Subsidyscope

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Transportation

MARAD Title XI Program


The Title XI Federal Ship Financing Program is a federal loan guarantee program administered by the U.S. Maritime Administration (MARAD). Since 1994, MARAD has committed nearly $7.5 billion in loan guarantees for shipping projects.1 Its purpose is to assist in advancing and modernizing the U.S. maritime industry through long-term financing that may be otherwise unavailable to ship owners.2 Between the late 1980s and early 2000s, MARAD experienced defaults of at least $2.5 billion.3

The program provides a subsidy to shipyards and shipbuilders by lowering the cost of investment capital. In this case, a private lender provides a loan to the shipbuilder or shipyard and MARAD agrees to guarantee a portion of the project cost, which cannot exceed 87.5 percent of the total cost of the vessel or project, should the borrower fail to repay the loan.4 MARAD’s guarantee allows borrowers to secure a loan at a lower interest rate than they could otherwise obtain.5 A government guarantee also encourages lenders to offer loans to borrowers to whom they might not otherwise extend credit. For these reasons, shipyards and shipbuilders receive a government subsidy regardless of whether or not they default on a loan. (See this page for more on subsidies through risk transfers.)

Past Title XI projects have left a large imprint on the domestic merchant fleet. Vessels eligible for assistance generally include commercial vessels such as ferries, tankers, tugs, towboats, barges, dredges, boats for oceanographic research, offshore oil rigs and support vessels, floating power barges and dry docks. The current Jones Act fleet,6 which includes nearly one-half of the U.S. Merchant Marine vessels, is comprised predominantly of vessels constructed with Title XI loan guarantees. According to federal law, in the event of a national emergency, the Department of Defense can mobilize the fleet for its use.

Subsidyscope reviewed 15 years of Title XI program data (fiscal years 1994 through 2009) using information from MARAD,7 as well as data from the Department of Transportation’s Inspector General. The data include information on loan guarantee applications approved since fiscal year 1994, encompassing 115 separate commitments for 801 shipbuilding and shipyard improvement projects. As previously noted, MARAD has committed nearly $7.5 billion in loan guarantees since 1994.8

The Title XI program has endured a number of defaults over the last 30 years. In the late 1980s it made payouts of $2 billion in two years due to 129 loan defaults.9 On January 16, 2009, the program made its first new commitment after almost four years of inactivity, and has approved a total of $330 million in new commitments through September 2010.10

Users interested in more details on the Title XI loan guarantees may view the data here, which Subsidyscope has made available in spreadsheet format.

  1. Subsidyscope analysis of data from the U.S. Maritime Administration (MARAD). "Approved Applications." Accessed October 14, 2010.
  2. “Title XI Loan Guarantee Program.” Report Number: CR-2004-095. September 28, 2004. p. 8.
  3. Subsidyscope analysis of data from the Office of Inspector General, Department of Transportation. “Title XI Loan Guarantee Program.” Report Number: CR-2004-095. September 28, 2004. p. 8
  4. MARAD Web Page. “Program Descriptions.” Accessed September 17, 2010.
  5. “Title XI Loan Guarantee Program.” Report Number: CR-2003-031. March 27, 2003. p. 2
  6. The Jones Act, also called the Merchant Marine Act of 1920, is the federal statute that regulates maritime commerce within U.S. waterways and between U.S. ports. Under the statute, the fleet of privately owned commercial merchant marine vessels, “sufficient to carry the greater portion of its [U.S.] commerce,” may also “serve as a naval or military auxiliary in time of war or national emergency.”
  7. Subsidyscope analysis of data from MARAD. "Approved Applications." Accessed October 14, 2010.
  8. Ibid.
  9. “Title XI Loan Guarantee Program.” Report Number: CR-2003-031. March 27, 2003. p. 3.
  10. Subsidyscope analysis of data from MARAD. "Approved Applications." Accessed October 14, 2010.

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