protecting domestic trade from foreign competition.

In March of 1997, legislation to allow confidential contracting between individual ocean common carriers and shippers was proposed by Congress to reform the Shipping Act of 1984. Called the Ocean Shipping Reform Act of 1998, the bill, in essence, eliminated the Federal Maritime Commission (FMC) and transferred remaining functions to an expanded and renamed Surface Transportation Board.

The domestic fleet was relatively old, but ship owners were reluctant to replace their aging ships very quickly because of low profit margins. In 1994, for example, one merchant vessel capable of carrying seven gross tons and one tanker capable of hauling 17 gross tons were constructed, according to figures available from the U.S. Maritime Administration. No new ships were constructed in 1993, and in 1992, three merchant vessels with a total of 44 gross tons hauling capability, one cargo vessel capable of carrying 32 gross tons, and two tankers with a hauling capability of 12 gross tons were constructed. According to the U.S. Industrial Outlook, published by the U.S. Department of Commerce, the ship owners were facing stricter laws governing hazardous materials, waste disposal, vapor recovery, crewing requirements, and inspections. Any new regulations would affect profits and expenses of fleet owners.

Presidential administrations have also supported proposals to help boost the U.S. shipping lines and make them more competitive. President Bill Clinton indicated support to revitalize U.S. shipping and a number of potential remedies were under consideration, including regulatory relief, tax credits, and bankruptcy law revisions. In the wake of the Exxon Valdez oil spill in Alaska, however, the Oil Pollution Act of 1990 called for stronger regulation of oil transport. A rule from that same act, designed to strengthen pollution controls and clean-up laws, was intended to insure that oil-shipping firms would be able to pay for damages from oil spills. The rule required ship operators to obtain a Certificate of Financial Security from the Coast Guard for each ship over 300 gross tons. This stipulation included not only oil tankers and barges but other ships as well because they carry oil as fuel.

The regulation called for operators to show proof of financial responsibility in the form of insurance, letters of credit, surety bonds, or other backing. However, the agency that provided the guarantee would also be liable for damages. Protection and Indemnity (P&I) clubs insured more than 95 percent of the ships traveling in U.S. waters or between U.S. and foreign ports. In this case, however, they refused to act as guarantors for environmental accidents because the regulation left the amount of liability open-ended and allowed any person, state, or local government to sue for the cost of cleanup, loss of natural resources, destruction of personal or real property, and loss of revenue or earning capacity. Insurance did not provide sufficient levels of coverage, so the law made ship owners responsible for paying the difference. Oil shipping firms insisted that this rule would shut them down. The rule was not implemented, pending further discussions on its potential ramifications for the industry.

Overall, the 1999 domestic deep sea industry appreciated about a 1.5 percent increase in rates over 1998. There was in 1999, no expected increase for 2000. The flat market was attributable to many factors, including a weak foreign market, high fuel costs, and excess cargo tonnage. In June of 1999, Peter Finnerty, vice president of Public Affairs for Sea-Land Service, Inc. and of Maritime Affairs for CSX Corporation, testified before the U.S. Congress on behalf of the proposed United States Flag Merchant Marine Act of 1999. The House bill proposed several tax rule changes that would possibly generate private investment capital for new U.S. flagships. In 1999, Sea-Land Service, Inc. operated a fleet of 100 container ships under both foreign and domestic flags. However, declining revenues forced its sale by CSX Corporation, its parent, to A.P. Moller-Maersk Line for $800 million. CSX retained Sea Land's domestic shipping business, worth $700 million. Despite the one-time charge-off of $315 million in profits as a result of the sale, CSX nonetheless reported third-quarter 1999 earnings of $123 million. To help finance a cargo terminal to be used by the new Maersk-Sea-Land merger interests, the Port of Los Angeles announced in November of 1999 that it would sell $300 million in bonds in 2000. The merger of the two shipping interests created the largest shipping company in the world.

Current Conditions

During the early 2000s, companies engaged in the deep sea domestic transportation of freight faced several challenges. On the economic front, reduced levels of consumer and corporate spending, as well as lower production levels, affected shipment volumes. Economic conditions worsened even more after the terrorist attacks of September 11, 2001. Popular tourist destinations like Hawaii and Puerto Rico—key industry shipping routes—saw tourism levels plummet.

In March 2003, the United States invaded Iraq on a scale that many considered to be greater than the first Gulf War during the early 1990s. According to the Transportation Institute, during the first conflict the United States' domestic fleet of oceangoing vessels played an important role in supporting the U.S. military under provisions of the Jones Act, federal legislation that allows U.S. ships, shipyards, and crews to be used for military purposes. On its Web site, the institute cited commentary from VADN Francis R. Donovan, USN Commander, Military Sealift Command, explaining that some 80 percent of sea cargo was carried by U.S. flagged ships during the first war. Donovan remarked that the military "tapped the U.S. maritime industry and thousands of merchant mariners to help augment the government's strategic sea-lift forces." In February of 2003 the U.S. Department of Transportation's Maritime Administration announced that, per the Military Sealift Command, 36 ships had been activated to support the nation's "war on terror," also known as Operation Enduring Freedom. As military action increased in Iraq, the likelihood of the U.S. domestic fleet being used for military or security purposes also increased.

The Jones Act also affected the industry in another way during the early 2000s. As the Transportation Institute explains, the Jones Act "specifies that domestic waterborne commerce between two points within the United States and subject to coastwise laws must be transported in vessels built in the United States, documented under the laws of the United States, and owned by the citizens of the United States." In the fall of 2002, dock workers at 29 coastal ports staged a lockout that lasted 10 days when the International Longshore and Warehouse Union failed to come to terms with the Pacific Maritime Association. The lockout created a number of significant problems, including stranded ships, financial losses for shipping companies, and a negative impact on the larger U.S. economy. After the lockout ended, a backlog of inbound shipments remained. In order to expedite the movement of these shipments to their intended destinations, the National Industrial Transportation League petitioned the U.S. Customs Service for a 90-day Jones Act waiver so that foreign vessels could provide assistance. However, this led to protests from groups like the Sailors' Union of the Pacific, which argued the move would jeopardize national security.

Industry Leaders

Among the industry's leading firms in the early 2000s was Charlotte, North Carolina-based CSX Lines, a subsidiary of CSX Corp. that claimed more than 35 percent of the market for ocean-liner routes between the U.S. mainland and Alaska, Guam, Hawaii, and Puerto Rico, according to Loan Market Week. Other leaders in the industry included Alexander and Baldwin, Inc. The company's subsidiary, San Francisco-based Matson Navigation Co., was a market leader in the shipment of automobiles to Hawaii and Guam. Crowley Maritime Corp. offered triple-deck barges and container ships (rollon/roll-off and lift-on/lift-off) service to and from U.S. ports to Puerto Rico. Finally, APL Limited of Oakland, California, was an established player in the container ship segment.

Research and Technology

Shipping lines have invested in more sophisticated computer equipment to help track cargo and display information about the size, weight, origin, or destination of specific containers. Computers were increasingly used to perform many of the tasks that crew members once performed on board. Technology has also allowed shippers to access information about the progress of their own cargo.

Further Reading

Barker-Benefield, Simon. "Transport Firm CSX Earnings Beat Analysts' Estimates." The Florida Times, 29 October 1999.

"CSX Lines Circles Domestic Market." Loan Market Week, 20 January 2003.

Dupin, Chris. "Jones Act Shuffle: Possible Redeployment of CSX Lines Ships Could Affect Several Domestic Routes." JoC Week, 12 August 2002.

Edmonson, R. G. "Logistical Headache: Effort to Get Containers to Proper Ports by Coastal Shipping Stirs Jones Act Flap." Traffic World, 4 November 2002.

Figler, Andrea. "Port of Los Angeles Plans Issue to Help Shipping Giant." Bond Buyer, 12 November 1999.

"International Tax Rules." FDCH Congressional Testimony by Peter J. Finnerty, July 1999.

Jones, Chip. "Richmond, Va.-Based Transportation Company Changes Name." Richmond Times, 18 November 1999.

"Maersk/Sea Land Takeover Cleared by EC." American Shipper, November 1999.

"Market Watch." Logistics Management & Distribution Report, November 1999.

"Sea-Land Reports Loss Despite Pacific Rebound." American Shipper, December 1999.

The Transportation Institute. "Industry Profile." 22 March 2003. Available from http://www.trans-inst.org .

"USA Industry: NIT League Asks for Jones Act Waiver." Country ViewsWire, 28 October 2002.

"USA Industry: Sailors' Union Opposes Jones Act Waiver." Country ViewsWire, 29 October 2002.

Waterborne Commerce of the United States: Calendar Year 2000. Part 5—National Summaries. Alexandria, VA: U.S. Army Corps of Engineers.



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