A little-noticed (so far) revision to the 1936 Merchant Marine Act that took effect in December has greatly expanded the scope of a tax-deferral program designed to encourage fleet owners to expand and modernize their vessels. The expansion could be the most significant incentive for inland shipbuilders and fleet owners in a generation.
The James M. Inhofe National Defense Authorization Act for Fiscal Year 2023 eliminated language in the act that had restricted access to the Capital Construction Fund to vessels engaged in “noncontiguous trade”—that is, to vessels engaged in trade between the United States and foreign countries.
The Capital Construction Fund, administered by the Maritime Administration for commercial vessels, helps owners and operators of United States-flag vessels secure the capital necessary to modernize and expand the U.S. merchant marine. The program encourages construction, reconstruction or acquisition of vessels through the deferment of federal income taxes on certain deposits of money or other property placed into a CCF.
The former language effectively limited the fund to vessels operating on the Great Lakes or non-contiguous U.S. foreign trade, with a few exceptions. In an article in this issue of The Waterways Journal, maritime tax expert Bill Finnecy points out that the revision means that thousands of companies can now participate, a huge expansion indeed. Prior to this statue change the CCF was not widely utilized, with fewer than a hundred or so CCF applicants annually listed in the Federal Register as using the program.
As Finnecy explains, the James Inhofe Act amended Section 53501(5)(A)(iii) of Title 46, United States Code by striking out “United States foreign, Great Lakes, noncontiguous domestic, or short sea transportation trade” and replacing it with “foreign or domestic trade of the United States.” By amending the definition of a “qualified vessel” in this manner, the act eliminated the significant limiting geographic trading requirements for vessels constructed or reconstructed—or acquired—with the use of these tax-deferred CCF funds.
On its website, MarAd notes, “Vessels constructed, reconstructed or acquired under the CCF program can span a wide spectrum, including large containerships, crude oil and petroleum product tankers and articulated tug barges, self-unloading Great Lakes bulk carriers, tugs, barges, supply vessels, ferry and passenger vessels and crew transfer vessels.”
The point of this expansion is to help the United States regain better control of its supply chain as globalization comes into question, manufacturing shifts around the globe and shipping lanes are in turmoil. For that to happen, the U.S. merchant marine—in all its routes and aspects—will need greater support than ever. That’s something that merchant marine advocates have always recognized. This program expansion, and the fact that it was part of a national defense bill, signals that awareness is spreading.