cmocQ--scS £ Expansion of the Soviet Merchant Marine Into the U.S. Maritime Trades U. S. DEPARTMENT OF COMMERCE Maritime Administration Office of Policy and Plans Division of Special Studies August 1977 Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/expansionofsovieOOunit Expansion of the u - y E ss Soviet Merchant SZS&22Z J Marine Into the Div.sionofspeciaistud.es I U.S. Maritime O Trades For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 Stock No. O03-O07-O0081-2 Table of Contents Page List of Tables iii List of Illustrations iv Section I . Introduction 1 II . Executive Summary 3 III. An Analysis of the Soviet Fleet 5 A. Recent Growth/New Technology 1965 - 1975 5 B. Projected Fleet Growth 1980, 1985 15 a. Liner Vessels 21 b. Tanker Vessels 23 c . Dry Bulk Vessels 24 IV. Competitive Practices in the U.S. Foreign Trade ... 25 A. U.S. -U.S.S.R. Maritime Agreement 2 5 B. Recent Performance 27 C. Trade Areas Serviced 30 D. Types of Commodities 35 E. Marketing Practices - Liner Service operations. 37 F. Rate Cutting and Rebating Issues 4 2 G. Projected Liner Trade Performance 45 H. Projected Total Trade Performance 4 9 V. Worldwide Operations and Utilization of Capacity 55 Table of Contents (Continued) Page Appendices Appendix I: Major Commodities Carried by the Soviet Merchant Marine in the U % S. Oceanborne Foreign Trade, 1976, 1975, 1974 and 1971 65 Appendix II: A. Far East Shipping Company - Transpacific Service , May-July 1976 69 B. Baltic Shipping Company - Transatlantic/ Europe Service, May- July 1976 ,..,..,. 71 C. Black Sea Shipping Company - June-July 1976 72 Appendix III: U.S. -Flag Fleet Forecast 73 ii List of Tables Page 1. Growth of Fleets of Major Maritime Countries, Dec. 31, 1965, and Dec. 31, 1975 6 2. U.S. Privately Owned Merchant Fleet and Soviet Merchant Fleet Composition By Vessel Type, Jan. 1, 1976 8 3. World Fleet Composition by Vessel Type. Jan. 1, 1976... 9 4. Soviet Merchant Fleet, 1976, 1981, and 1986 16 5. U.S.-U.S.S.R. Bilateral Oceanborne Foreign Trade by Type of Service 26 6. Value and Tonnage of Commercial Cargo Carried in U.S. Oceanborne Foreign Trade by U.S.S.R. and U.S. Vessels, 1976, 1975, 1974, and 1971 29 7. U.S.S.R. Flag Participation in U.S. Liner Ocean- borne Foreign Trade on Certain Trade Routes, 1971, 1974, 1975 and 1976 32 8. Number of Soviet Vessels and Voyages by Vessel Type Calling at U.S. Ports, 1972-1975 34 9. Commercial Soviet Shipping by U.S. Coast, 1972-1975 36 10. Projected U.S. and U.S.S.R. Carriage of U.S. Liner Oceanborne Foreign Trade, 1980 and 1985 50 11. Projected U.S.S.R. Carriage of Total U.S. Oceanborne Foreign Trade 51 12. Projected U.S. and U.S.S.R. Carriage of U.S. Ocean- borne Foreign Trade, 1980 and 1985 53 13. Soviet Foreign Trade, 1974 56 14. Soviet Merchant Fleet Size and Cargo Performance, 1960-1975 64 in List of Illustrations Page Essential United States Foreign Trade Routes , 33 Tonnage of Commercial Liner Cargo Carried in United States Oceanborne Foreign Trade by U.S. and U.S.S.R. Vessels 48 Tonnage of Commercial Cargo Carried in United States Oceanborne Foreign Trade by U.S. and U.S.S.R. Vessels 54 IV I. INTRODUCTION The phenomenal expansion of the Soviet merchant fleet parallels the growth of its Navy. Twenty years ago the carrying capacity of the Soviet merchant marine placed it 20th in world ranking. Today, it ranks fourth with respect to number of ships and ninth in terms of deadweight tonnage. In addition, the early 1977 Soviet vessel orderbook was fourth by number of vessels and tenth by deadweight tonnage when compared to other nations' new vessel orderbooks. Particu- larly during the past decade, the Soviet Union has undertaken an extensive program of merchant fleet modernization and expansion The fruits of this program, diligently pursued over the past years, are becoming very visible in the increasing levels of Soviet fleet penetration into international commerce. The Soviet merchant marine of today has the combined capability to carry more than half of all Soviet foreign waterborne trade, to deliver the military and economic cargoes of Communist Bloc and other nations receiving aid, and to satisfy all of the Soviet domestic waterborne shipping requirements. In addition, the Soviet merchant fleet has increased its capability to earn currency from the U.S. and other nations as a third-flag carrier in the "cross trades" of world commerce. In response to the growing trade penetration in the United States by the Soviet merchant fleet, we have attempted to analyze and monitor the policies of the Soviet merchant marine, and to forecast its future development. -1- This paper is based on the latest, most reliable U.S. Government information, as well as other published data, both domestic and foreign. The paper contains a comprehensive reviev; of the growth and composition of the Soviet fleet and projects growth trends in fleet size and ship types for the next 10 years. A detailed discussion of the Soviet fleet's participation in the U.S. trade since the signing of the first U.S.-U.S.S.R. Maritime Agreement in 1972 is undertaken and projections of future Soviet penetration through 1985 are made Finally, Soviet fleet operations and competitive practices are discussed in detail with an emphasis on how this fleet has performed in the worldwide trade. -2- II. EXECUTIVE SUMMARY The Soviet merchant marine has a number of essential missions among which are: - to provide shipping capacity to reduce dependence on western shipping; - to earn foreign currency to assist in the balance of payments; - to provide the shipping capacity necessary to transport military cargoes; and - to assist in the expansion of Soviet policy throughout the world. Between 1965 and 1975, the Soviet merchant fleet increased in size from 990 vessels of 8 million deadweight tons (dwt) to 1,655 vessels of 15.4 million dwt. The Soviet merchant marine is projected to be 1,717 vessels of 18.4 million dwt in 1980 and 1,812 vessels of 23 million dwt in 1985. This projection is based upon the historical growth trend of the Soviet merchant marine since 1959. The Soviet intermodal fleet in 1975 consisted of 30 vessels totaling nearly 158,000 dwt with a 1981 forecast of 54 vessels totaling 566,000 dwt and a 1986 forecast of 94 vessels totaling 1,2 million dwt. During 1975 and 1976 the Soviet merchant marine began operating large, full containerships and Roll--- On/Roll -Of f (RO/RO) vessels in the U.S. liner trades. These vessels are considered to be the technological equivalent of western intermodal vessels. The technologically advanced intermodal fleet forecast for construction through 198 5 is not considered to be in line with future Soviet foreign seaborne trade vessel requirements. Soviet dry and liquid bulk cargoes are estimated to be between 75 and 80 percent, by volume, of the total Soviet foreign oceanborne trade. -3- In 1971, Soviet participation in U.S. liner oceanborne foreign trade was 160,000 tons valued at $38 million, representing, by tonnage, 0.4 percent of the total U.S. liner trade. In 1976, this participation was 7-8 times greater: preliminary information shows that the Soviets carried 1,434,000 tons valued at $1.7 billion, representing, by tonnage, 2.9 percent of the total U.S. liner trade ;. Since the signing of the U. S.-U. S .S.R. Maritime Agreement in 1972, bilateral liner cargoes carried by the Soviet fleet have averaged around 10-15 percent of their' total liner carriage with the remaining 85-90 percent being "cross trades" cargoes. Soviet liner operations are primarily concentrated on five U.S. trade routes: - East Coast to United Kingdom, Continent and Scandinavia - Atlantic, Gulf, Pacific Coast to Indonesia and Malaysia - Gulf Coast to United Kingdom and Continent - Pacific Coast to Far East - Great Lakes to United Kingdom, Continent and Mediterranean . In 1976, 13 of the top 20 commodities by value carried by the Soviet fleet in the U.S. trades were high-value liner cargoes representing 36 percent of the total value of all cargoes carried. By 1985 the Soviet liner fleet carriage of U.S. liner cargoes is forecast to increase to 6.6 percent if the Soviet Union continues its present practice of rate cutting. However, if the Soviets eventually become members of the liner conferences, their level of penetration would thereafter remain relatively constant. Based on the projected Soviet fleet growth, the Soviet share of total U.S. commercial cargoes is forecast to increase to 1.1 percent by 1985, up from its 1976 level of 0.8 percent. This penetration growth is not as great as the liner growth because of the large volume of dry and liquid bulk commodities moving in the U.S. foreign trades. -4- III. AN ANALYSIS OF THE SOVIET FLEET A* Recent Grov7th/New Technology Based upon the latest available Department of Navy/Maritime Administration (MarAd) information, between 1965 and the end of 1975 the Soviet merchant fleet grew from 990 vessels of 8 million dwt to 1,655 vessels of 15.4 million dwt, representing a 67 percent increase in the number of vessels and a 92 percent increase in tonnage. Table I ranks the major maritime countries by tonnage in 1965 and 1975; the Soviet Union ranked seventh in 1965 and ninth in 1975. It should be noted that seventh place in 1965 ranked the Soviet Union behind the U.S., but ninth place in 1975 ranked the Soviet Union ahead of the U.S. In 1975 the Soviet fleet increased by 972,000 dwt while the U.S. fleet increased by 582,000 dwt. In that same year the Soviet fleet had a net gain of 46 vessels, bringing their total number of vessels to 1,655, while a net loss of 3 ships in the privately owned U.S. merchant marine decreased our fleet to 580. Since 1965 the major vessel tonnage increases of the Soviet fleet have been with new technology, general cargo vessels — freighters, refrigerated freighters, intermodal , and timber carriers, which have grown from less than 5 million dwt to nearly 9 million dwt in 1975. This is in contrast with the major increase in the total world fleet during this period which has been in tanker vessels, the result of the growing worldwide demand for petroleum products. -5- Table I Growth of Fleets of Major Maritime Countries Dec. 31, 1965, and Dec. 31, 1975 Oceangoing Ships of 1,000 Gross Tons and Over (Tonnage in thousands) 1965 1975 Country No. Total dwt (In Thousands) No. Total dwt (In Thousands) Percent Tonnage Increase (+) or Decrease (-) World Total 7,974 215,668 22,123 553,675 +57 Liberia 1,313 30,906 2,546 132,694 +329 Japan 1,333 16,450 2,051 63,238 +284 United Kingdom 2,052 26,385 1,576 54,913 +108 Norway 1,365 23,538 991 47,796 +103 Greece 916 10,388 1,804 37,638 +262 Panama 564 7,228 1,556 22,112 +206 France 542 6,406 444 17,690 +176 Italy 588 6,917 633 16,081 +132 U.S.S.R.-/ 990 8,000 1,655 15,353 +92 U.S. Privately Owned 948 14,650 580 15,028 +3 West Germany 843 7,184 611 13,453 +87 1/ The Maritime Administration concurs with the Navy data on vessels and deadweight tonnage of the Soviet fleet. The Navy data excludes the coastal/ river type and fishing fleet vessels over 1,000 grt on the assumption that they normally operate in the Soviet inland/coastwise and fishing trades and are therefore not relevant for deep-sea domestic and foreign trade operations. Source: Maritime Administration, U.S. Department of Commerce and Department of the Navy. -6- Table II details a comparison by vessel type of the 1975 Soviet and U.S. fleets. The table shows that while the tonnage of the two fleets is nearly equal, the number of vessels in the Soviet fleet is nearly three times that of the U.S. This results in the average deadweight tonnage of a vessel in the U.S. fleet being nearly three times larger than the average size Soviet ship. The only vessel category where the Soviets have a ship size advantage is the combination oil/bulk/ore (0B0) carrier. Overall, however, the Soviet fleet also has significant advantages in the number and total tonnage of dry bulk carriers, general purpose freighters, timber carriers (the U.S. has none) and refrigerated vessels. However, the U.S. does have a substantial advantage in the size and number of modern intermodal vessels, i.e., full containerships, Roll-On/Roll-Off vanships, and barge carriers. In addition, the U.S. has an advantage with a total tanker fleet deadweight tonnage nearly twice that of the Soviet fleet. U.S. tankers are, on the average, over twice the size of those in the Soviet fleet. Table III details the composition of the world fleet based on Maritime Administration data. A comparison of Tables II and III shows that the average size (9,300 dwt) Soviet vessel is less than two-fifths the average size (24,500 dwt) of a vessel in the world fleet. 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Pro je cted Fleet Growth Although the recent growth of the Soviet merchant fleet has caused considerable concern among the established western ship- owners, their principal concern is the Soviet goal announced in the Tenth Five Year Plan, 1976-1980. That goal is: "To replenish the merchant fleet with highly efficient dry cargo, tanker and combined vessels with a total deadweight of approximately 5 million tons. To increase the proportion of specialized dry cargo vessels - timber carriers, container carriers, lighters, tugs, bulk cargo and other ships. "_/ Today, the Soviet Union has the world's largest general dry cargo fleet; by 1980, it will also have a large number of modern container and Roll-On/Roll-Off ships in service. The Soviet intent to develop a large, technologically advanced intermodal fleet is not considered to be in line with future Soviet foreign seaborne trade vessel requirements. According to Lambert Brothers Shipping Ltd., Soviet dry and liquid bulk cargoes are estimated to be between 75 and 80 percent, by volume, of the total Soviet foreign trade. 3/ Table IV is a projection of both the size and tonnage of the Soviet merchant fleet with the tonnage based on Soviet Information Service (Morflot) data. This projection shows a building program of 5.1 million dwt and a net gain in fleet size of 3.3 million dwt. The number of vessels in the fleet as of Jan. 1, 1976, is based on Department of Navy data (Table III) regardless of any substantially different tonnages released by Morflot. 2/ "U.S.S.R. Tenth Five Year Plan, 1976-1980," (Dec. 1975), p. 29. 3/ Russian Shipping: Background Data and Analysis, Lambert Shipping Limited, (London, England, May 1976), p. 8. -15- Eh +J a> o iH vo fo 00 CTi +J >H c rd •» £ rH 00 M rH o en ^1 VD 00 Hi H CO CTi ra CD ■H M (1) > -^ r- o ° X! Eh S-l cd rH o CD a Eh O O O O o co m in o m ■* cm VO I O O O I I ... 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With the open access to 4 ports on a four day advance notice, Soviet liner vessels have been able to trade without the restrictions that existed prior to the Agreement. On Dec. 29, 1975, the Department of Commerce and the Ministry of Merchant Marine of the U.S.S.R. signed a new Maritime Agreement extending through Dec. 31, 1981. This Agreement supplants the original U.S.-U.S .S.R. Maritime Agreement signed in 1972. B. Recent Performance The Soviet merchant fleet initiated regular commercial service on the West Coast in 1971. These operations have consistently expanded through 1976. Prior to 1971, the Soviets operated vessels in U.S. West Coast foreign trade in limited tramp service. On the East and Gulf Coasts and in the Great Lakes, Soviet vessels did not call in the United States for more than 2 years because of the International Longshoremen Association's refusal to handle cargoes carried by Soviet vessels. Between 1971 and 1976, the Soviet fleet increased its cargo tonnage participation in the U.S. trades from 261,000 to 5.7 million long tons, an increase of nearly 22 times. The percent participation in the U.S. trades during the same period increased from 0.1 percent to 0.8 percent. At the same time this growth was occurring, the value of cargoes carried by the Soviets increased from $52 million to $2.7 billion, an increase of more than 51 times. This growth in value of cargo represented an -27- increase from 0.1 percent to 1.8 percent of the U.S. trade. Table IV details by type of service (liner, non-liner and tanker) the Soviet fleet participation in the U.S. oceanborne foreign trade by tonnage and value of cargo carried. Similar growth trends occurred in the liner segment of the Soviet merchant fleet operations in the U.S. trades. Between 1971 and 1976 , there was more than an eightfold increase in the tonnage of liner cargoes carried and nearly a 4 5-fold increase in the value of liner cargoes carried. These trends represent a liner growth from 160,000 tons to 1.4 million long tons and $38 million to $1.7 billion by value of cargo. In order to achieve this phenomenal growth in the U.S. liner trades, the various Soviet companies have actively pursued a practice of rate cutting, generally as an independent carrier, to enable their capture of an initial share of the trade and then expand upon that share in successive years. Based on the value of cargo carried by the Soviet liner fleet in the U.S. oceanborne trade, we can estimate the freight revenues earned by the fleet. Assuming that the rates on liner cargo are between 10-20 percent of the value of the cargo, the Soviet merchant marine would have earned an estimated $17 million to $340 million in 1976, $125 million to $250 million in 1975, $105 million to $210 million in 1974 and $4 million to $8 million in 1971. Additional freight revenues would have -28- 01 3,063 4,547 18,623 12,724 31,347 395,732 219,835 615, S67 1,049 2,294 3,343 27,638 13,226 40,864 408,712 219,803 Is s°|| is! .H .-t f mm v S 83 SSI 3S ioI'bi m Wl US i-t © H (NO o in m ^ ol | r-T ©CM *LI % WW JJ II) I 3 II I IS! d Sfil d all 3 still i 5 i i , aa 3 -alp. a D Iff! £ 311 8 3. i i e been earned in the non-liner and tanker carriage of cargoes; however, earnings from these trades would be substantially less than the liner. During the 1972-1976 period, the Soviet non-liner paricipa- tion increased from 79,000 tons to 2,4 million tons and by value of cargo, from $14 million to $461 million. Similar trends occurred in the tanker trade which increased from 22,000 tons to 1.1 million tons, with cargo values increasing from less than $1 million to $143 million. Both the non-liner and tanker trade growths reflect the exporting of grains from the United States to the Soviet Union under the Maritime Agreement of 1972 and the resulting petroleum backhauls from the Mediterranean, Black Sea and Persian Gulf areas. C. Trade Areas Serviced The major liner routes of the Soviet carriage are the East Coast to United Kingdom, Continent and Scandinavia (Trade Route 5-6-7-8-9) and the Pacific Coast to Far East (Trade Route 29) , In 1971 the Soviets were not operating in the East Coast - European trade, but by 197 6 they carried over 4 percent of the U.S. imports/exports on the route. In 1971 the Soviets carried nearly 3 percent on the Pacific-Far East service, and by 1976 this had grown to nearly 6 percent. Other major Soviet liner growth has taken place on the following trade routes: the Atlantic, Gulf and Pacific to Indonesia and Malaysia (Trade Route 17) , the Gulf to United Kingdom and Continent (Trade Route 21) , and the Great Lakes to Europe (Trade Route 32 and 34.) It should be noted -30- that all routes except Trade Route 32 and 34 have a substantially larger carriage of cargo carried by U.S. -flag vessels. Table VII summarizes the above trades for 1971, 1974, 1975, and 1976. The specific U.S. trade routes having major Soviet fleet participation are : TR 5-7-8-9 - North Atlantic to United Kingdom and Continent TR 6 - North Atlantic to Scandinavia and Baltic TR 17 - Atlantic, Gulf and Pacific to Indonesia and Malaysia TR 21 - Gulf to United Kingdom and Continent TR 29 - Pacific Coast to Far East TR 32 & 34 - Great Lakes to Europe Other trade routes with Soviet liner services are £ TR 4 - Atlantic to Caribbean TR 10 - North Atlantic to Mediterranean and Black Sea TR 11 - South Atlantic to Europe and United Kingdom TR 12 - Atlantic to Far East TR 16 - Atlantic & Gulf to Australia and New Zealand TR 18 - Atlantic & Gulf to India, Persian Gulf and Red Sea TR 19 - Gulf to Caribbean and East Coast Mexico TR 22 - Gulf to Far East TR 26 - Pacific to Western Europe TR 27 - Pacific to Australia and New Zealand TR 28 - Pacific to Southwest Asia, Red Sea and Gulf of Aden Other U.S. trade routes are shown in Figure I. The past four years have seen a similarly dramatic growth in the number of Soviet vessels operating in the U.S. trades. During 1972, the liner fleet employed 55 vessels to make 102 voyages into U.S. ports and in 1975, 297 vessels made 470 voyages. This nearly fivefold increase in vessels and fourfold increase in voyages emphasizes the strong commitment the Soviets are making in western trades and particularly in the U.S. trades. Table VIII details by vessel type the number of vessels and voyages into U.S. ports between 1972-75. -31- m r- rH e S i-H 00 F en rH 00 rH o en en r- m n 3 H m en CO ^-1 CO s ta- rn CM m m i-O LTl O ^ m T PI en «s- r- m rH M CM m 3 r- in 00 H fH fM CO m rH Pi ^ n m 3 CO (N in IT) en in rH H V£> M rH CT\ en m o M CO o o o r-T s s o cm T O r- IN o rr o o cm n in d in © en en en en m m o n H *r •* CN m en CM <-i CM CO in S 3 r- en D rH en (■■ us M ** en m r* CM r~ CO D «* rH rH rH H CO CO CO rH in en -33- H H > CD rd En CO 10 <4H CD tn fd >i O > CO CM rH CD CO • CO CO MH CD fd o > CO m H CD CO • CO CD 2 > CO MH CD O tn CO IH rH CD CO • CO o CD 2 > CO IH CD O CT> fd • >4 o o 2 > o CO P* v£> rH CO <+H iH CD to • CO CD 2 > in © CN CO CN r-i in CO in i CN CN in 2 > "3 1 *J3 CN in CM in CN O "3 1 CN CO CN O CO t^ CO o\ C^ fd > fd G *» n CD X fd CD Sh .Q CD u -H •». tP 3 ■P fe rH ■H m o 5H H3 >1 £! •> H CD H 0* CD fi +J CD C CO CD CO U fd a c * -H Oi 4-> c fd •H X3 }_l CO ■H IH iw c • H O .. -H CD CD XI O 03 a c 3 fd fd <-4 U r-l u tn rH C •H •H 5-1 CD TS > CO >, U H £ P CD w CO H CO fd c CD > fd > fd CD C! CO o 3 T3 C rH CD fd fd fi > fd ,C fd rH O 2 rH 5-1 CD fd O CD .. CO CO CD •H CD o S H U 3 \, H| en -34- During this period, the average number of voyages per commercial vessel remained between one and two. However, with the large increase in liner vessel calls from 1974 to 1975, there was a significant drop in the average cargo tonnage carried per voyage of 3,200 to 2,100 tons. Further analysis, Table IX, shows that the voyages per vessel vary with the area of operation. In 1975 commercial vessels on the West Coast had a ratio of slightly more than two voyages per vessel while the other three coasts were: East Coast - 1.6/1; Great Lakes - 1.4/1 and the Gulf Coast - 1.3/1. These ratios are the result of the Soviet fleet employing several different vessels throughout the year instead of a few vessels making several voyages. It should be noted that in the compilation of Tables VIII and IX, vessels that performed voyages to two or more coasts during one visit to U.S. waters are counted as a vessel and voyage at each coast. This occasional double counting provides a better picture of the total number of vessels and voyages made available to shippers on the various U.S. coasts. D. Types of Commodities While the Soviet merchant marine was expanding its partici- pation in the U.S. oceanborne foreign trade, a major change in the types of commodities carried was also taking place. In 1971, the top 20 commodities carried by the Soviet fleet were basically low-valued breakbulk cargoes of semi-finished industrial products and bulk commodities such as petroleum products and feed for animals. There was some carriage of -35- CO m ro Ml oo 00 CO 00 en ^ tH rH 5m \ "s. ro| •*! VO rH m r» r- CM CO CO , CO \, \ 4-4 Q) o CO VO CN vo td r~ in o ro in • >< rH rH O s > ^ r> Cl CO .H M-l rH CD o in rH rH rH CO ro rH ro CN r\i • CO H tr. CD a S3 > ■H & & ■H CO £ m-i a> CO p o tn en ro VO ro r>- CO (d in "3" rH ro r-i X -P rd • >i rH rH H CD ■H o ro O 53 > r* H O • 01 X2 CO CO rH CO *s S.. fd • IW rH H| rH| H rH D O CD CO vo ro rH CN rd CO W H •**• ro rH ■H >i • CO rH O X! CD P £3 > 1 CO u m CD O On CM ro rH I 1 rd CN CO 1 1 • |>l 53 > OO r» cr\ CO rH MH rH o a) CO • CO CD CN ro CN -3< ro 1 1 1 53 > -p CO fd >i o > CD e fd CO a o CO p CO (d o u VH rH a -p CO fd H p o £> p fd rd u -P p o *t CD -O rH U •H P rd Si P CO CD cn fd >i o > X •H CO CD T3 CO £ CO a. •H rC CO X •H CO CD tn fd >i O > CD i rd CO CD Si P G O CO -P CO fd O u m rH a \ p co rd H si -p o X! p fd fd u -p p CD T3 rH o c •H CO CD Cn fd >i o > c CD > CD CO CD d fd >i o > CD e rd co G O co P cn rd O u 4H rH u p CO rd W P O rQ P rd fd U P P O a> CD rd e co & -H cn CD Eh CD Oi cd >i O > CD e fd co c o CO -p CO rd o m rH a p CO CD & rCj -P O rQ P P W d rd CD O O rd > rd S3 CD O P P O CO -36- high-valued cargoes such as sound recorders, machinery and telecommunications apparatus, but even a ranking by value only placed the most significant of these in 10th place. By 1976, however, the Soviet fleet was carrying sizable amounts of high-valued liner cargoes. Of the top 20 commodities by value, 13 were high-valued and 7 were in the top 10. These 13 commodities were machinery/appliances N.E.C.— ■ ; machinery for specific industry; metalworking machinery; telecommunications apparatus; agricultural machinery; road motor vehicles; sound 2/ recorders; electrical machinery N.E.S.— ; baby carriages, toys and games; office machines; electric refrigerators and household appliances; and power generating machinery; which represented nearly 36 percent of the total value of cargoes carried in 1976. This trend was already apparent in 1974 v/hen 8 high-valued commodities placed in the top 20, representing nearly 24 percent of the total value of cargoes. Appendix I ranks the top 20 commodities for 1976, 1975, 1974, and 1971, by tonnage and value. E. Marketing Practices - Liner Service Operations To achieve its trade penetration into the U.S. markets, the U.S.S.R. has established regular liner service from the four U.S. coasts. By providing liner service at reduced rates, U.S.S.R, liner fleet marketing practices are designed to convince U.S. shippers to use Soviet vessels. Appendix II A-C, gives the 1/ N.E.C. - Not elsewhere classified 2/ N.E.S. - Not elsewhere specified -37- specific details of the liner services as to ports of call and vessels operated in the service during May^July 1976, These Soviet liner companies are within the organization of the Ministry of Merchant Marine and are therefore directly controlled by the Soviet government. The Far East Shipping Company (FESCO) operates from the Pacific Coast to the Far East. (See Appendix II A for service details.) FESCO plans to increase its container capacity throughout 1977 by replacing the six 12,000 dwt partial containerships of 360 twenty-foot equivalent units (TEU) with five new 13,300 dwt containerships of 798 TEU. Early in 1976, the first full containershit), "Knudozhnik Saryan" began operations and by early January 1977, the "Knudozhnik Iogansen," the "Knudozhnik Petrovsky," and the "Knudozhnik Zhukov" had been delivered with a fifth and last new vessel scheduled for delivery in 1977. The TEU capacity of the service has increased from 2,196 to 3,900 -- almost a 100 percent increase in about 1 year. By nearly doubling its capacity, FESCO could increase its carriage on Trade Route 29 to around 8 percent in 1978 at 1976 cargo volumes or about 7 percent if trade were to grow at 10 percent per year. This of course assumes the Soviets remain as an independent carrier. The evidence from 1974-75 experience when trade fell off on Trade Route 29 indicates that the Soviet fleet held its market share whereas the U.S. did not. This would indicate the strength of the Soviet practice of rate cutting as a marketing technique for capturing and maintaining a share of the U.S. liner trades. Their market share did decrease -38- slightly in 1976, while their cargo tonnage increased substantially — the result of a sizeable increase in the total liner trade on Trade Route 29. The Baltic Shipping Company operates from the Atlantic and Gulf Coasts to Northern Europe and the Baltic, (See Appendix II B for service details.) Baltic Shipping is presently improving its marketability with the introduction of Roll-On/ Roll-Off vessels delivered in early 1976. These vessels provide the Soviet service with the most modern and efficient cargo-handling capabilities. Recent Soviet marketing efforts have emphasized the new services provided by these intermodal vessels — i.e., advanced technology at reduced rates. At the present time there are three RO/RO vessels serving the Atlantic Coast, one of the "Magnitogorsk" class and two of the "Schulptur Konenkov" class, with an additional three vessels of the "Schulptur Konenkov" class scheduled to begin operating this summer. Their Gulf Coast service is mainly breakbulk 'with an occasional diversion of the RO/RO vessel "Magnitogorsk." It is not known at this time if the new RO/RO vessels are going to eventually replace the partial containerships in this service or become an addition to the existing capacity. If the three additional vessels are used as replacements for the partial containerships, then the TEU capacity in the service would decrease from its present level of 5,584 to 4,970 in 1977, but this decline is highly unlikely. The most likely possibility -39- is a shifting of some of the partial containerships to the Gulf as the RO/ROs are delivered, with three of four partial containers remaining on the Atlantic Coast, This would provide the company with a final Atlantic Coast capacity of 6,074 to 6,442 TEU and a Gulf Coast capacity of 1,832 to 2,200 by the end of 1977. Such a shifting of vessels would still provide for weekly sailings from the Atlantic Coast and sailings every 10-15 days from the Gulf Coast. The Black Sea Shipping Company markets its services on the Atlantic, Gulf and Great Lakes to the Mediterranean and Black Sea. (See Appendix II C for service details.) Black Sea Shipping operates a mixed fleet of small full containerships and breakbulk vessels. Further additions to the company TEU capacity are likely because of the present construction of small containerships similar to the "Pioneer Odessy," Photo IV, Three of the small containerships are scheduled for delivery in the first half of 1977. At this time there is no indication which trade they may be placed. However, these new vessels if employed would enhance Black Sea Shipping's marketability in the future. -40- r» r* cr« r-4 CN f- en H CO to en ■p M U rH •H U 04 0) 3 a C CQ >H-H •H cox: (d «■ coco -p >i H c +J Q (0 •H o e .i-'-'^rir .-rynsWr'.y' I s -^"±^ f 11^^"^-~^^£^^ij.'^*is 2.9 1— t-t -h-t tf 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 -48- were based as conservative indicators of future U.S, fleet carriage. However, another utilization factor for 1980 and 1985 was used to reflect the expected growth of highly productive intermodal vessels in the U.S. liner fleet. Table X details the inputs and calculations used to determine the projected levels of U.S. and U.S.S.R. liner carriage of the U.S, liner trade for 1980 and 1985. Figure II grahpically illustrates the data points highlighted in Table X. H. Projected Total Trade Performance This projection assumes that the Soviet fleet will continue operating in the U.S. tanker and non-liner trades, through 1981 and into the foreseeable future. Because of the irregularity of the Soviet performance in the U.S. tanker and non-liner trades, a micro-analysis approach was undertaken to forecast Soviet carriage by service type. The various micro-models are based upon the past performance of the Soviet fleet in the non-bilateral bulk trades, one-third carriage of the minimum level of bilateral grain shipments and a one-third carriage of the average yearly level of other bilateral dry and liquid bulk cargoes. Table XI shows the Soviet carriage levels for 1972-1976 and projected carriage for 1980 and 1985 for the various micro-models. The total projected Soviet carriage for 1980 is 8.1 million tons of cargoes representing 1 percent of the projected U.S. oceanborne trade and in 1985, 10.6 million tons or 1.1 percent. This growth is less dramatic than the projected liner growth because of the large volume of dry and liquid bulk commodities moving in the U.S. foreign trade. -49- Sh Up. trri Med 0,0. 4-> H V) 13 o i-H CO o D cd -d c v •H t-> J o J) ■l-> CO o u 3 a. r^l Pi o >H 4-> cd +J p. G ■H ■», >h| en 0) , — ., o V) 60 C r-l o cd p u bo 5_l C OJ O c rH ■H ■— ' _I ouiul CO Ol O0 ■■^ ^ vO f! vO g W r» t-~ r- f- o fi en ai oi ai •H o rH iH*-~., 4-> -p s_/w«. * — ' ^-^ct | ctj o ai lo o a\ o N h O r- o cm r~- o in ■H O bo iH ♦-> r-l rj « O NMIO •H 4-1 O cd cd Z3 CI. ^ Ba c ^ 5* OJ2 fig "> CO g o ° ° CD W en - 1 o • S 4-1 rn co > rH t/> tfl •H T3 in o ^ e t-H H Ctj CO C ■M CT) c •H 13 c ch S."S CO 3 6£ 13 CJ T3 o cd CO [^ CO cd ■H in rH H r^ cd h •H 4-. CO +-> ■M o H CO f-H cd C H Cd rH c m u o td 60 ■H ■H X, i-n o -H o +J CJ 00 -H CO C 60 cd •H CT> H H H P. 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P CO c H O o CJ o O CX o +J CO M •H CO •H p. cd m i3 co O s M CO CO r-i r-l •H o m 3 CO CO d rH oo cd P. 4-1 ■H H .Q T 1 CO co +-> cd cd 13 3 o en 4-1 co co •H O o CO H *-> d +-> _3 fn CO in 3 C -H CO CO t-H CO •(-> •H ,C J3 ■P tS 3; Q ES 3 Uh «l •*l -50- LO + + tO iH + 03 CN +-> + O rH o O O O O O O O O o o o o o o to r-- I— 1 rH t—l *t -«t o o 00 to L0 N I— 1 LO a> T3 rd h H CD C W) GO cd -H •H 0) fn M U O a tL, u CD 1— 1 • c X o< S • o CD co x r— 1 • C XI co o3 cd • 0) H =1 o O -3 O rH rH cd a, +-> o H (4-1 O ,_, CD ■3- -d ^— ' cd CO U 4-> H rH rH a cd X U UJ cd 52/ r-l to •H +j 03 u 1 o c a o s JS i — i vO ,— , CN X v — / Sh • a OS H CO U CJ OS LO CO 3 a> o o o o O o o o o o o o o o o to o Tf t-^ CN r-^ o to r-- 00 o o -* CTi "* o o o o o o o o o o o o o o o en r>- tO i— I 01 to CN CJl en LO CT> C-- en cb o o o o o o to ■o o o o vO r> LO LO o »fr to \D ■o U) t^ r-i -t- ft I— 1 o o o O o O 3 o o o o o O 03 ^D «■ rH T o c T3 rH (M o o 00 LO. L0 •H 03 CM o CO CN LO LO 3 «-> r-» to vO 00 tO to cr o •N *\ w * •\ ■H H i-H i— l r-l r— | 1— I 1-4 o o o o o o o o 1- fN o o o o o to LO o LO 00 CN CN to o LO o LO o o en o o en O o 01 o o CN o o o o o o H r— 1 to «*■ o o CO en LO o o o LO o er> r-^ i— i I— 1 \D o O o O O o o o O o o o i-H CO CM CN o o ^> to o rH to to to !-H O pH to to (N r>. r>- -l- o o LO CO Ol 3 in CD o h OJ U CD r^ cd 3 4-> X XI u o u j & w . ■M CO (rtl • ™ cu rj &.XI +J C o •H 03 <4H rn O W) ■P 4-> C CD CD cd (4-1 03 rH TJ •H CD X 4-> > o CO 03 X 3 rH C (H C o3 o3 CD X (D (D bO 4-> 03 c u 03 CD U > cd 03 3 S <3n 3 r- 1 e i •H CN C t*» •H CTl S rH CD CD ■P 4-> CH L)_| O O T3 -d f-i U i C CD O U c u o ch cd o cd . CD 4-> LO bO 03 t-- 03 T3 C7) •rH rH hi r3 rH O Cl, X 4-> CD CD ■H VO > 1^ o en CO rH i \£> ■<* en en i— I rH 1 -r-l -h H tfl r( •H O CD W 3 rC X +J HTJ cd o cd CD Oh 4-> CD c e o c o bo o 3 03 -H rH f-l CO 10 CD CO > CD X rH CD CD C ai -h | rH •8 C M tti OS c/i o •H ^ M M O (H M X oj aj 40 U u ^ ±J nl a T3 CO -O rt <-> B f-i t/1 QO ClJ E- C ?H O 0) O C +-> O □ :■/. ■H M ^H rH O LT Bh *-*t- to 1^) to LH en MD OcON CO 00 VO CM \£) (Ni to H 00 \D ro vo ro r-~ r^ r^ t^ a> a> en CT> >_>^fO| *_j^o| H H Ol rH 1— I \D H O^ Ol --H Ol O CO J 03 « P- O +J-H *j C <-> lo ^ a> ^ ^r w aj-H cti lo r^ r-~ lo r^ r^ m m ^ a> 03 c CuG- 00 oS • C 00 OS d -o C CO CO CM I to I •53- Figure III Tonnage of Commercial Cargoes Carried in United States Oceanborne Foreign Trade by U.S. and U.S.S.R. Vessels 10- HISTORY FORECAST P E R C E N T P E N E T R A T I N U.S. 6.6 4.6 U.S.S.R. 7.9 { .'',-'7.6 5.5 Utilization Factors 1980 2.99 2.91 2.11 1985 3.06 2.91 2.11 1.0 7.4 5.4 1.1 71 72 73 74 75 76 77 78 79 80 81 82 83 84 35 -54- V. SOVIET FLEET OPERATIONS WORLDWIDE AND UTILIZATION OF CAPACITY Although during the period 1969^1976 the total tonnage of the Soviet merchant fleet increased from 11.2 million dwt to 15.4 million dwt, it actually declined on an overall basis as a percentage of world tonnage, from 3.9 percent to 2.8 percent. However, this small overall decrease in the Soviet share of the world merchant fleet does not reflect its growing importance. Due to the substantial Soviet building program between 1969 and 1975, the Soviet share of the world general cargo fleet has significantly increased from 8.2 percent to 10.5 percent. However, Soviet foreign trade is by volume at least 75-80 percent dry and liquid bulk commodities while the Soviet dry bulk and tanker fleet, inadequate to handle this bulk trade, is only 4 3 percent of their total merchant fleet. Thus, the Soviet development of their general cargo fleet — since general cargoes account for only a small fraction of their total trade volume ■ — has become of major interest and concern to the western shipping companies . To better analyze the actual impact of this Soviet fleet development,- it is necessary to review both Soviet foreign trade and the carrying capacity of the Soviet fleet. Any examination of Soviet trade data must be prefaced with a basic statistical limitation of that data. The figures for Soviet trade with Europe do not differentiate mode of carriage (e.g., rail vs. sea). Eliminating this European trade from the analysis distorts 55- the picture by removing the relatively short-distance trades in the North Sea and Mediterranean Europe and considers only the deep-sea trade. In 1974 Soviet oceanborne foreign trade was 2.1 percent of the world oceanborne trades , a decrease from 2.5 percent in 1969. Table XIII shows the volume and composition of Soviet foreign trade in 1974. Table XIII Soviet Foreign Trade 1974 (million tons) Exports Imports Total Total, all modes Total, by sea Tanker Cargo Dry Cargo Estimated Components of Dry Cargo Bulk — — 40-50 Liner — -- 8-18 Source: United Nations Monthly Statistics and Vneshnaya Torgovla, 1974. 264 50 314 118 22 140 72 10 82 46 12 58 -56- In the 1974 Soviet study entitled "World Bulk Carrier Market and Shipping in Socialist Countries "1/ , £y I. M. Moghilevkin, the following major seaborne dry bulk trades were estimated for 1973-74: 7-10 million tons of Black Sea coal 3-4 million tons of Baltic coal 2.5-3 million tons of Russian Far East coal 8-10 million tons of Baltic iron ore exports 2.5 million tons of Arctic iron ore exports 4 million tons of apatite export from Murmansk 11.5 million tons average yearly grain imports, and smaller amounts of Cuban sugar and bauxite/ alumina imports. The total of these dry bulk foreign seaborne trades is in the range of 40-50 million tons a year. An analysis of the Soviet deep-sea trade (that which requires oceangoing Vessels of the fleet) has been extracted from the Lambert Brothers studyl/using data which appears in the Norwegian Shipping News . In that analysis, the total Soviet deep-sea (non-European) exports to foreign countries totaled 28.2 million tons in 1974 or about 24 percent of all Soviet seaborne exports. This deep-sea export figure can be broken down as follows: 1/ I.M. Moghilevkin, "World Bulk Carrier Market and Shipping in Socialist Countries" , Soviet Ekonomitsheskov Vzaimopomosch i B.K.F.C, Information Bulletin, No. 3,117, March 1974. 2/ Russian Shipping Background Data and Analysis , Lambert Brothers Shipping Limited, p. 11. -57- Soviet Deep-Sea Exports-^ / (million tons) Oil and Oil Products 12.5 Coal, Coke, Iron & Manganese Ore 4 . 6 Other Bulk & Neo-Bulkl/ 9 . Total Dry Bulk and Neo-Bulk 13.6 Otherl/ 2.1 28.2 1/ Timber, Iron and Steel, Grain and Flour, Chemicals and Fertilizers, Sulphur, Chrome Ore 2/ Cement, Non-Ferrous Metals, Fish, Paper, Cotton, and miscellaneous other Cargoes. The Lambert study concludes that the "other" catagory of 2.1 million tons is the potential liner cargo and further estimates that 5 to 7 million tons of the neobulk cargoes may move on liner vessels. Soviet deep-sea imports from non-European countries for 1974 totaled 11.1 million tons. Of these imports, bulk sugar, grain, bauxite and alumina amounted to about 8 million tons, leaving approximately 3.1 million tons of the import cargo most suitable for liner tonnage. An estimate of annual productive carrying capacity of the Soviet fleet has also been developed by Lambert Brothers. According to their study, the total potential annual carrying capacity of the Soviet fleet is estimated at just under 200 3/ Norwegian Shipping News, No. 4, 1976, p. 11 -58- million tons. This capacity easily exceeds the requirements of the total Soviet seaborne foreign trade of 140 million tons in 1974 and the Soviet coastal trade. Also, according to Soviet sources—^, about 40 percent, or 56 million tons, of the Soviet foreign trade is carried in foreign-flag vessels. Recent data on the carriage of cross trade, foreign trade or coastal trade by Soviet vessels is not readily available. 5/ Based on Lambert Rrothers information— , Sovxet vessels in 1973 carried a total seaborne trade of 186.7 million tons, of which 149.5 million tons was foreign trade. Assuming the difference is coastal trade, and that the same proportion of foreign-domestic trade existed in 1974, Soviet vessels would have carried an estimated 40 million tons of cargo in the domestic trades. Therefore, based on these carriage assumptions, the Soviet fleet capacity available for cross trading is esti- mated at 75 million tons. This excess Soviet fleet capacity is estimated by the Maritime Administration to be between 5 and 6 million dwt, depending on the geographic area of vessel employment. Based on this fleet carrying capacity and the dry cargo requirements for bulk, deep-sea and coastal shipping, 4/ According to Timofei Guzhenko, Minister of Soviet Merchant Marine, Norwegian Shipping News, Feb. 27, 1970, p. 14, 5/ Lambert Brothers Shipping Limited, p. 31. •59- the Soviet dry cargo fleet is estimated to be employed as follows: 1) 1.3 million deadweight tons of dry bulk shipping for bulk trades, 2) 3.5 million deadweight tons of general cargo vessels for coastal trades, 3) 1 to 2 . 4 million deadweight tons of general cargo vessels for Soviet deep-sea foreign trade, and 4) 2.8 to 4.2 million deadweight tons of general cargo vessels for cross-trading or as an alternate to chartered bulk tonnage in the Soviet foreign and coastal trades.—/ It should be noted that these vessel employment projections are for dry cargo vessels only and that the availability of general cargo tonnage for the foreign deep-sea and cross trades would be reduced if the vessels were employed in carriage of bulk commodities such as ore, coal and grain in the Soviet foreign and coastal trades. Past experience has shown that the Soviet dry bulk fleet of 1.3 million dwt is in fact supplemented in the carriage of Soviet bulk export and import trades by the employment of Soviet general cargo tonnage and chartered foreign-flag bulk carrier tonnage. Employment data on the Soviet tanker fleet is even more limited than that available on dry cargo vessels, therefore an analysis of tanker employment was not undertaken. This fleet capability enables the Soviet merchant marine to fulfill several essential roles of maritime and foreign policy: 6 7 Lambert Brothers Shipping Limited, p. 12. -60- - to provide shipping capacity to reduce dependence on Western shipping - to earn foreign currency to assist in the balance of payments - to provide the shipping capacity necessary to transport military cargoes - to assist in the expansion of Soviet policy throughout the world. To further aid ..n accomplishing these roles and the competitive position of the Soviet Union maritime industry, the Tenth Five Year Plan announced the following goals in addition to the previously noted goals for modernizing and increasing the merchant fleet: "To provide for the further development of sea transport. To fully satisfy the growing needs of the national economy for foreign trade and coastal carriage. To improve goods deliveries to the Far North and Far East. To increase the scope and effectiveness of export of transport services. To develop the capacity of sea ports mainly by building specialized handling complexes with moorages totalling 5.3 km, primarily in the ports of Vostochny, Nagaryeva, Novorossiisk, Tuapse, Ilyichovsk and Arkhangelsk. To continue work on building the new Grigoryev Liman Port on the Black Sea. To bring the standard of comprehensive mechanization in cargo loading and unloading at sea port to 92 percent. "7y Because of its excess capacity and the politically oriented goals of the fleet, the Soviet merchant marine operates outside the normal commercial practices of a market economy. In addition, the Soviet merchant marine operating in the "cross trades" provides the Soviet government with a l_/ "U.S.S.R. Tenth Five Year Plan," p. 29 -61- source of badly needed foreign currency. This may be viewed by the Soviets as particularly important due to their critical balance- of- trade position. According to the Soviet Ministry of Foreign Trade, in 1975, Soviet imports were $37.1 billion while their exports were only $33.4 billion, leaving a sizable trade deficit of $3.7 billion. The only means for the Soviet Union to offset this imbalance is to sell current holdings of its foreign currency or to sell part of its substantial holding of gold bullion. Soviet operations during recent years in western trading markets have allegedly involved undercutting the Western ship operators' rates by 10-20 percent. This activity has taken place outside the conference system, and if continued, could have long-term effects on economical western oceanborne service. Many people feel that if the Soviet activities are not economically motivated, they must be political in nature with an ultimate goal of embarrassing western shipping by weakening the western system. In summary, the Soviet merchant fleet capabilities and the political/economic policies of the Soviet government are obvious when looking at the employment patterns of the Soviet fleet. In recent years, fleet employment has shifted to longer routes — the non-Soviet/Communist Bloc trades. Table XIV details the tonnage and ton-~:nautical mile. .performance of the Soviet merchant fleet from 1960 to 1975, while showing a six- fold increase in ton-nautical miles with less than a threefold -62- increase in cargo tonnage. This performance results from the average cargo distance increasing from approximately 935 nautical miles to over 2,100 nautical miles. 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