chant ships to the Federal Government at their gov- 
ernment-appraised value. Until recently, however, this 
option was generally not exercised because prices 
were better on the open market. As a consequence, 
many opportunities to improve NDRF capacity were 
missed. In the past few months, this situation has 
improved dramatically and, since the beginning of 
January 1977, five C-3 cargo ships have been acquired 
under this program and placed in the NDRF. In 
addition, three C-4 cargo ships have been contracted 
for and will be added to the reserve fleet in 1979 and 
1980 when their replacements are delivered. Further- 
more, it is now expected that eight more vessels may 
soon be contracted for under this authority. Because 
the quality of vessels acquired to date under this 
program has been high, all have been identified for 
inclusion in the Ready Reserve Fleet program under 
which these vessels will be maintained in an advanced 
state of readiness. 
Despite these improvements under the subsidized 
vessel replacement program, it is likely that other 
initiatives will be required if a substantial NDRF 
renewal is to be attained. One recently-enacted pro- 
gram will allow the Secretary of Commerce to ex- 
change NDRF scrap candidates for Mariner class 
vesse!s and other suitable commercial ships destined 
to be scrapped by their owners. The basic purpose 
of such a program will be to exchange equally valued 
scrap ships in anticipation that the ships traded in 
will have greater emergency defense utility than the 
vessels traded out. Authority for a similar exchange 
program covering only Mariner vessels expired in 
January 1977 without having been used. There are 
two major problems with this approach to NDRF 
renewal. First, there are only a limited number of ships 
remaining in the NDRF that could be traded out 
under this program and, second, the quality of ves- 
sels traded in is likely to be quite low if their only 
remaining commercial value is as scrap. Hence, this 
exchange program cannot be viewed as a major fleet 
renewal effort, although it may yield some marginal 
improvement. 
In the past, various proposals for NDRF revitali- 
zation have been advanced which would allow the 
Government to continually purchase, from private 
interests, a small amount of shipping which has 
high defense utility, but which has reached the end 
of its commercial life. It is likely that as the NDRF 
continues to age, this type of program will again 
receive renewed attention. Without a major renewal 
initiative, at some point in the not too distant future, 
the NDRF decision is likely to be made by default. 
Another very important issue that is likely to 
assume growing importance in the near future is the 
U.S. shipbuilding outlook in light of the lack of new 
orders in recent months. Unless new orders are re- 
ceived soon, the U.S. shipbuilding industry faces a 
precipitous decline in business and an associated 
decline in employment. The loss of jobs in shipbuild- 
ing and allied industries and in other sectors of the 
economy could be substantial and would be concen- 
trated in areas which already face serious employ- 
ment difficulties. According to Department of Labor 
data, 16 of the Nation’s 20 major shipyards are in 
areas which now have substantial unemployment. 
A major loss of jobs in the shipbuilding industry 
would also seriously affect the employment levels of 
minorities and women in shipbuilding. A large por- 
tion of the recent gains in this area would be lost be- 
cause of the generally lower seniority of minorities 
and women ina “‘last-in, first-out” labor environment. 
Productivity improvements resulting from the $1.3 
billion of private capital invested in commerical ship- 
yards since 1970 also would be jeopardized by a 
declining orderbook. A stable or expanding workload 
is needed to maintain productivity, efficient use of 
facilities, and the economic capability to compete 
for new orders. 
A final area which will assume considerable im- 
portance over the next few years is the operating 
subsidy program, as a number of long-term operat- 
ing differential subsidy contracts for liner operations 
come up for renewal. As the existing 20-year con- 
tracts expire and operators apply for renewal, the 
Government will have an opportunity to reevaluate 
and revise a substantial portion of the current ODS 
program. 
In processing applications for ODS contract re- 
newal, particular attention will be directed to con- 
trolling rising costs while continuing to support the 
U.S. ship operating industry in compliance with 
national maritime policy objectives. Three categories 
of subsidizable expense have been identified which 
probably could be reduced or eliminated without 
undue hardship to the U.S. operating industry. The 
maintenance and repair category, which in 1975 
accounted for about 6 percent of total ODS accruals, 
has already been eliminated from several ODS con- 
tracts and is likely to receive careful consideration 
in future contract assessments. Subsidy for hull and 
machinery insurance premiums (slightly less than 1 
percent of 1975 ODS accruals) also has been elimi- 
nated from some contracts, and subsidy on premiums 
for protection and indemnity insurance (about 2 per- 
cent of 1975 accruals) is considered a likely candi- 
date for ODS reduction in the future. 
The only other category of subsidizable expense 
for liner cargo operations is the wage category,*° 
which, in recent years, has alone accounted for 90 
percent or more of total ODS accruals. Control of 
this item of expense since 1970 is considered to 
“Tt should be noted that ODS is also available in support of 
officer and crew subsistence, but only on passenger ships. With 
the decline in passenger ship operations, this subsidy item is 
being rapidly phased out. 
V-48 
