by Michael Hansen, Hawaii Shippers Council, January 25, 2016

The Marine Log Magazine published on January 25, 2016, the news article “MARAD awards NRDF contracts worth $1.96 billion” reporting on contracts awarded by the U.S. government to domestic Jones Act companies to provide commercial ship management services to the federal government.

The U.S. Maritime Administration (MARAD), an agency of the U.S. Department of Transportation (USDOT), is responsible for managing the U.S. government fleet of militarily useful merchant ships known as the National Reserve Defense Fleet (NRDF). Section 11 of the Merchant Ship Sales Act of 1946 established the NDRF to serve as a reserve of ships for national defense and national emergencies. There are currently (as of December 31, 2015) a total of 101 NRDF ships.

The active subset of the NRDF is known as the Ready Reserve Fleet (RRFR), which was formed in 1976 to support the worldwide deployment of U.S. military forces especially Army and Marine components. The 48 ship RRF provides nearly one-half of the government-owned surge sealift capability.

It is for these 48 ships that MARAD awarded 18 ship management contracts to seven companies for a four year base period (the years 2016 through 2020) with two two-year renewal options.

In addition, the U.S. Department of Defense (USDOD) relies on two other groups of U.S. ships for sealift capacity. The U.S. Military Sealift Command (MSC), a USDOD agency, operates another approximately 110 government-owned noncombatant ships with civilian crews about half of which can provide sealift. And, the privately-owned U.S. flag foreign (or, international) trade fleet of 79 oceangoing ships, which are all foreign built, about half are foreign-owned (through a special U.S. trust) and 60 receive a MARAD Maritime Security Program (MSP) subsidy of $5.0 million per year per ship.

Of the 48 cargo ships in the NRDF more than half are foreign built and nearly all were built during the 1970’s. The most important subgroup are the 31 deep sea Roll-On/Roll-Off (RO/RO) ships of which 27 were foreign built in the 1970’s and approaching 45 years of age. The deep sea RO/RO’s can efficiently carry the military rolling stock so necessary to support the USDOD missions across the world’s oceans and discharge the cargo at underdeveloped and damaged ports.

The deep sea RO/RO’s were built in the 1970s largely in Europe to service ports where full container terminal facilities had not yet been constructed, and were subsequently replaced by more efficient cellular containerships when container terminals became widely available. During the 1980’s and early 1990’s, the USDOD was able to take advantage of these foreign built ships coming out of foreign flag service and acquire highly suitable low cost ships for conversion to U.S. flag.

The USDOD is facing replacement of these RRF ships, and as no one in the world is building new deep sea RO/RO’s, this will mean ordering newbuildings. There is a big controversy brewing between the U.S. major shipbuilding industry who want the replacements built in the U.S. and many in the defense establishment who would prefer to build the ships overseas in view of the potential budget savings.

The cost of merchant ship construction in the U.S. is approximately five times that of building comparable ships in South Korea (41% of world ship production) and Japan (28% of world production).

The requirement that the USDOD build their vessels in U.S. shipyards is a USDOD procurement law requirement and not a feature of Jones Act cabotage. However, the same arguments will be made by the Jones Act industry that it is necessary for national defense to build these ships at great expense in the U.S. An important question will be whether or not the USDOD will have the budget to build in the U.S.

Key excepts:

Seven U.S. maritime firms have been awarded contracts worth a total $1.96 billion over eight years to manage, maintain and operate 48 National Defense Reserve Fleet (NDRF) vessels through January 2024.

The Maritime Administration contracts are funded by the Department of Defense (DoD) National Defense Sealift Fund to support DoD's strategic sealift mission.

The eighteen contracts awarded total $953.5 million for the four-year base contract which runs through January 2020. The contracts also include two, two-year options bringing the total award value to $1.96 billion.

Forty-six of the vessels are part of the Department of Transportation's Ready Reserve Force, a fleet managed by the Maritime Administration (MARAD) that provides rapid mass movement of Department of Defense equipment and supplies to support the Armed Forces, and also responds to national and humanitarian emergencies. Additionally, two vessels are used to support Missile Defense Agency operations.

"The U.S. Merchant Marine and National Defense Reserve Fleet play a crucial role in our nation's security," said Maritime Administrator Paul 'Chip' Jaenichen. "These contract awards will allow our commercial maritime companies to continue providing top-notch support to our troops who are stationed or deployed around the world."