U.S. paying high prices to ship supplies to gulf

December 26, 1990|By New York Times News Service

To support the rapid U.S. military buildup in the Persian Gulf, the Defense Department has been paying high prices to charter vessels and to book space aboard regularly scheduled freighters -- sometimes twice the standard commercial rate.

Some shipping experts suggest that the government has greatly overpaid for charters, particularly in the first two months of the crisis.

Robert W. Kesteloot, a shipping consultant in Reston, Va., who retired in 1986 after six years as the Navy's director of strategic sealift, termed the rates shipowners are charging the government for chartering some of the larger vessels "mind-boggling."

Ship brokers, freight agents and shipping executives agree that higher prices have meant more profits for shipowners. But they TTC defend the surge in rates as inevitable because the military deployment has sharply increased the worldwide demand for shipping and because the Pentagon makes special demands that commercial shippers do not.

The government's costly transportation contracts are likely to receive greater scrutiny in the coming months if the U.S. military commitment in Saudi Arabia continues.

The government is operating 173 vessels for the sealift to Saudi Arabia, a larger fleet than was ever used at one time during the Vietnam War, in which the U.S. buildup of ground troops was spread over three years.

The most expensive shipping agreements were reached in the weeks immediately after Iraq invaded Kuwait on Aug. 2. The military was forced to pay a premium to persuade shipping companies to take some of their vessels out of commercial service and to cut back commercial space aboard freighters.

For example, Military Sealift Command, which manages ocean transportation for the Navy, has been paying nearly $8,000 for each standard steel container it uses to send supplies to the Persian Gulf from the East Coast of the United States. That is double what some commercial shippers now pay.

The command said in a statement issued Dec. 15 that it had begun negotiating a new contract in October but was interrupted by President Bush's announcement Nov. 8 that up to 200,000 more troops would be sent to Saudi Arabia.

"It is the government's intention to reprice the contract as soon as we are able to accurately define our requirements," the statement said.

The command is also paying $7,000 to $8,500 a day to charter the multideck freighters needed to carry small trucks, jeeps and other supplies. The same class of freighters fetched $6,000 to $6,500 a day last summer, ship brokers said.

The military has been paying up to $35,000 a day for long-term charters of so-called ro-ros, which are built like automobile ferries to allow vehicles to roll on and off and are the only vessels that can transport large numbers of heavy tanks efficiently.

"They were paying in excess of top dollar," said James L. Winchester, a shipping analyst at Mabon, Nugent & Co., a New York brokerage. "It was ludicrous."

But ship brokers describe the surge in charter prices as a simple matter of supply and demand. The demand for charters rose sharply and so did the price, they explain.

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