Great Lakes & Seaway Shipping News Archive

LCA Warns Of Dangers of Imports Of Iron Ore And Semi-Finished Steel

03/26:
Below is a copy of a letter sent by the Lake Carriers Association to Mr. Brad Botwin, Director, Strategic Analysis Division Bureau of Export Administration.
Dear Mr. Botwin:

The following responds to the request for public comments concerning Initiation of National Security Investigation of Imports of Iron Ore and Semi-Finished Steel.

Lake Carriers' Association (LCA) represents 11 American corporations operating 58 U.S.-Flag vessels exclusively on the Great Lakes. These vessels employ more than 2,200 American mariners and have a replacement value in excess of $4 billion. Prior to 1998, these and vessels operated by other U.S.-Flag Lakes lines carried more than 122 million tons of dry-bulk cargo during a typical navigation season. However, in recent years, dumped foreign steel and low water levels have reduced that "float" to as low as 113.3 million tons in 2000.

The level of imports of iron ore and steel is crucially important to our members. The production of one ton of raw steel at a Great Lakes basin mill requires our vessels to deliver 1.3 tons of taconite pellets (iron ore), ½ ton of fluxstone (a type of limestone used as a purifying agent), plus a quantity of metallurgical or coking coal. One can therefore honestly say that each ton of foreign steel that displaces equivalent domestic production deprives our vessels of two tons of cargo.

With your forbearance, we would like to be a little philosophical in the beginning. There was a time when imports consisted primarily of products that were not available domestically. Then as the western world industrialized, imports expanded to include goods that replicated domestic products, but were desirable because they were perceived to be of better quality, i.e., the famous "better mousetrap." Today, as many American industries and workers are painfully aware, imports often are about one thing and one thing only - cost. On a level playing field, cost is correctly the deciding factor, but we live in a world where subsidies are rampant. Foreign steelmakers have not sold nearly 120 million tons in the United States in the past three years because they are more efficient than their American counterparts, but because they receive massive subsidies, both direct and indirect, from their governments. The results are horrific: 16 American steel companies have filed for protection under the bankruptcy laws since 1998 and 15,000 steelworkers have lost their family-sustaining paychecks. Given that the potential for similar developments in our iron ore industry is very real, it is indeed appropriate that the Department of Commerce is conducting this investigation!

It is also appropriate that this investigation is charged with determining the national security impacts of imports of iron ore and semi-finished steel. It was but 10 short years ago that American troops were engaged in Operation Desert Storm. Their tanks and field artillery … the ro/ro ships and tankers that delivered their supplies and munitions … the guns on their shoulders…. were made of American steel, much of which began as iron ore mined in Minnesota or Michigan. Without a strong domestic iron mining industry and a healthy American steel industry, the United States cannot defend its interests worldwide.

Likewise, the U.S.-Flag Great Lakes fleet cannot exist as we know it without a strong domestic steelmaking industry. Steel production generates roughly 80 percent of the cargos carried in U.S.-Flag lakers. As we explained, one ton of domestically-produced steel generates two tons of cargos for our vessels. We would need but a handful of vessels to carry non-steel-related cargos such as cement, salt and sand.

The U.S. Merchant Marine is often referred to as "America's Fourth Arm of Defense." An authority no less than Colin Powell (then General, now Secretary of State) declared in 1992, "Since I became Chairman of the Joint Chiefs of Staff, I have come to appreciate first hand why our merchant marine has long been called the nation's fourth arm of defense … The merchant marine and our maritime industry will be vital to our national security for many years to come."

Although the U.S.-Flag Great Lakes fleet cannot venture onto the oceans, it too plays a meaningful role in our nation's national security. As explained, most of the cargos that sustain our industry are related to steel production, and without steel, American has no warships, long-range bombers, mortars…. Second, the merchant mariners who crew our vessels are part of the national pool of professional mariners who crew vessels in the Ready Reserve Force fleet (government-owned ships activated during times of crisis to move material to troops overseas). A number of our mariners participated in Operation Dessert Storm. Third, Great Lakes shipyards build auxiliary vessels for the Navy and Coast Guard, but they and the large number of engineering component manufacturers who supply them would quickly go out of business if there was no sizable Lakes fleet to build and then maintain and modernize.

The loss of domestic iron ore cargos would surely be the downfall of U.S.-Flag shipping on the Great Lakes. You might question this, as the statistics we have provided show our members' vessels also haul significant amounts of coal and stone. However, stone and coal are generally "backhaul cargos." By that we mean a ship brings iron ore to Cleveland or Gary and then carries a stone or coal cargo on the way back to the iron ore ports of Lake Superior. Without iron ore to fill one leg of the voyage, freight rates would increase to the point where the railroads would capture these markets. So as you can see, there would be a calamitous domino effect should foreign iron ore replace American-mined taconite. Similarly, increased imports of dumped slabs of steel would displace American-mined taconite.

Although your investigation focuses on national security impacts, we would remiss if we did not stress that the modal shift that would follow foreign domination of our iron ore market would have serious impacts on the Great Lakes environment. As a 1995 study illustrates, vessels use less fuel to move a ton of cargo and generate fewer emissions in the process than do trains and trucks. To further illustrate our point, recognize that it would take six 100-car unit trains to deliver as much coal (60,000 tons) to a power plant as a 1,000-foot-long laker in just one trip.

One last warning - once the U.S.-Flag lake fleet has disappeared, it will be virtually impossible to rebuild it. Ships are tremendously expensive assets - the replacement cost of a 1,000-footer ordered today is roughly $85 million. The 13 "supercarriers" that are in service now cost anywhere from $44 million to $65 million. Even if freight rates could bear the cost of a massive reconstruction program, it would take shipyards probably a decade to build the 70 large vessels that currently fly the U.S. flag on the Great Lakes.

In summation, LCA urges the government to fully recognize the vital national security role of iron ore and the Great Lakes carriers that haul that product to America's steel mills. We must not allow dumped foreign iron ore and steel to further invade our market and so weaken our nation's ability to defend itself and send thousands of American workers to the unemployment line.

Sincerely,

George J. Ryan
President