[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
STATUS OF THE U.S.-FLAGGED VESSELS IN U.S.-FOREIGN TRADE
=======================================================================
(111-130)
HEARING
BEFORE THE
SUBCOMMITTEE ON
COAST GUARD AND MARITIME TRANSPORTATION
OF THE
COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
July 20, 2010
__________
Printed for the use of the
Committee on Transportation and Infrastructure
----------
U.S. GOVERNMENT PRINTING OFFICE
57-560 PDF WASHINGTON : 2010
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE
JAMES L. OBERSTAR, Minnesota, Chairman
NICK J. RAHALL, II, West Virginia, JOHN L. MICA, Florida
Vice Chair DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of JOHN J. DUNCAN, Jr., Tennessee
Columbia VERNON J. EHLERS, Michigan
JERROLD NADLER, New York FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida JERRY MORAN, Kansas
BOB FILNER, California GARY G. MILLER, California
EDDIE BERNICE JOHNSON, Texas HENRY E. BROWN, Jr., South
GENE TAYLOR, Mississippi Carolina
ELIJAH E. CUMMINGS, Maryland TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania SAM GRAVES, Missouri
BRIAN BAIRD, Washington BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington JOHN BOOZMAN, Arkansas
MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West
TIMOTHY H. BISHOP, New York Virginia
MICHAEL H. MICHAUD, Maine JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin PETE OLSON, Texas
STEVE COHEN, Tennessee TOM GRAVES, Georgia
LAURA A. RICHARDSON, California
ALBIO SIRES, New Jersey
DONNA F. EDWARDS, Maryland
SOLOMON P. ORTIZ, Texas
PHIL HARE, Illinois
JOHN A. BOCCIERI, Ohio
MARK H. SCHAUER, Michigan
BETSY MARKEY, Colorado
MICHAEL E. McMAHON, New York
THOMAS S. P. PERRIELLO, Virginia
DINA TITUS, Nevada
HARRY TEAGUE, New Mexico
JOHN GARAMENDI, California
HANK JOHNSON, Georgia
(ii)
SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION
ELIJAH E. CUMMINGS, Maryland, Chairman
CORRINE BROWN, Florida FRANK A. LoBIONDO, New Jersey
RICK LARSEN, Washington DON YOUNG, Alaska
GENE TAYLOR, Mississippi HOWARD COBLE, North Carolina
BRIAN BAIRD, Washington VERNON J. EHLERS, Michigan
TIMOTHY H. BISHOP, New York TODD RUSSELL PLATTS, Pennsylvania
STEVE KAGEN, Wisconsin PETE OLSON, Texas
MICHAEL E. McMAHON, New York, Vice
Chair
LAURA A. RICHARDSON, California
JAMES L. OBERSTAR, Minnesota
(Ex Officio)
(iii)
CONTENTS
Page
Summary of Subject Matter........................................ vi
TESTIMONY
Dumas, Michael R., Vice President and Chief Financial Officer,
Intermarine, LLC............................................... 14
Johnsen, Neils M., Chairman of the Board, Central Gulf Lines,
Inc. and Waterman Steamship Corporation........................ 14
Keefe, Donald, President, Marine Engineer's Beneficial
Association, accompanied by Paul Doell Director of Legislative
Affairs, American Maritime Officers............................ 14
Marcus, Captain Donald, Secretary-Treasurer, International
Organization of Masters, Mates, and Pilots..................... 14
Matsuda, David, Administrator, United States Maritime
Administration................................................. 4
Reinhart, John F., President and Cheif Executive Officer, Maersk
Line, Limited.................................................. 14
Shapiro, Philip, President and Cheif Executive Officer, Liberty
Maritime Corporation........................................... 14
Turner, Terrence, Seafarer's International Union................. 00
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Dumas, Michael R................................................. 41
Johnsen, Neils M................................................. 46
Keefe, Donald, Paul Doell and, Captain Donald Marcus............. 50
Matsuda, David................................................... 70
Reinhart, John F................................................. 74
Shapiro, Philip.................................................. 77
SUBMISSIONS FOR THE RECORD
American Roll-on Roll-off Carrier, LLC, Raymond P. Ebeling,
Chairman and Cheif Executive Officer, written statement........ 84
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
HEARING ON THE STATUS OF THE U.S.-FLAGGED VESSELS IN U.S.-FOREIGN TRADE
----------
Tuesday, July 20, 2010
House of Representatives,
Subcommittee on Coast Guard and Maritime
Transportation,
Committee on Transportation and Infrastructure,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:00 a.m. in
room 2167, Rayburn House Office Building, Honorable Elijah E.
Cummings [Chairman of the Subcommittee] presiding.
Mr. Cummings. The Subcommittee will come to order.
In March, the Subcommittee convened to examine the
availability of shipping services to carry U.S. exports. During
my opening statement, I presented a few facts detailing the
small size of the U.S.-flag fleet in the foreign trades. As I
explained, the vast majority of U.S. trades move on foreign-
flagged vessels.
During that hearing, I also noted that President Obama has
called for a doubling of U.S. exports over the next five years,
a goal that is challenged by our reliance on foreign-flagged
vessels for our carrying capacity. Of particular concern is the
fact that the testimony we heard in March made it clear that it
is our level of imports, not exports, that determines the level
of carrier services calling on the United States.
Today, the Subcommittee convenes to consider in more detail
the state of the U.S.-flag fleet in the foreign trade. We will
assess the current economic realities faced by this fleet,
including the difference in the costs of operating a vessel
under the United States flag and under so-called open registry
or flag of convenience.
We will also assess the policy parameters that shape
current U.S. policy toward a U.S.-flag foreign trade fleet.
This discussion is intended to provide the current information
necessary to inform future U.S. policy toward our foreign trade
fleet.
As I detailed during our March hearing, according to a
study produced in 2009 by IHS, Global Insight for the U.S.
Maritime Administration, in 1975, there were 857 ocean-going
U.S.-flag ships with a carrying capacity of more than 17.6
million deadweight tons. Data provided to the Subcommittee by
the Maritime Administration indicates that as of March 1, 2010,
there were 94 U.S.-flag vessels regularly engaged in the
foreign trade.
Unfortunately, like many of the issues we examine in the
Subcommittee, the decline of the U.S.-flag foreign trading
fleet and the concomitant reduction in the percentage of U.S.
trade carried on U.S. ships are not new issues. And yet nothing
has been done to effectively reverse this unfortunate decline.
Thus, a study of maritime subsidies issued by the
Comptroller General in 1981 in response to a requests from the
then-Merchant Marine and Fisheries Committee decried what was
then a decline in the percentage of U.S. commercial cargo
carried in U.S.-flag vessels from just over 10 percent in 1959
to just over 4 percent in 1979. Not surprisingly, in the
absence of a specific U.S. policy that could reverse this
trend, the percent of U.S. trade carried in U.S.-flagged
vessels has only continued to decline.
Thus, the IHS study found that in 2009 less than 2 percent
of U.S. foreign trade moved on U.S.-flag vessels. Those U.S.-
flag vessels that now participate in the foreign trade remain
heavily dependent on subsidies. The specific details of the
subsidies have changed over time, but their shared purpose of
making it viable for vessels to operate in the U.S.-flag
foreign trade fleet remains essentially unchanged.
Thus, the Operating Differential Subsidy Program was
replaced by the Maritime Security Program, which currently
provides $174 million to support 60 vessels operating under the
U.S. flag that agree to be available to meet U.S. military
needs. The construction differential subsidy has been
eliminated and now all of the vessels currently sailing under
U.S. flag in the foreign trade were built overseas.
According to the Maritime Administration, all of the 94
U.S. vessels now regularly engaged in the foreign trade also
participate in cargo preference programs which reserve 100
percent of military cargoes, 100 percent of Export-Import Bank
cargoes, 75 percent of government-impelled agricultural
cargoes, and at least 50 percent of civilian agency cargoes for
U.S.-flag vessels.
MARAD has indicated that preference cargoes comprise nearly
50 percent of the cargoes carried by U.S.-flag vessels in the
foreign trade, and the carriage of such cargoes provided more
than $1.35 billion in revenues to the United States-flag fleet
in the foreign trade in fiscal year 2007, the most recent year
for which data is available.
Let me be clear about the picture of the United States-flag
fleet that emerges from the current data. The U.S.-flag fleet
is essential to meeting our military sealift need and carrying
the bulk of our government-impelled cargoes, and the MSP
program is essential to keeping our current U.S.-flag fleet
afloat.
That said, the current U.S.-flag foreign trade fleet of
just over 90 vessels is not carrying either the greater portion
or even a substantial portion of our foreign trade. In fact,
since the 1980's, the U.S.-flag fleet has been carrying what
can only be described as an increasingly minuscule portion or
our foreign trade.
And this fact has serious implications both for our
merchant marine and, indeed, for our Nation's economy. Over the
past century as the flags of carrying capacity has continued
its steep decline, there have been many voices warning that
this decline constituted both a security risk and an economic
risk. These risks remain real now.
I again urge today that as we work to expand U.S. exports,
we should also work to formulate a meaningful U.S. maritime
policy that will revitalize our merchant marine and expand the
percent of U.S. trade carried in U.S. ships. Formulation of
such a policy will require a truly critical examination of
decades of policy assumptions, as well as articulation of clear
goals that acknowledge current realities and that meaningfully
address current needs.
We look forward to the testimony of Administrator of the
Maritime Administration, Mr. David Matsuda, and let me take
this opportunity to applaud his confirmation to the
Administration's position by the Senate. Congratulations.
MARAD is charged with promoting the United States merchant
marine and administering the Maritime Security Program, Title
XI program, the Cargo Preference Program and related programs
that benefit the U.S.-flag fleet in foreign trade.
We will also hear from representatives of carrier lines
that operate U.S.-flag vessels and we will hear from the
representatives of maritime labor organizations. We look
forward to hearing from all of our witnesses on how current
programs intended to support our U.S.-flag fleet can better
serve the fleet.
We are also particularly interested in identifying what can
be done to expand the fleet and increase the percent of U.S.
trade carried on U.S. vessels.
With that, I yield to the distinguished Ranking Member, Mr.
LoBiondo.
Mr. LoBiondo. Thank you, Mr. Chairman.
The United States of America has always and will always be
a maritime Nation. From her earliest days and continuing
through today, we have depended on waterborne transportation as
the principal means to carry goods and cargo between the U.S.
and ports overseas.
According to the Department of Transportation, nearly 80
percent of the volume of foreign trade enters and leaves the
U.S. by ship and total volumes at our major ports are expected
to rise in the coming years. While the volume and value of
maritime trade has greatly increased in recent decades, the
number of ocean-going vessels operating under the U.S. flag has
plummeted.
According to the U.S. Maritime Administration, there were
88 U.S.-flag vessels operating in foreign trade at the end fo
2008. The U.S. fleet now makes up less than 1 percent of the
world fleet and nearly all commerce at U.S. ports arrives and
departs on board a foreign-flag vessel.
The U.S.-flag fleet is uniquely positioned and tasked with
serving the economic and national security needs of our Nation.
The domestic registry also provides stability and enhanced
opportunities for U.S. merchant mariners and domestic
shipyards. We have long recognized the importance of a strong
U.S. fleet, shipbuilding industrial base, and merchant marine.
I am concerned by the continued contraction of these important
national resources.
The Subcommittee has reviewed several issues that are
impacting merchant mariners here and abroad. The first, changes
in the Coast Guard s credentialing process, seems to be greatly
improved. However, American mariners and vessels are still
facing the seemingly ever-present threat of piracy in several
parts of the world.
I look forward to hearing from the witnesses thoughts on
these and other issues affecting U.S. mariners. The U.S. fleet
provides a critical service in supporting our military and
economic interests, and I look forward to working with you, Mr.
Chairman and Members of the Committee and the witnesses to
examine ways to support the growth in the fleet in the future.
Thank you.
Mr. Cummings. Thank you very much.
I ask unanimous consent that Congresswoman Mazie Hirono, a
Member of the Committee on Transportation and Infrastructure,
may sit with the Subcommittee on this dais today and
participate in this hearing. And without objection it is so
ordered.
Ms. Hirono, do you have an opening statement?
Ms. Hirono. Thank you, Mr. Chairman. I appreciate your
having this hearing because as you probably know, Hawaii is the
most dependent on ships coming to Hawaii since over 80 percent
of the goods that we use in Hawaii come to us via ships.
So this is a very important topic for us, and as we focus
on issues such as the Jones Act, I am very concerned about the
future of U.S.-flag ships in this Country, particularly as it
relates to Hawaii.
Thank you very much, Mr. Chair.
Mr. Cummings. Thank you very much.
Mr. Ehlers?
Mr. Ehlers. Thank you, Mr. Chairman, for holding this
hearing. I continue to be very concerned about the state of the
United States merchant fleet in foreign commerce. It is
indicative of the problems that we have in many other areas,
including for example automobiles which is vital to the State
of Michigan. It is very difficult for us to compete
internationally with the wage rates of other countries, and I
suspect that is the base cause of much of the problem of the
merchant fleet as well.
So thank you for holding the hearing and I look forward to
it.
Mr. Cummings. Thank you very much.
We will now hear from the Honorable David Matsuda, the
Administrator of the Maritime Administration.
TESTIMONY OF THE HONORABLE DAVID MATSUDA, ADMINISTRATOR, UNITED
STATES MARITIME ADMINISTRATION
Mr. Matsuda. Thank you and good morning.
Mr. Cummings. Good morning.
Mr. Matsuda. Chairman Cummings, Ranking Member LoBiondo and
Members of the Subcommittee, thank you for your invitation to
testify on the state of the U.S. merchant fleet in foreign
commerce.
Our national policy is to maintain a U.S.-flag merchant
marine sufficient to carry our waterborne domestic commerce and
a substantial part of our foreign commerce. Our Country's
ability to respond to major military threats worldwide also
relies on the availability and dependability of commercial
merchant ships and skilled crew members. But U.S.-flag ships
now carry less than 2 percent of our Nation s international
trade. This is a major decline, even from the 58 percent
carried in 1947, just six decades ago.
Mr. Chairman, as the U.S.-flag fleet has declined, so has
the number of jobs for mariners. We rely on the pool of skilled
commercial merchant mariners to meet our needs to crew
government-owned reserve ships when called upon. Also, with an
aging workforce, we are at a crucial point where we need to be
recruiting and training America s next generation of mariners.
One method is by running a strong collegiate maritime
program which includes the U.S. Merchant Marine Academy at
Kings Point, New York, along with the six State maritime
academies. Together, these schools produce a total of 700
maritime officers and leaders annually.
The Maritime Administration also works with 19 maritime
high schools around the Nation to help introduce young men and
women to careers in this vital industry. One includes the
Maritime Industry Academy in Baltimore, Maryland, which I had
the privilege of visiting earlier this year.
Mr. Chairman, the U.S. merchant marine, including ships and
crew, is among the safest, most secure and environmentally
responsible in the world. However, U.S.-flag operators face
serious competitive challenges because not all foreign
registries require such standards of excellence as the U.S.
Two programs administered by the Maritime Administration
help create a more even playing field for U.S.-flag operators:
the Maritime Security Program and the Cargo Preference Program.
The Cargo Preference Program simply requires a preference for
the use of U.S.-flag ships when the Federal Government pays for
or otherwise finances a cargo shipment. The 16 million revenue
tons of cargo shipped each year through this program help allow
businesses to operate under the U.S. flag.
Most of these carriers also participate in the Maritime
Security Program. This program provides annual stipends to U.S.
carriers in return for assured military access to their ships,
crews and global infrastructure if needed.
Our status as a trading Nation depends on our ability to
transport via sea. Both imports and exports move smoothly
through the global supply chain. While much of what moves
through U.S. ports is import cargo, our Country also exported
more than $1 trillion worth of manufactured goods in 2008.
These exports supported more than 20 percent of all U.S.
manufacturing jobs that year.
President Obama has launched a National Export Initiative
to double U.S. exports within five years. Having an efficient
global transportation system, including maritime services, will
help achieve that goal.
In addition, maritime transportation itself is an export
service. When a U.S.-flag ship is used, salaries and tax
revenues remain in the U.S. economy and support U.S. jobs.
Mr. Chairman, the U.S. merchant marine has enabled our
Country to respond to every military conflict and crisis since
our Nation s founding. In fact, of the five Federal service
academies, only the U.S. Merchant Marine Academy is entitled to
carry a battle flag. The school s students have been sent to
serve aboard U.S. merchant ships in every conflict. Many have
died in that service to our Country.
Some of these conflicts have taught us valuable lessons
about readiness and availability of ships and skilled crews.
For instance, the government-owned fleet of 49 Ready Reserve
Force ships that provides a relatively immediate capacity that
our U.S.-flag commercial fleet cannot provide. This fleet has
been used during surge conditions when a very large amount of
cargo must be transported quickly overseas.
Mr. Chairman, it is my hope that our discussion today will
lay the groundwork for legislative initiatives and policies
that will support a strong U.S. merchant marine. I will be
pleased to answer any questions the Subcommittee may have.
Thank you.
Mr. Cummings. Thank you very much.
I wanted to address an issue that several of the witnesses
on our next panel will raise. Do cargo preference laws apply to
cargoes financed with loan guarantees created by the Energy
Policy Act and administered by the Department of Energy? And if
not, why don't the cargo preference laws apply?
Mr. Matsuda. Sir, I have to tell you that that is an issue
we are looking at currently. We have asked the Secretary's
General Counsel to work with us and the Department of Energy to
ensure we have a consistent interpretation of the law.
Mr. Cummings. Can you tell us what the nature of the issues
are? Can you give us any idea of what you are trying to figure
out?
Mr. Matsuda. We believe there may be a difference between
the credit programs and other straight grants or loans that are
given out, but that is something we are looking at very
closely.
Mr. Cummings. When do you expect to have that resolved?
Mr. Matsuda. I hope soon, but I am happy to follow up with
the General Counsel and get back to the Committee.
Mr. Cummings. I know you have only been before this
Committee once.
Mr. Matsuda. Twice, I believe.
Mr. Cummings. But we have a little thing about people
getting back to us and holding their feet to the fire because
we realize that if we don't do that, then sadly they just wait
until the next Congress and then it gets lost in the hay.
So I want you to give us a date when you expect that to be
done. And because there are a lot of people that are concerned
about this issue, and I have said it many times, in order for
people in business to do business, what they need is answers
one way or the other. And so I think that we are paying folks
to do a job in government and government should be able to
render opinions and resolve these kinds of issues.
So I would ask that you try to give us a date within the
next day or so, and then we will hold a hearing just for you to
come back to tell us exactly what those policies are, what the
answer to the question is because it is just that important.
OK?
And then we also want you to come back and let us know
whether you think the Congress needs to clarify the law. That
is another thing that I would like for you to come back to us
with.
Since World War II, the size of the U.S.-flag fleet engaged
in international trade has been in constant decline, as I think
you just said. What initiatives are you taking to stem that
decline? And further, what federally imposed requirements
contribute to reducing the competitiveness of the U.S.-flag
fleet?
Mr. Matsuda. Sir, on the question of what initiatives we
are undertaking, we are using all available resources and
programs that the Congress has provided to help make sure that
we maintain a strong U.S. merchant marine. The two programs I
talked about, the Maritime Security Program and Cargo
Preference Program, are ones that we are actively engaged in
and pushing to make sure that the law is enforced and that
these funds are provided with a fully staffed program of
vessels, all 60 vessels for the Maritime Security Program.
Mr. Cummings. From what you can see, why do you think the
decline has not been arrested? It is not like we are standing
still. We are going backwards.
Mr. Matsuda. I think, as I mentioned in my testimony, there
are a number of factors, but probably the difference in
regulatory standards that is required. The U.S. maintains
standards to make sure ships are safe and that crews are
trained and skilled and that they understand safety security
requirements and environmental requirements to make sure that
ships are operated both in an environmentally responsible
manner and safe and secure manner.
There are just many risks involved with the movement of
these large vessels that need to be addressed.
Mr. Cummings. Also, it sounds like is this a situation
where you think that there will be a continued decline because
right now, you are not giving me any confidence that it is
going to get any better.
Mr. Matsuda. I wish I could, sir, but much of it also
depends on the state of the global economy. It is a global
marketplace. Industry has been hurting the last couple of years
by laying up ships. That makes it even more competitive for
cargoes around the world.
Mr. Cummings. The Merchant Marine Act of 1936 states that
it is U.S. policy to foster the development and maintenance of
a merchant marine that is sufficient to carry its domestic
waterborne commerce and a substantial portion of the waterborne
export and import foreign commerce of the United States.
I assume that the substantial portion of waterborne export
and import commerce is defined to be more than 1 percent or 2
percent. And what would you say constitutes a substantial
portion of the waterborne export and import commerce? What
would you say? And what are you telling your staff? You are the
leader.
Mr. Matsuda. It would have to be at a minimum to satisfy
what is needed to support our military. And I think that based
on those requirements, we would like to see more, but we have a
strong merchant marine. We would like to make it stronger.
Mr. Cummings. I want to go back to something you said a few
minutes ago. You were talking about the different standards.
And all U.S. and foreign ships comply with IMO standards. Is
that not correct?
Mr. Matsuda. No. Some standards the U.S. has not adopted
that IMO has passed. Other countries have varying standards.
But for the most part, we work within the U.N.-sponsored IMO
process. We work with our partners at the U.S. Coast Guard who
take the lead, and the State Department, to make sure that the
U.S.'s voice is heard in putting together these global
standards.
This is an industry that prefers to have an even playing
field across the board, but that is not always the case.
Mr. Cummings. So you are saying that there is no even
playing field. Is that right?
Mr. Matsuda. Currently, no.
Mr. Cummings. And our standards are much higher. Is that
right?
Mr. Matsuda. Well, yes.
Mr. Cummings. And you seem like you had some hesitation
there. Well, I assume they are higher because I take that the
higher standards means that the costs may be a little higher, I
guess. Is that a reasonable assumption?
Mr. Matsuda. Yes.
Mr. Cummings. But you seem like you were hesitating when I
asked you were the standards higher.
Mr. Matsuda. I was trying to think of some examples off the
top of my head. But I believe security requirements, for
instance, not many other countries require things like a TWIC
card or some of the things that are required by the Department
of Homeland Security in order to serve on a ship.
As an example, I think there are many instances like that.
Mr. Cummings. Can you give me something other than TWIC,
because TWIC is really kind of new. This decline has been
taking place for a while and I was just wondering if you can
tell us.
Mr. Matsuda. Not at the moment, but I am certain I can get
back to you with some examples.
Mr. Cummings. And TWIC is $132, right?
Mr. Matsuda. That is right.
Mr. Cummings. I am concerned that it seems like you are
painting a picture, I didn't expect a rosy picture, but I
didn't expect a picture of, it just seems like there is no way
that we can begin to at least get to a neutral point to stave
off some of this and move forward.
Mr. Matsuda. Ideally, a consistent set of global standards
as promulgated through the IMO would help ensure a level
playing field. There are other laws that the U.S. has that
wouldn't apply in other countries, for instance wage laws. Fair
wage laws, there are many foreign mariners that don't make the
kinds of wages that U.S. mariners do.
Mr. Cummings. Mr. LoBiondo?
Mr. LoBiondo. Thank you, Mr. Chairman.
I would like to pick up where the Chairman has been on some
of this and try to get in my head and understand a little bit
better. We are not in a good position. The numbers are very
low. There are global factors that impact decisions to flag
vessels in the U.S. But do you or can you give us what factors
would be within our control that maybe we haven't done that we
could develop a plan and agenda, a timetable? Are there things
that this Committee needs to do, that the Congress needs to do?
What do the shippers say?
Your agency, what role do they play? I mean, can you help
me out here about developing something that gives us a handle
to grab onto?
Mr. Matsuda. Yes, sir. Our discussions with the carriers,
and we talk to them quite a bit, have circled around what is
needed to flag a ship under the U.S. And time and time again,
they have told us that the difference between operating under a
foreign flag and the U.S. flag can be made up with both the
Maritime Security Program and the Cargo Preference Program.
Right now, the Maritime Security Program is limited to 60
vessels and it is fully staffed. The Cargo Preference Program
is utilized as best we can to make sure that the remaining
ships that are not in the MSP program can participate and have
cargoes to make sure they fly U.S. flag.
But you will notice the majority of U.S.-flag ships
participate in these program, all of them in Cargo Preference
and most of them in MSP.
Mr. LoBiondo. Mr. Chairman, I am no sure whether you
specifically asked this. I know you asked for some feedback,
but did you ask for when our witness comes back for him to be
providing us with a specific list or outline of
recommendations? We have a high level of frustration. We
understand what the numbers mean, but how do we get the numbers
up and how do we develop a plan to get there? It seems like you
all should be taking the point position and at least making the
recommendations that could be real and acted on so we have an
idea of what we have to do.
Mr. Cummings. No, what we will do, Mr. LoBiondo, is we will
put together a letter to Mr. Matsuda today where we will list
the things that we want him to bring back at our next hearing.
Because what we are about is trying to be effective and
efficient with our time. And so if there are things that you
want included in that, we will work together in drafting that
letter and get it to you.
Mr. LoBiondo. OK. Thank you, Mr. Chairman.
Thank you, David.
Mr. Matsuda. Thank you.
Mr. Cummings. Mr. Taylor?
Mr. Taylor. Mr. Chairman, I had the great pleasure of
having Administrator Matsuda before the Seapower Subcommittee
last week, so I am not going to take too much of his time, but
I do want to ask you a related question.
I am curious if anyone in your office has been tracking the
availability of space on either ships under Military Sealift
Command or any of the Federal operating subsidies as they
return from either the Port of Karachi or Kuwait or Umm Qasr in
Iraq. I am curious, what percentage of available cargo space is
being utilized?
And there is a reason for this. I have very grave concerns
based on the amount of very expensive equipment and material we
left behind in Panama when we shut down our bases there; what
we left behind at Roosevelt Roads on U.S. territory. I have
grave concerns that we are going to leave billions of dollars
worth of equipment behind in Iraq out of concern that there may
be some shipping cost to bring this stuff home.
And I think we could start with taking a look at the
available space. I may be dead wrong. Every one of those ships
may be chock-a-block full and that would be great. But I do
have concerns that there is unused space on those ships and
that we are not making every effort to get the bulldozers, the
generators, the fire trucks, all those things that the American
taxpayers paid for, get them home and make them available for
reuse for State and local governments.
Could you comment on that? Have you given that any sort of
a look-see so far?
Mr. Matsuda. Congressman, we have been working with the
U.S. Transportation Command on their plans for the draw-down in
Iraq to make sure that there is sufficient capability to move
these items. What I can do is offer to work with them to make
sure that we get this information to you in a form you would
like, and that is space and availability aboard the vessels
leaving the Gulf due to the draw-down.
On a related note, I can tell you that one major concern
that we have heard from the U.S. industry has been that once
this draw-down starts to complete or wind up, that the number
of cargoes available under the Cargo Preference Program will
drop significantly, and that it will contribute to an even more
competitive environment. It is going to be a struggle,
according to them, to maintain U.S.-flag status.
Mr. Taylor. When do you think you could get back to me with
that, Mr. Administrator? Could you do it in the next week?
Mr. Matsuda. I will call General McNabb today.
Mr. Taylor. OK. Thank you. Thank you very much.
Thank you, Mr. Chairman.
Again, that is a short-term opportunity, but I don't think
we need to ever miss an opportunity to put our folks to work,
particularly if it means our use of something that the
taxpayers have already paid for.
Thank you, Mr. Chairman.
Mr. Cummings. Mr. Coble?
Mr. Coble. Thank you, Mr. Chairman. I am sorry I am late. I
had another meeting, my belated arrival.
Good to have you, Mr. Matsuda.
Sir, how does the reliance on foreign carriers affect U.S.
economic and security interests? Specifically, how would a
larger U.S.-flag better respond to the interests of U.S.
consumers and exporters?
Mr. Matsuda. I think with a larger U.S.-flag fleet we will
have more of an ability to carry our goods and ensure that
there wouldn't be, for instance, any refusal to do so based on
a political or other geopolitical issues. For instance, around
the world, this is not a perfect market. There are Israeli-flag
ships that are denied access to Arab-owned country ports. There
are other issues that come into play besides just can a ship
service a particular port or not. It is not always as simple as
will it take the money.
Mr. Coble. Well, obviously we would be the beneficiary,
would we not?
Mr. Matsuda. Absolutely.
Mr. Coble. The Maritime Security Program, Mr. Matsuda,
provides a subsidy of $2.9 million per ship for the 60 vessels
now in the program. How is the basis of the subsidy calculated?
Mr. Matsuda. That was the amount authorized by Congress and
the amount that has been appropriated each year of the program.
I will note that in the fiscal year 2011 bill, the President
has proposed full funding for the program.
Mr. Coble. OK. I thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Cummings. Thank you very much.
Ms. Hirono?
Ms. Hirono. Thank you.
Mr. Matsuda, you said that you had talked with carriers who
say that what is needed to better level the playing field for
our shippers can be done through the existing programs, which
are the Cargo Preference Program and the Maritime Security
Program. Do you have some very specific suggestions as to how
we can strengthen both of these programs, I take it, in
response to what the carriers are saying needs to be done?
Mr. Matsuda. Madam, the Administration doesn't have any
positions about either growing the program other than fully
funding what is currently available. But I do know that just
the economic model that I am talking about, that is what we
have heard from the carriers is effective in meeting that
operating differential between the foreign and U.S. flag. It is
making it up with an MSP payment plus the availability of
preference cargoes.
I think it might be fairly logical to draw the conclusion
that if you grow the program, there may be more interest in
taking advantage of it.
Ms. Hirono. If we are not fully funding these programs, to
what percent are we funding either or both of these programs?
Mr. Matsuda. We are fully funding these programs to the
extent authorized and appropriated.
Ms. Hirono. So then I am confused then. We just want to
continue the funding at the level that it has been funded?
Mr. Matsuda. That is what the President has proposed for
fiscal year 2011.
Ms. Hirono. Although I am sure the carriers would say that
we should put more money into these programs.
Mr. Matsuda. That is something they might have to tell you,
yes, on the next panel.
Ms. Hirono. OK. You mentioned that of the U.S.-flag ships,
12 of them are Jones Act-qualified. Are these 12 also part of
the 60 Maritime Security Program ships?
Mr. Matsuda. I don't believe so. I believe these are
vessels participating in the cargo preference program that
usually operate in the Jones Act trade, but they are not full-
time participants in the foreign commerce, but we listed them
anyway because they do participate.
Ms. Hirono. As I mentioned in my earlier brief remarks,
Hawaii is very much dependent on shipping. Our ships are Jones
Act-qualified ships. The argument has been made, and I
certainly make this argument, that for a place like Hawaii
which is the most vulnerable to shipping disruptions, would you
say that having a Jones Act carrier would be the carriers that
bring our goods to Hawaii, that we are very concerned about
shipping interruptions, and would a Jones Act ship be much
better able to ensure that Hawaii could get uninterrupted
shipping service?
Mr. Matsuda. I can tell you that the Federal Government
dealing with a Jones Act carrier, you have quite a bit of
jurisdiction over them. You are talking about U.S. crews, U.S.-
built ships. That can give you some assurance about the quality
of the ship and the expertise and skill of the crews.
I can tell you that this pool of mariners that is sustained
by the Jones Act also contributes to the same pool that we
utilize in times of surge capability like I mentioned for
crewing the Ready Reserve Fleet.
Ms. Hirono. There are those who argue that Hawaii should
get an exemption from the Jones Act. And if that were to be the
case, then foreign-flag ships are now bringing goods to Hawaii.
Is there any way that we can ensure ourselves that these ships
that are supported by countries that provide a lot of
subsidies, et cetera, whatever is happening in those countries.
Can we be assured that these ships will continue to bring goods
to Hawaii if they were not Jones Act ships?
Mr. Matsuda. I don't believe so. I think you would be in a
situation where, just like any other Jones Act or foreign
carrier, it is a commercial marketplace. They can choose to do
it or not. But we find that the Jones Act ships that do
participate in the trade are usually very pleased with the
ability to compete in that trade.
Ms. Hirono. Thank you.
Thank you, Mr. Chairman.
Mr. Cummings. Thank you.
Do we have goals? Have you set goals for your department?
Mr. Matsuda. Absolutely, sir.
Mr. Cummings. And what are they?
Mr. Matsuda. They are number one to make sure that we
maintain a strong U.S. merchant marine. Like I mentioned, that
includes both the availability of vessels, as well as skilled
crews. And that is something that many of our programs help
support.
Second, our work is focused also on making sure that there
is an efficient national freight transportation system.
Maritime is a big part of that, and we want to make sure that
what comes off a ship is available to get into a port and
through the surface transportation system as smoothly as
possible.
I have noticed over the years a major disconnect between
this industry and the remainder of the national freight
transportation system. That is something that want to make sure
that our national policies reflect a smoother and better
transition.
Mr. Cummings. What about numbers? I am sure you want to
increase the size of the U.S.-flag fleet. Is that right?
Mr. Matsuda. That would certainly provide more resources
for us to use when we need.
Mr. Cummings. And when you get together with your staff, do
you say we want to increase the numbers to a certain amount? Or
do you just kind of say let's do the best we can with what we
have?
The reason why I am asking that is that I am trying to
figure out how will you measure your progress and how will you
measure what at the end of your tenure when we look back, what
will we say? You know, you say, OK, this is what I am going to
try to do, and then I want to see what you did.
Mr. Matsuda. Sir, we use every available tool to the
Maritime Administration.
Mr. Cummings. Can you share what those numbers might be,
because a lot of people are very interested. They want to be
measuring with you. They want to be on the sidelines with their
rulers and yard sticks trying to figure out whether you are
making first downs.
Mr. Matsuda. Yes, sir. Like I said, with the Maritime
Security Program, making sure that if we hadn t gotten this
money out the door and gotten these contracts in place, that is
something that would be harmful to the U.S. merchant marine.
But making sure that it is fully staffed up, that folks can
participate in it, is something that we maintain.
We keep a strong communications with the U.S. military to
make sure that the ships entering this program are ones that
they will find militarily useful and that they need in their
mix of sealift capabilities. So making sure that we have that
in place is something that we will continue to do.
With the Cargo Preference Program, ensuring that there is a
clear understanding among all of the shipper agencies which
cargoes are subject to the law is something that we are doing.
These are the types of things that, again, help feed into the
merchant marine, growing it.
Like I mentioned in the statement, making sure that have a
pool of skilled mariners, especially the next generation, is
something that we are focused on as well, and that requires a
strong collegiate high school program to let folks know what it
is like to work on a ship, to be in this industry.
So these are all things that we are doing. I am happy to
provide you with some proposed metrics.
Mr. Cummings. Yes, at our next hearing, would you do that
for me as another way at the beginning of your tenure it would
be very helpful. We will include that in our letter to you,
which we will have to you within the next 24 hours so we can
get started on that.
Just one other thing. There are a number of questions that
I did not get to, but I do want to ask you about this. Going
back to your testimony before the Seapower Subcommittee of the
House Armed Services Committee, which is of course headed by
Congressman Taylor, you spoke about building ships for the
marine highway or short-sea shipping trades that are militarily
useful. Has MARAD conducted an analysis to determine what the
costs of building such ships to meet military specifications
might be, compared with building ships for strictly commercial
use?
Mr. Matsuda. I can tell you, we are currently working with
the military to help take what has already been done, the state
of the art. There has been a number of initiatives to look at
the markets for designing a militarily useful marine highway
ship, and we would like to make sure that we get an independent
look at these and truly understand what is the potential for
designing and building a ship that is both militarily useful
and can compete commercially in the Jones Act trade.
I can tell you that there is probably not a major
difference in cost between these two ships, from what we have
seen early on, and that the military requirements are generally
limited to certain features aboard the ship like for a roll-on/
roll-off ships they would want to make sure that the decks and
the ramp are sturdy enough to handle heavy-load equipment which
may not be moving commercially. So there is probably not a
large difference, but we are fully engaged with the military
and we will be working with them closely to understand just
what their needs are.
Mr. Cummings. Like I said, I will submit other questions.
Mr. LoBiondo did you have anything else?
All right. Thank you very much.
Mr. Matsuda. Thank you sir.
Mr. Cummings. Our second panel should come forward.
Mr. Neil M. Johnsen, the Chairman of the Board of Central
Gulf Lines and Waterman Steamship Corporation; Mr. Michael F.
Dumas, Vice President and Chief Financial Officer of
Intermarine LLC; Mr. John F. Reinhart, President and CEO of
Maersk Line, Limited; and Mr. Philip Shapiro, President and
CEO, Liberty Maritime Corporation; and Mr. Donald Keefe,
President, Marine Engineers Beneficial Association, who will
also have at the table Mr. Paul Doell, Director of Legislative
Affairs, American Maritime Officers; Captain Donald Marcus,
Secretary-Treasurer, International Organization of Masters,
Mates, and Pilots; and Mr. Terrence Turner, Seafarer s
International Union.
You may be seated. Thank you all for being here, and we
will now hear from Mr. Neil Johnsen, the Chairman of the Board
of Central Gulf Lines.
TESTIMONY OF NEILS M. JOHNSEN, CHAIRMAN OF THE BOARD, CENTRAL
GULF LINES, INC. AND WATERMAN STEAMSHIP CORPORATION; MICHAEL R.
DUMAS, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, INTERMARINE,
LLC; JOHN F. REINHART, PRESIDENT AND CEO, MAERSK LINE, LIMITED;
PHILIP SHAPIRO, PRESIDENT AND CEO, LIBERTY MARITIME
CORPORATION; DONALD KEEFE, PRESIDENT, MARINE ENGINEER S
BENEFICIAL ASSOCIATION, ACCOMPANIED BY PAUL DOELL, DIRECTOR OF
LEGISLATIVE AFFAIRS, AMERICAN MARITIME OFFICERS; CAPTAIN DONALD
MARCUS, SECRETARY-TREASURER, INTERNATIONAL ORGANIZATION OF
MASTERS, MATES, AND PILOTS; AND TERRENCE TURNER, SEAFARER S
INTERNATIONAL UNION
Mr. Johnsen. Good morning.
Mr. Cummings. Good morning.
Mr. Johnsen. Chairman Cummings, Congressman LoBiondo and
other Members of the Committee, as the Chairman of Central Gulf
Lines and Waterman Steamship Corporation, I appreciate the
opportunity you have provided today to address the U.S.-flag
merchant marine s ability to compete with foreign-flag vessels
in international commerce.
Central Gulf and Waterman are both American-owned United
States citizen companies, and as such are commonly referred to
as Section 2 citizens. Central Gulf and Waterman currently
operate 13 U.S.-flag commercial vessels in the international
and domestic trades that provide a wide range of ocean-going
commercial freight transportation services, including pure car/
truck carrier and domestic coast-wide services.
Central Gulf and Waterman have also provided from their
inception sealift support to the Department of Defense for its
global military operations. Our U.S.-flag vessels and the
dedicated crews that serve on those vessels willingly and
without hesitation have delivered and will continue to deliver
vital military equipment, supplies and other material into war
zones and other hostile areas in direct support of DOD
operations.
Mr. Chairman, at your hearing in March, you observed that
you would certainly hope that as we work to expand U.S.
exports, we also work to formulate a meaningful maritime
policy. We agree with your observation and we therefore
recommend several specific initiatives.
At the outset, I would like to address a program that you
mentioned that continues to serve its intended purpose, the
Maritime Security Program. MSP is the most cost-effective means
to ensure that DOD has the access it requires to commercial
U.S.-flag shipping and merchant mariners for the Nation s
economic and military security. MSP was established in 1996 and
originally provided for 47 U.S.-flag commercial vessels.
Subsequently, due to the success of this program, the
strong support of Congress, and our partners at the Departments
of Transportation and Defense, the program was reauthorized and
expanded to 60 ships in 2005. With that expansion, Congress
specifically provided that priority must be given to Section 2
citizen/American-owned companies for vessels enrolled in MSP.
As Section 2 citizen companies, Central Gulf and Waterman
strongly supported that priority requirement and I urge
Congress to continue providing priorities in this respect.
Of the 60 vessels in MSP, Central Gulf has enrolled four
state of the art pure car/truck carriers and Waterman has
enrolled two such vessels and two self-sustaining container
vessels. These Central Gulf and Waterman vessels include some
of the newest and largest roll-on/roll-off vessels in the U.S.-
flag fleet.
Mr. Chairman, we are pleased the House of Representatives
has demonstrated its continuing support for MSP by voting in
this Congress to extend the program. We look forward to working
with you and other Members to ensure that the extended program
provides for priority participation of Section 2 citizen
companies; to ensure that the program payments equalize
operating costs of U.S.-flag vessels with foreign-flag vessels;
and to provide for a continued full complement of U.S.-flag
vessels in the program that are required to support the
national and economic security of the United States.
I must note that as a complement to MSP, DOD must continue
to abide by its longstanding commercial-first policy to provide
military cargo to privately owned U.S.-flag vessels when they
are available, in lieu of government-owned or controlled
vessels. This policy has resulted in military cargo to support
the U.S.-flag fleet.
If MSP is reauthorized and funded at a level to equalize
the operating costs of U.S.-flag and foreign vessels, it will
be necessary to continue our efforts to remove trade barriers
and hurdles that exclude or limit U.S.-flag companies access to
certain international markets.
Over the last 20 years, we have on a limited basis, with
the help of Congress, the Maritime Administration and the
Federal Maritime Commission, the Department of Commerce, and
the U.S. Trade Representative, gained access to certain markets
for U.S.-flag vessels. With an adequately reauthorized MSP, I
am sure that all of my colleagues in the U.S. merchant marine
are prepared to compete effectively in the world market, but we
must have access to markets which are not currently fully open
to us.
We stand to work collaboratively with the Trade
Representative in a sustained effort to promote increased U.S.-
flag participation in the carriage of goods to and from the
United States.
Additionally, Mr. Chairman, U.S.-flag vessels operating in
international trade are forced to compete with foreign-flag
vessels whose owners pay little or no taxes. While the tax
climate for U.S. vessels has improved through Congressional
enactment of the tonnage tax, we recommend two additional
improvements.
First, we recommend adoption of legislation that would put
our American mariners on an equal tax footing with other U.S.
citizens working outside the United States by allowing them to
be treated for tax purposes like American expatriates, with the
first $80,000 of their income is not subject to U.S. tax.
Second, we also recommend that changes be made to the
Capital Construction Fund Program that would incentivize U.S.-
flag shipowners to repair their ships in U.S. shipyards.
Congressman Artur Davis and Charles Boustany have introduced
legislation that would allow funds to be withdrawn on a tax-
free basis from CCF to be used for maintenance and repair of
U.S.-flag vessels in U.S. shipyards.
Mr. Cummings. I am going to have to ask that you wrap up
because we have let you go two minutes above, and all of it is
very, very interesting, but we have the statement, your full
statement.
Mr. Johnsen. OK, thank you. Just in closing, I would like
to reiterate the importance of the various cargo preference
programs that were mentioned by the Maritime Administrator and
to say that they are an important component as well.
Thank you very much, Mr. Chairman.
Mr. Cummings. Thank you. Thank you very much.
Mr. Dumas?
Mr. Dumas. Good morning, Chairman Cummings and other
distinguished Members of the Committee.
Mr. Cummings. Good morning.
Mr. Dumas. Thank you for the invitation to discuss the
state of the U.S. merchant fleet in foreign commerce.
I am Mike Dumas, the Vice President and Chief Financial
Officer of Intermarine, a U.S.-owned and operated Section 2
U.S.-flag company.
Intermarine specializes in the ocean transportation of
great bulk and project cargo that is oversized, over-
dimensional, non-containerized and uses multi-purpose vessels
that have self-sustaining heavylift up to 400 metric tons.
The project and breakbulk industry is a specialized and
often complex trade and Intermarine is its largest U.S.-based
project participant.
Intermarine currently has three heavylift vessels, the
Ocean Atlas Titan and Charger, and a fourth heavylift vessel,
the Ocean Crescent, is in the final stages of U.S.-flag
registration.
The Atlas and the Titan both participate in the Maritime
Security Program and the Voluntary Intermodal Sealift
Agreement. We are the only heavylift vessels enrolled in these
programs. Our U.S.-flag vessels are crewed by U.S. union
mariners with whom we have a long and very good, strong
partnership. Altogether, Intermarine supports hundreds of good
jobs for U.S. citizens, merchant mariners, stevedores,
administrative office and technical personnel, as well as the
many ancillary jobs supported by our operation.
Mr. Chairman, concerning the purpose of this hearing, you
correctly chronicled the decline of the U.S.-flag fleet, both
in the overall number of U.S.-flag vessels and in the volume of
cargo carried by these vessels. You correctly noted, too, the
real economic and security risk that attends such a decline.
Intermarine is committed to remaining a commercially viable
U.S.-flag carrier. I would briefly like to highlight what we
might do collectively to overcome the challenges facing the
U.S.-flag industry.
Number one, and as mentioned several times I am sure by
many of my colleagues, ensure reauthorization and full funding
of the Maritime Security Program. MSP provides support for some
60 vessels enrolled in the U.S.-flag registry, including two of
the Intermarine U.S.-flag vessels. Ensuring that MSP will
remain fully funded through 2015 and reauthorized thereafter
provides U.S.-flag participants with some relief from the high
cost of operating such vessels.
To fully support U.S. exports in the U.S.-flag fleet, we
would encourage consideration of a reauthorized MSP program
reasonably modified to provide for, one, priority participation
by Section 2 citizens; and two, an extended contract period to
provide enhanced business stability for MSP participants.
MSP provides mission-critical capacity for our military and
helps to employ thousands of professional and very dedicated
U.S. seamen. The MSP is an asset multiplier for the U.S.
Government and its support helps sustain U.S. industry that is
not simply a luxury, but a necessity to the national and
economic security of the United States.
A second highlight: protect and vigorously enforce cargo
preference laws, extremely important. Cargo preference laws are
critical to the continuing viability of the U.S.-flag fleet.
Without protection and vigorous enforcement of our cargo
preference laws, U.S.-flag carriers simply will not be able to
compete with their foreign counterparts who enjoy advantages on
the tax side, operating costs, and safety. Cargo preference
laws ensure the continuing viability of the U.S.-flag fleet,
and this is far too important to this Country.
Third highlight: support the role of U.S. carriers in the
National Export Initiative. The interests of U.S.-flag carriers
must be represented in the President's National Export
Initiative. Though it is indeed unfortunate that the Secretary
of the Department of Transportation was not included as a
member of the Export Initiative, U.S.-flag carriers should be
given a voice in that critical initiative and we stand ready to
assist.
Additionally, Intermarine is also eager to continue working
closely in a public-private partnership with MARAD, Ex-Im Bank
and shippers to ensure adequate U.S.-flag vessel capacity to
help promote U.S. Ex-Im Bank.
Finally, fourth highlight: leverage the strength of U.S.-
flag carriers in support of TRANSCOM. Intermarine's heavylift
vessels are well suited to support DOD missions for TRANSCOM,
and by obvious extension, support the security and safety of
the United States. Perhaps no better example of the vital role
Intermarine vessels play in support of national security
occurred in 2004 when our Ocean Atlas was urgently asked by the
Department of State to divert to Tripoli, Libya. The Atlas was
the first American vessel to call on that country in many
years. In Libya, the vessel loaded sensitive cargoes that was
then safely and securely transported to the United States. This
mission is a reminder of the forceful importance of having a
U.S.-owned and controlled Section 2 U.S.-flag fleet.
Mr. Chairman, the nexus between maintaining a viable U.S.-
flag fleet and ensuring U.S. security is very real. If we are
able to remain competitive, if we can continue to move U.S.
exports and create U.S. jobs, then U.S.-flag carriers can
continue to support this Country's economic and security
interests.
Thank you once again, Mr. Chairman, for the opportunity to
speak with you today.
Mr. Cummings. Thank you. Thank you very much.
Mr. Reinhart?
Mr. Reinhart. Thank you, Mr. Chairman.
Mr. Cummings. Thank you.
Mr. Reinhart. Members of the Committee, I am John Reinhart,
President and CEO of Maersk Line, Limited, a U.S. company based
in Norfolk, Virginia.
Our company is managed by U.S. citizens, employs thousands
of U.S. merchant mariners, and has over 200 shoreside
employees. We pay taxes in the United States and we are one of
the largest owners and operators of U.S.-flag in international
trade. We are part of the A.P. Moller-Maersk Group, and
international transportation and energy company.
I appreciate the opportunity to testify before you today
about the state of the U.S. merchant marine operating in
international commerce. We applaud the Committee for its
commitment to a strong U.S. merchant marine which is critical
to both the U.S. economic and national security.
As your Committee knows, the global maritime industry, like
all industries, has faced an unprecedented economic difficult
time over the last few years. In the wake of that challenge,
Maersk Line, Limited continued to provide critical services
with U.S. merchant vessels to the military over the last few
years, delivering cargo to Iraq, Afghanistan and humanitarian
aid to Africa.
The success of our business is based on our ability to
provide competitive international transportation services to
our customers. The foundation is the U.S. laws that you have as
the Congress put them forward, designed to ensure that we
stayed strong and economically viable.
The Maritime Security Act, the cargo preference laws, the
tonnage tax regime and other U.S.-flag programs Congress has
enacted has stopped the rapid decline, but still more needs to
be done. I would like to give you a few highlights of what our
company has done in the last 10 years.
We own, operate and charter 33 vessels that are enrolled in
government sealift readiness today. We only had four doing this
10 years ago. We have modernized nearly our entire fleet,
investing $1.6 billion in new assets under U.S. flag in the
last 10 years. We continue to work with DOD to match their
requirements with U.S. assets. We have 24 container ships. We
have added four Ro/Ro ships. We have included three tankers. We
have tried to adapt our fleet to meet the requirements of the
military.
Since 2008, during this economic time, we have added seven
vessels that have increased employment for U.S. merchant
mariners by 240 slots or billets, providing employment for
almost 600 mariners. We train more than 200 cadets every year
on our fleet from the academies to provide for a workforce for
the future.
The programs that Congress has enacted to support the U.S.
flag have been working and have delivered value to the U.S.
military. They have been maintaining privately owned,
commercially viable U.S. vessels in the fleet.
One fact that demonstrates this success is that between
2002 and 2008, 60 percent of the cargo to Iraq and Afghanistan
were carried on commercial vessels like we all represent,
compared to 21 percent during Desert Storm.
As the Committee considers future opportunities to
strengthen the U.S. flag and the merchant marine industry in
foreign commerce, please remember that it is not just the ocean
transportation that our customers look for. They look for
global capability and door to door capacity to deliver cargo
efficiently from any point to any other point. That is what
companies like ours practice and do. It is part of our DNA.
As we look at Afghanistan, we have delivered cargo
thousands of miles over land after we have taken it on the
ships, going across Latvia, Russia, Uzbekistan, Georgia,
Armenia, Azerbaijan, as addition to the gateway in Pakistan. So
we have had to do more than just operate ships to be
competitive in the global marketplace.
As an American company with American citizens, we are proud
to serve our Nation. We recognize that the U.S. Government
services are a key part of our business. Because we utilize our
commercial solutions, we are able to compete on a cost basis
and find opportunities to eliminate the cost differential that
exists in the U.S. flag. Only 2 percent of the trade goes to on
U.S.-flag ships and more needs to be done. We need to avoid
complacency and aggressively protect and preserve the programs
that you have so wisely put in place, the Maritime Security
Program, the cargo preference laws, the tonnage tax, as we look
for more.
There are other opportunities for development and we look
to those opportunities for development in the energy field to
help grow employment and deliver new U.S. vessels.
In closing, let me reiterate my company's commitment to our
Nation s sealift capacity, the requirements that you provide,
and the honor it is to serve. Every day, our colleagues,
mariners and partners feel pride in serving the U.S. flag,
developing the U.S. merchant marine, and serving our Nation.
This is a brief part of my testimony, sir, and I look
forward to your questions.
Mr. Cummings. Thank you very much.
Mr. Shapiro?
Mr. Shapiro. Thank you, Mr. Chairman, Chairman Oberstar,
Mr. LoBiondo, Mr. Taylor, Members of the Committee. Thank you
for the opportunity to testify on the importance and status of
the foreign trading U.S.-flag fleet.
With your permission, sir, I would like to submit my
written statement for the record.
Mr. Cummings. Without objection, so ordered. As a matter of
fact, we will have all of your written statements submitted as
a part of the record. Thank you all.
Mr. Shapiro. Thank you.
Liberty's fleet consists of nine U.S.-flag vessels, six
modern large bulk carriers, and three large roll-on/roll-off
vessels built in 2005, 2009 and 2010. All of our vessels are
engaged in the carriage of military cargoes and/or food aid
preference cargoes primarily today to Africa.
Let me take a moment, Chairman Cummings, to thank you and
Mr. LoBiondo and Mr. Taylor, as well as the Members of your
Committee for your outstanding leadership on the piracy issue.
The entire U.S.-flag industry, both operators and our labor
partners alike, deeply appreciate your concern and involvement.
Two weeks ago, this Committee reported a bill, H.R. 5629,
that seeks, among other things, to Americanize U.S. waters. The
purpose of the bill is to help ensure safe operations in
drilling and other activities and goes well beyond the
requirements of the Jones Act. This is a bold step.
Bold thinking is also needed to sustain and expand the
U.S.-flag fleet engaged in the foreign trade. Our existing
programs, particularly the Maritime Security Program and the
Cargo Preference Program have worked well to stabilize and
maintain a modern militarily useful fleet. These programs must
be sustained if the U.S. is to maintain this essential
capability.
As you have noted, Mr. Chairman, these programs, however,
can and must be improved and new ideas are needed to maintain
and grow a vibrant U.S.-flag fleet. None of us can rest on our
laurels. More aggressive action is needed.
First, the Maritime Security Program should be reauthorized
and expanded. We at Liberty have committed over $170 million in
private capital to build two brand new roll-on/roll-off vessels
to serve the needs of our armed forces. These are ultra-modern
vessels, the newest in the U.S.-flag fleet, ordered, by the
way, when the U.S. Transportation Command announced a need for
more Ro/Ros. Yet there are no available MSP agreements to cover
these vessels. We respectfully urge Congress to consider
expanding MSP when it is reauthorized to ensure that DOD has
the sealift capability it needs.
Second, MSP originally intended as a U.S. citizen program,
has become nothing short of a foreign-dominated program. When
started in 1997, four of the 47 agreements were held by a
foreign company. Today, all but 11 of the 60 agreements are
effectively controlled by foreign citizens or companies. This
foreign dominance is a threat, in our opinion, to the national
security of our Country and unhealthy for the long-term
viability of the U.S. merchant marine. We respectfully request
that Congress alter the balance to ensure that a majority of
this program is reserved to U.S. citizens.
Third, when MSP was reauthorized in 2005, most of the
agreements were grandfathered. In other words, they are re-
awarded to the same carriers which had agreements in the prior
program. This has resulted over time in the DOD not always
having the vessel mix that it needs. We urge Congress to
provide for more open competition in the award of MSP
agreements when it is reauthorized.
Fourth, I would like to spend the balance of my time
discussing cargo preference, which represents the common sense
notion that when our U.S. Government ships cargo, at least some
of it should go in U.S.-flag vessels. It is not an exaggeration
at all to say that without cargo preference, we would have no
U.S.-flag fleet engaged in foreign commerce today.
It is therefore vital to the U.S.-flag merchant marine and
to U.S. national security that our cargo preference laws are
followed by the various government agencies that ship cargo.
Toward that end, the Maritime Administration plays a vital role
in making sure that contracting officers in other agencies are
aware of their responsibilities and that the law is enforced
when necessary.
We urge Congress to be active in its oversight of MARAD and
its cargo preference role. MARAD needs Congressional support to
get the job done, and maybe on occasion, with all due respect
to my friend Administrator Matsuda, a nudge or two to be a
little bit more aggressive in enforcing the law.
Thank you again, sir, for the opportunity to testify.
Chairman Cummings and Members of the Subcommittee, we
appreciate your attention to our industry. We could not have
better support than what you are trying to provide us.
With that, I would be pleased to answer any questions.
Mr. Cummings. Just one quick observation. Sometimes it is
good for the person who testifies first to stick around to hear
from you all. In other words, Mr. Matsuda left. I am sorry he
did, but I want to make sure that he gets copies of your
testimony, if you don't mind. He needs to hear some of this.
All right?
Mr. Shapiro. Thank you, sir.
Mr. Cummings. Mr. Keefe?
Mr. Keefe. Mr. Chairman, Members of the Subcommittee, my
name is Don Keefe. I am the President of the Marine Engineers
Beneficial Association. I am presenting this statement on
behalf of the MEBA, as well as the American Maritime Officers,
the International Organization of Masters, Mates, and Pilots,
and the Seafarers International Union.
Together, we represent the overwhelming majority of
licensed and unlicensed American merchant mariners working
aboard United States-flag vessels operating in our Nation s
foreign and domestic shipping trades.
We appreciate this opportunity to present our views on the
state of the United States merchant fleet in foreign commerce.
History has shown that our Nation must have the U.S.-flag
commercial vessels and United States citizen crews necessary to
support our troops and protect our American economic interests.
We believe that the best way to do so is for Congress and the
Administration to support, enforce and fund existing maritime
programs and to enact new programs that will enable our
merchant marine to operate more competitively.
One such program is the Maritime Security Program. MSP
helps retain U.S.-flag vessels and their U.S. citizen crews for
our Country, more specifically for the use of the Department of
Defense in time of war and other international emergencies. To
ensure the continued availability of the MSP fleet, Congress
should continue to approve funding for this program at the
Congressionally authorized level of $174 million for fiscal
year 2011, $186 million in fiscal years 2012 and 2013. This
fund helps U.S.-flag vessels compete against foreign-flag,
foreign-crewed vessels for the carriage of cargo in foreign
trades.
Unlike U.S.-flag vessels, foreign vessels operate in what
is essentially a tax-free environment beyond the reach of many
U.S. Government-imposed requirements that are applicable to
U.S.-flag vessel operations.
It is equally important that U.S.-flag shipping
requirements under the Cargo Preference Program be fully funded
and implemented in compliance with the law. For example, the
existing Food for Peace Program not only serves U.S.
humanitarian and foreign aid objectives, but provides a
significant return to the American taxpayer by creating and
maintaining American jobs for the maritime and agricultural-
related service and supply industries.
The U.S.-flag shipping requirements that cover the shipment
of Food for Peace and other food aid cargoes help provide an
important base of cargo to support U.S.-flag vessels operations
to help vessel operators keep their vessels under our flag.
Proposals to replace the existing Food for Peace Program with a
program that simply provides cash to other nations to purchase
foreign agricultural commodities in foreign shipping services
should be rejected.
All federally funded cargo should be transported in
compliance with the existing cargo preference laws. The
National Defense Authorization Act of 2009 gives the Maritime
Administration great authority to implement the cargo
preference laws and this statute and MARAD's authority should
not be subverted.
We believe that changes should be made in our tax laws in
order to promote the growth of the industry, preserve and
create jobs, and help reduce the disparity in tax treatment
that gives foreign-flag vessels and their crews a significant
economic advantage over U.S.-flag vessels and their U.S. crews.
For example, one such change in the tax code that could
improve the competitive position of U.S.-flag vessels and
increase the employment of American mariners is to extend the
existing foreign source income exclusion to American merchant
mariners working aboard commercial vessels operating in the
foreign trade. At present, section 911 of the tax code allows
every U.S. citizen working outside the United States, except
for American mariners, to exclude up to $80,000 in income from
their Federal tax.
A report prepared by the Maritime Administration, released
on January 7, 2009, noted that most major nations either do not
tax or sharply reduce taxes on the income of their mariners in
international shipping. Other nations do this to help reduce
operating costs for their flag vessel operations. The United
States should do the same.
In addition, Congress should enact legislation to eliminate
the double taxation of waterborne commerce moving between
American ports under the harbor maintenance tax in order to
enable creation of a short sea shipping marine highway system
in the United States.
Also, Congress should support the Title XI Ship
Construction Loan Guarantee Program and appropriate the funds
necessary to assist shipping companies to obtain the commercial
financing they need to build, upgrade and expand their fleets
in the American shipyards.
Finally, there is one other major area of U.S. maritime
policy we would like to raise. The full enforcement of the
Jones Act helps to guarantee that our Nation will have the
domestic shipyard mobilization base and the American merchant
mariners available to support the Department of Defense
requirements. Equally important, the full implementation and
enforcement of the Jones Act means that the waterborne
transportation of American domestic commerce will not fall
under the control of foreign shipping interests, but will
instead remain under the control of American companies and
American crews.
American crews, unlike foreign mariners, are subject to
U.S. Government-imposed background and security checks as a
means to guard against maritime-related terrorist incidents.
In conclusion, if Congress and the Administration believe,
as we do, that the economic and military security of the United
States is best served when our country has a strong competitive
U.S.-flag shipping capability, there are a number of important
and innovative steps that can be taken to achieve this
objective. We have raised what we consider to be some of the
most important immediate steps that should be considered. We
look forward to working with you, Mr. Chairman, and your
Subcommittee on these and other essential maritime initiatives.
Thank you.
Mr. Cummings. Thank you very much.
We are pleased that we also have Mr. Paul Doell, the
Director of Legislative Affairs, the American Maritime
Officers; and Captain Donald Marcus, Secretary-Treasurer,
International Organization of Masters, Mates, and Pilots; and
Mr. Terrence Turner of the Seafarers International Union, here
for questions, to answer questions. They will not be providing
testimony.
Is that understood? Very well.
Let me just ask a few questions.
Mr. Shapiro, what percentage of the cargoes carried by your
U.S.-flag vessels are comprised of cargo preference cargoes?
Mr. Shapiro. Mr. Chairman, today we would probably be in
the 80 percent range, about 75 percent to 80 percent. In prior
years, we have been 100 percent. In 2007 and 2008, when there
was an explosion in the foreign shipping market, some of our
ships traded there and we actually went as low as 50 percent to
60 percent. But we are clearly dependent on U.S. Government
programs to support the U.S.-flag fleet.
Mr. Cummings. So you would be pretty much out of business
if it weren't for the preferences.
Mr. Shapiro. Well, we would be out of business as a U.S.-
flag company. I mean, the alternative that everyone faces at
this table who's operating ships is if you take the U.S. flag
off and put a foreign crew on, you can compete internationally
around the world without all the unfunded mandates that are
placed on U.S.-flag vessels.
We have chosen to be U.S. because we are not only
patriotic, but believe that it is our duty to support a U.S.
merchant fleet that can sustain our military and national
security.
Mr. Cummings. We appreciate that very much.
You wrote in our testimony that today all but 11 MSP
agreements are effectively controlled by foreign citizens. What
do you mean by this, particularly given that MARAD has reported
that more than 11 vessels participating in the MSP program are
controlled by Section 2 companies?
Mr. Shapiro. My understanding is that in 2006 after the
renewal of MSP, well, let's go back to 1996. In 1996, there was
a very strong Section 2 requirement which was enforced
vigorously by the Maritime Administration. It mandated that
those companies that have foreign ownership connections, of
which there are many, had to hire U.S. citizen-qualified
shipping people to actually be the intermediary between them
and the U.S. Government.
In the renewal of the program in 2004, which became
effective in 2005, I believe, they changed that requirement to
allow foreign companies that had a special security agreement
with the United States to qualify as an alternative to Section
2 citizenship.
What ended up happening was foreign-based companies were
buying up other American-based companies that were in the
program so much so that I believe Congress in 2006 intervened
and said if there is a transfer of an MSP agreement from a non-
citizen, priority should be given to a Section 2 citizen in
having it awarded.
Well, the intent of Congress was great. Unfortunately, the
enforcement by the Maritime Administration was somewhat lacking
because they found people who had really never operated ships
acted as owners of companies on behalf of foreign companies and
they became the Section 2 citizens.
So for instance, you have someone who was at one time a
U.S. Government government relations person who all of a sudden
dropped his position, became owners of an American Section 2
citizen, even he had no employees and no people that were
working for him, and he acted as the intermediary between the
foreign company.
So I again would urge this Committee to direct the Maritime
Administration to tighten up these requirements so that Section
2 U.S. citizens can participate in this program in a
substantial manner, not just a minuscule manner.
Mr. Cummings. Thank you. That was very helpful.
Mr. Reinhart, what advantages are there to operating under
the U.S. flag? Is cost the only factor that discourages
operators from choosing the U.S. flag?
Mr. Reinhart. Thank you, Mr. Chairman.
As far as cost, all global trade is really driven by being
in the right place at the right time and providing a service at
the right cost. If the cargo isn't mandated to go on U.S. flag,
a lot of those U.S. manufacturers that build or export, they do
not look to put their cargo on a U.S.-flag ship, so cost drives
them to whatever is the most efficient export or import vessel
available.
Mr. Cummings. And the development of the tonnage tax was an
attempt by Congress to help level the playing field in terms of
costs for U.S.-flag operators. How many of you have elected to
pay tax under the tonnage tax system? And what has been your
experience with the system?
Anybody. Let me start with Mr. Dumas, since he hasn't
answered yet, and we will get to others.
Mr. Dumas?
Mr. Dumas. Mr. Chairman, we do pay under the tonnage tax.
We elected to go under the tonnage tax immediately after it
became available to us. We pay a nominal amount. I think it is
$7,000 or $8,000 a year under the tonnage tax for our four
ships. That allows us to keep our profits inside of the
company, which then helps us to grow our business. We started
off with one ship in 2002 and we are just adding our fourth
ship this year.
Without that tonnage tax, we would not be able to hold our
profits within our company and expand our fleet.
Mr. Cummings. As the others answer that same question, I
want to know, do you think the tonnage tax system can be
improved? And if so, how would you want to see it improved?
Mr. Shapiro?
Mr. Shapiro. We opted as well, Mr. Chairman, for the
tonnage tax. I don't know that it can really be improved. The
benefit is there just from the creation of the tonnage tax. But
if I could just divert back one second about the cost of
operating U.S. flag?
Mr. Cummings. Please.
Mr. Shapiro. Our seamen pay taxes. Their families pay
taxes. When we are competing in the international trade, you
asked me what percentage we carried of U.S. Government cargo
versus commercial cargo. We are at an $11,000 a day
disadvantage to a foreign-flag ship, foreign operating costs.
The math is very simple. And the $2.9 million, I would point
out, under the MSP program, switching hats from food aid to
military, the $2.9 million doesn't cover the full differential.
Without the Cargo Preference Program cargoes being added to
that $2.9 million, there is no way that anyone can sail a ship
and make any money.
So the support we need from the Congress or from our
Administration is vast support, but the benefit is you get a
merchant marine that can ensure your economic security as well
as your national security at a fraction of the cost that it
would cost the government to build these and own these ships
themselves.
Mr. Cummings. Mr. Reinhart?
Mr. Reinhart. Thank you, Mr. Chairman.
As I mention in my testimony, we have increased our fleet
from four to 33 ships owned. The tonnage tax was a big driver
in us being able to effectively deploy the capital and
modernize our fleet. So it is an important step.
But as Philip and some of the other folks on the panel have
said, it is not enough by itself. We do need cargo preference.
We do need the Maritime Security Program and other initiatives
to offset the adverse cost of running a U.S.-flag ship in the
international trades.
Mr. Cummings. Mr. Johnsen, did you have a response to that?
And then I will move on to Mr. Keefe.
Mr. Johnsen. Thank you very much.
I would like to just reiterate the fact that, and I said
this in my testimony, that it is important that the Maritime
Security Program be adequately funded. What I was alluding to
there is that there should be more money in the program.
Mr. Taylor asked an interesting question of the Maritime
Administrator about back haul cargo from Kuwait. That leads
into a very important consideration. The Department of
Defense's requirements are often very much surge requirements,
and they need many more vessels than they need on a more
routine basis when they have a surge. So that says to us that
it is important that we have the DOD priority, but we have to
have an adequately funded Maritime Security Program in order to
have the vessels available to DOD.
When the operations changed in the Middle East from a surge
of sending cargo over to now the retrograde operation, many of
us operating in that program rearranged our transportation
capability. Unfortunately, I think we have a reality that DOD
is having a difficult time getting the cargo out because, to
answer your question, I know what our ships are doing and I
know what other people s ships are doing, and they are not
full.
So it is a question of continuing to work with DOD to
ensure that we have a flow of cargo that matches the
retrograde. Because we have the capability there to do it, but
we do need initiatives. We do need to have the Trade
Representative and all of our other agencies support
utilization of U.S.-flag ships. If they cut us free and they
don't help us, there will be a serious impact.
Mr. Cummings. Mr. LoBiondo?
Mr. LoBiondo. Mr. Chairman, out of deference to Mr.
Oberstar, I will yield to Mr. Oberstar.
Mr. Oberstar. You are very kind to do so, Mr. LoBiondo. I
will withhold at this time, except to make this one brief
observation.
Thirty-five years ago, my first year in Congress, Tom
Downing, Chairman of the Merchant Marine Subcommittee, Member
from Virginia, held hearings similar to this over a five-month
period to evaluate the Merchant Marine Act of 1970 to see where
we stood with the status of the merchant fleet.
You and Mr. Cummings have now launched the second era of
hearings on the value to the United States of the merchant
fleet, and I hope that this will be an in-depth and continuing
series of hearings to shine a bright light on the very
important area of merchant shipping that goes too often ignored
in our panoply of transportation issues in this Country. Much
more attention is paid to aviation, to highways, to transit to
intercity high speed passenger rail.
This Country was founded by the water. Our citizenry lived
on or near the water at the very beginnings of this Nation.
Seventy-five percent of the population of this Country still
lives along the water's edge. There are only two major cities
that are not located along a body of water. Most of our major
cities were ports before they were cities.
This hearing today and the series that I expect we will
continue to have will continue to focus that light on this
maritime heritage of the United States and the importance of
maritime to the future of this Country.
Thank you for yielding.
Mr. LoBiondo. Thank you, Mr. Chairman.
Talking about the shortage of merchant mariners, for Mr.
Turner, to what degree is there a shortage of merchant mariners
available to work aboard U.S.-flag vessels?
Mr. Turner. Mr. LoBiondo, there is a worldwide shortage. We
with Seafarers do our best and do our due diligence in
supplying the best trained mariners that this Country can
provide. I don't have a percentage for you, but we will stand
ready, as my boss Mr. Sacco says, when the balloons go up and
the bell rings, we will be there.
Mr. LoBiondo. Can you identify any particular segments of
the maritime community that are experiencing more of a shortage
than others?
Mr. Turner. I think I would have to defer to the Officers
Unions on this. I can only speak relative to our unlicensed.
Mr. LoBiondo. I think I and probably the Committee would be
interested in knowing if you have any ideas of how the Federal
Government could support industry efforts to attract and retain
qualified merchant mariners to work aboard U.S.-flag vessels.
Mr. Turner. Our industry is a well kept secret, quite
frankly. What Mr. Oberstar has referred to is we kind of fly
under the radar. One of the things that we do in terms of
getting our message out, we go to various Members of Congress
in their Congressional districts and basically recruit from
those areas. We would be very interested from any Member of
Congress who has a jobs need, we would be glad to basically
come into your district, explain to your constituents exactly
what we do, and recruit them into the industry.
Mr. LoBiondo. Thank you.
Any of the other panel members, are you experiencing
difficulty being able to hire folks for your vessels?
Mr. Marcus. Yes, sir, on behalf of Masters, Mates and
Pilots, thank you for the opportunity to be here and thank you
for your vigorous support of the merchant marine.
I would have to say that regarding licensed deck officers,
it is a function of availability of jobs. As the Administrator
stated, there are 700 licensed officers graduating from State
and Federal academy every year. If the suitable and attractive
opportunities are there, people will fill the jobs. It is a
function of supply and demand. And right now, from the position
of our union, there is a lack of jobs and we have Third Mates,
qualified personnel, that can't get employment, can't get
steady employment, or that the range of employment is simply
not attractive.
So I think it is a function really worldwide of the
attractiveness of the job. If there are good jobs, people show
up. If there are not enough jobs and if they are not good jobs,
people don't show up.
So I think the shortage, at least in terms of the U.S.
officers, is somewhat of a red herring. I believe it is a
function of the quality of the opportunity.
Mr. LoBiondo. Anybody else care to comment?
Mr. Keefe. Yes. I agree with Don from Masters, Mates and
Pilots. When I mentioned in my testimony about a Federal tax
incentive, it is very, very competitive when we are going to
our partners, our companies to try to talk with them to bring a
foreign flag under the American flag, when our competition in
the foreign market, they are getting national health care
already. They are getting national pensions. They are not
paying taxes into what they earn on the vessel.
The costs at one time I believe it was about a 30 percent
differential and could have even been more with the Euro up and
down. I believe at one time we looked at it, it was about 30
percent.
Some of our employers, we have partnered with them. We have
had to take 20 percent pay cuts to make it competitive for them
to bring foreign vessels under the American flag.
Mr. LoBiondo. Thank you.
Mr. Cummings. Thank you very much.
Mr. Oberstar?
Mr. Taylor?
Mr. Taylor. I would like to open this up to the pane, going
back to, again, I realize it is short term, but walk me through
how your firms are compensated for bringing a cargo home from
Iraq. I have to believe the crew size doesn't vary if you have
a partially full ship. I have to believe you are traveling in
ballast so your tonnage really doesn't vary, so therefore the
amount of fuel you are going to use doesn't vary.
Are you compensated by the trip? Are you compensated by the
piece of equipment? Are you compensated by the actual tonnage
of the cargo that you are carrying? If you could walk me
through that.
Mr. Reinhart. Yes, sir, Mr. Taylor.
Firstly, there are rates on file with TRANSCOM.
Mr. Taylor. Could you speak up a little bit, sir?
Mr. Reinhart. Yes, sir.
TRANSCOM has rates on file to move cargo from any port to
another port, so most of the cargo would move under USC 06.
Then there can be unit moves or one time only rates put on file
to bring the cargo back from the Middle East. But since we are
still delivering on networks with our liner vessels and our Ro/
Ro vessels, we are providing that mostly under our USC 06
rates.
Mr. Taylor. Again, walk a civilian through this.
Mr. Reinhart. Well, to be a member of the Maritime Security
Program
Mr. Taylor. No, I am familiar with that.
Mr. Reinhart. OK, sir.
Mr. Taylor. If your vessel is coming over, if you have a
heavylift vessel or a reinforced deck Ro/Ro, that is returning
home at 60 percent capacity, do you still bill the Nation the
same as if you were full? Or does the Nation get a 60 percent
bill of what a full cargo would have cost the Nation?
Mr. Reinhart. If I may, sir, the rates are unit rates. We
aren't charging for the full vessel. We are charging for the
rates on the piece portion.
Mr. Taylor. By square foot and tonnage or tonnage or what?
Mr. Reinhart. Yes, sir.
Mr. Taylor. Square foot and tonnage?
Mr. Reinhart. Weight, ton or container.
Mr. Shapiro. Mr. Taylor, all of us are subject to the
universal services contract. When he says USC 06, that is what
it is.
Mr. Taylor. Thank you.
Mr. Shapiro. We have submitted thousands of rates,
literally thousands of rates for the movement of different
pieces of material and cargo from points all over the world,
not just to the United States. It could be repositioning
someplace else. Those are analyzed and accepted by the
Department of Defense. If they think your rate is too high for
something, before you get approved for that universal services
contract, they come back to you and say you are not approved on
this rate, this rate, this rate or this trip, this trip, this
trip.
So before you ever even put this vessel in the water to go
pick up cargo, you have been approved already on all these
rates by the DOD.
Mr. Taylor. And Mr. Shapiro, I hate to cut you short, but I
am going to.
Mr. Shapiro. OK.
Mr. Taylor. Walk me through, if you could very quickly, a
typical vessel sailing right now, coming back from Iraq. What
is your typical capacity?
Mr. Shapiro. I can do that, sir.
Mr. Taylor. What percentage of capacity are you traveling
at?
Mr. Shapiro. We have 580,000 square feet of cargo space on
a 12-deck roll-on/roll-off vessel. OK? We are carrying about 30
percent to 40 percent cargo in that coming back, no more than
40 percent. And we are paid on a unit move by pieces of
equipment. We don't charge for the full ship. We get whatever
we have been approved for on an item by item basis.
Mr. Taylor. Is that fairly universal? Is that a fairly
universal percentage?
Mr. Shapiro. On the Ro/Ro, sir, yes. On the containers, it
could be even less on the container ships.
Mr. Taylor. Sir?
Mr. Johnsen. That is correct.
Mr. Taylor. Again, going back to the old penny-wise
analogy, I have serious concerns that we are leaving billions
of dollars of equipment behind that is going to end up on the
black market, that is going to make some Iraqi wealthy, because
we are trying to save millions of dollars in shipping costs.
Have any of you gone to both the Sealift Command or
TRANSCOM and said, look, I am making this trip anyway; I am
willing to work with you on a negotiated rate for additional
tonnage to come home.
Have you done that? And if you haven t, why not?
Mr. Johnsen. We have done that.
Mr. Taylor. You have.
Mr. Johnsen. Yes.
Mr. Taylor. And what has been their response, sir?
Mr. Johnsen. We have had one instance where they did work
with us and they helped us get back. But we have had in the
last 60 days, we have had multiple instances where we have held
ships waiting for cargo. We have a ship sitting now that has
already been sitting for two or three weeks. We get no
compensation for that, obviously.
Mr. Taylor. It is sitting in Kuwait?
Mr. Johnsen. It has been sitting in the Arabian Gulf. And
prior to that, the last ship that we loaded coming back had
waited for two weeks. So it is a question of the cargo volume
is obviously there and I think your concern is very legitimate
about getting it moved out, but the cargo is not flowing to
match the vessel s capability.
So as Mr. Shapiro said and as Mr. Reinhart said, we get
paid for every measurement ton of cargo that we carry and that
is all.
Mr. Taylor. Mr. Chairman, if you would afford me the luxury
of one last question for the record?
If each of your firms could get back to me, when leaving
Kuwait or Umm Qasr, what percentage of the tonnage is being
forwarded to, say, Karachi for redeployment to Afghanistan? And
what percentage is being returned to a CONUS port, leaving the
Iraqi theater?
Thank you very much for indulging me, Mr. Chairman.
Mr. Cummings. Thank you very much.
Mr. Kagen?
Ms. Richardson?
Ms. Richardson. Thank you, Mr. Chairman.
Thank you, all of you, for being here today.
My first question is for the entire panel. Were any of you
invited to participate in the President s Export Commission?
Mr. Shapiro. No.
Ms. Richardson. Did any of you know about it before his
announcement?
Mr. Shapiro. No.
Ms. Richardson. OK. If you were able to participate in that
Commission, and the President is expecting that we are going to
increase exports, and many of us on this Committee, we serve
not only on Coast Guard and Maritime, but also on Highways and
Roads, and we have a real question of whether we would be able
to support that demand.
If you were able to say something to that Commission, what
would it be? And why don't I start off here with some of our
labor representatives and friends, Mr. Turner and Captain
Marcus?
Mr. Marcus. I can answer that question, at least for our
organization. It would be that we would welcome some bilateral
trade agreements. It would seem to me that these countries
value the United States market. They are exporting goods into
our Country. We want to export good out of our Country. It
would seem to me that bilateral trade agreements would be
reasonable. It is a subject that doesn't get much play, but it
would certainly seem reasonable from our perspective.
Thank you.
Ms. Richardson. Actually, it is getting quite a lot of play
right now, the one they are looking at with Korea and some
others. So it is interesting that you have that point.
Mr. Keefe, did you want to add anything to that of what you
would like to recommend to the Commission?
Mr. Keefe. I agree with everything that Don said. It is all
about creating jobs. It is a way to create jobs and we are all
behind it.
Ms. Richardson. What can we do, though, to ensure that
there are job and that they are U.S.-flag ships that are
gaining the benefit of the Export Commission and not foreign-
flag ships?
Mr. Keefe. What I had mentioned earlier in my testimony,
you weren't here, was I had mentioned tax incentives, Federal
tax incentives.
Mr. Shapiro. I would say, Ms. Richardson, that cargo is the
key element to a vibrant U.S. merchant marine and a vibrant
economy. If there is cargo required to be carried on ships,
ships will be built, jobs will be created, and an American
presence overseas with exports will manifest itself.
So cargo that moves either by government mandate or by
bilateral agreement, it all comes down to one thing: you need
something to put in the ship in order to build the ship and to
employ people.
Ms. Richardson. OK.
Mr. Reinhart, the President of Maersk, which is a large
carrier down in my district, the Port of Long Beach and Los
Angeles, what things would you want to share with that
Commission?
Mr. Reinhart. We have talked about the cargo to create the
jobs, but there has to be incentive for that cargo to go on a
U.S.-flag hull. There has to be some reason to put it on a U.S.
hull. If we go back before 2008, cargo continued to grow coming
in and out of this Country, but the portion of it on a U.S.-
flag vessel has dropped to 2 percent. So there has to be
something to incentivize that cargo to move on the U.S. flag;
also, cargo preference enforcement on the U.S. flags.
Ms. Richardson. Mr. Keefe, we briefly had something there.
In your statement, you talked about that if Congress and the
Administration does not take steps to attract and retain more
vessels for U.S. producers and shippers of U.S. commodities, we
can find ourselves hostage to foreign shipping interests. That
obviously is something dangerous to us all.
I was recently in the Gulf twice and I think us not having
our own systems in place in readiness to be able to move as we
need is definitely short-sighted. Other than the tax
incentives, is there anything else that you had a specific
direction to?
I do see the MSP program and us continuing that, but was
there anything else further that you wanted to add?
Mr. Keefe. Yes. What was discussed earlier, capital
construction fund. There was the tonnage tax, the harbor
maintenance tax, the Title XI that I had mentioned earlier
about capital construction, again with Title XI building ships.
Under that, there was when the companies are bringing their
vessels into the U.S. to have repaired, there could be a tax
break on having repairs done in the yards over here in the U.S.
That is about it.
Ms. Richardson. OK.
Lastly, Mr. Turner, with you representing the Seafarers, we
have them represented down in my district in the two ports
there. I know we just finished looking through some
negotiations with ILWU. Are there outstanding labor infractions
that we should be aware of?
Mr. Turner. Relative to the SIU, I don't believe there is
anything outstanding. You do reference the ILWU, and there is a
problem there. We are aware of that and are working with our
brothers and sisters along those lines, but we have no
infractions or complaints to this point.
Ms. Richardson. Thank you, gentlemen, for all your
testimony.
Mr. Cummings. Mr. Oberstar?
Mr. Oberstar. Thank you.
We are now, as I observed earlier, we are observing the
40th anniversary of the Merchant Marine Act of 1970. And I
applaud Chairman Cummings for initiating this hearing and I
expect a follow-on set of hearings that will further explore
the status and the health of the American merchant marine.
And Mr. LoBiondo, thank you also for your constancy and
participation, and Mr. Taylor, who has been a watchdog on the
Jones Act and the American shipbuilding sector.
But I would just observe that that set of hearings I
referenced earlier with Chairman Downing was a great learning
experience. It provided for me a foundational experience for my
engagement in international shipping and the entire maritime
interest of the United States.
And I will just make a personal observation. When I was
elected in 1974, we went through the Committee selection
process. Of course, I wanted to be on the then-Public Works
Committee because I had been its Administrator. I started my
service on the Hill as Clerk of the Subcommittee on Rivers and
Harbors. We didn't have fancy titles in those days, Clerk, like
sit in the corner, kid, and learn something.
I worked then for my predecessor, John Blatnik, who later
was Chairman of this Committee. And I set about the task of
learning. The first act of the first Congress came from the
Committee on Rivers and Harbors in September, 1789, to
establish and maintain a lighthouse at Hampton Roads, Virginia.
The second act of the first Congress came from the
Subcommittee on Rivers and Harbors to establish and maintain a
lighthouse at Cape Henry on the entrance to Chesapeake Bay. And
the third act of the first Congress, from the Committee on
Rivers and Harbors, was to establish the Revenue Cutter Service
to exact duties on cargoes coming into the United States with
which to pay the debts of the Revolutionary War.
The founders of this Country, the framers of the
Constitution, the first legislators understood the importance
of maritime, understood the vital necessity of safety in
maritime by establishing lighthouses.
In fact, as a further parallel, in 1927 when the first
night flight was established in commercial aviation by one of
those early airmail pilots flying from Kansas City to Chicago,
he asked farmers along the route to light bonfires at night
because there was no night navigation. And when it proved
successful and he was able to fly, at each checkpoint the
bonfires were lit, within a year the U.S. Lighthouse Service
established lighthouses with million candle power beams fired
up through arrows pointing to the next lighthouse. That served
as air navigation.
If you look today at air traffic control towers, they are
patterned after lighthouses, with the same sequence of entry.
And the point where air traffic controllers operate is called
the cab. That is what a lighthouse is called, the cab.
America owes so much to maritime history, to the movement
of goods and to the safety at sea that it is a tragedy that we
have allowed this vital interest to deteriorate. And those who
have access, and everybody does, to our Committee briefing
reports, look on page four, Global Policies in Support of
Shipbuilding and Vessel Operations.
There are 15 different categories of aids to shipbuilding;
aid to vessel operations, that other countries with panache
employ to support their fleet, without apology. And we go
around wringing our hands, oh, my goodness, the subsidy was
going to pay for this; oh, my God, we can't do this; we have to
operate by Marquess of Queensberry rules in international
maritime trade while the other countries are using black belt
karate against us.
Parenthetically, Mr. Taylor is a black belt Karate
champion. So that is why we turn him loose.
So look at the state of the American fleet. In 1948, at the
end of the war, two years after the end of the war, we had
5,500 U.S.-flag merchant vessels; 25 million dead weight tons
of shipping. We were number one in the world. The fleets of
Europe, Japan, Korea, all the rest, they had been bombed,
torpedoed, sunk, exploded in the war. We were moving the world
s goods.
When I came to Congress, we had 800 ships in the American-
flag fleet. We were eighth. That was dead last. The Far East
shipping company of the Russians had 2,500 vessels. They were
number one, FESCO, Far East Shipping Company. The Polish and
Baltic Atlantic fleet were number two.
That has changed. Now, you have COSCO, which has nearly as
much dead weight tonnage of shipping as the entire United
States did in 1948. And they are the ones that are moving the
Wal-Mart containers and the Target containers and Home Depot
and all the rest. All are moving, that constant flow of goods.
It was Maersk that launched the first 6,000-container vessel,
and then the second, 6,600, the Regina Maersk and the Sally
Maersk.
And now you have the race for who can have more containers
onboard a vessel. Maersk went to 10,000. COSCO went to 11,000.
Maersk went to 13,000 and COSCO is catching up. And now you
have a 16,000-container vessel, I think, Mr. Reinhart, in the
works. And so the race is on and has been on for a long time.
Who s being left behind in the race? U.S. shipyards, the
U.S. merchant fleet, U.S. mariners. Those are good jobs. Those
are good decent jobs that require a lot of skill. And we should
not sit back, wring our hands, and say, oh, my goodness, we
have to play by the international rules while operating
subsidies, construction subsidies, restructuring aid, financing
program, cargo preference requirements and so on are all being
employed by the leading maritime nations of the world.
They are not sitting back and taking second place. So we
have got to move the ball ahead.
Mr. Keefe, thank you for referencing my 2001 bill. I didn't
think anybody remembered these things anymore, but you did, and
you quoted exactly from my statement.
But the second part of it, the first part was the tonnage
tax. The second part is excluding up to $80,000 in income. I
didn't pull that out of thin air. That was an Eisenhower
Administration initiative as part of his initiative to generate
more international trade for U.S. companies, to allow employees
of International Business Machines and Control Data and other
high-tech companies to locate overseas and be exempted from
U.S. income tax if they stay for 18 months or longer, so that
they would establish relationships with foreign companies and
foreign governments and benefit U.S. trade.
When you are on a ship, you are overseas. You are out of a
U.S. port. You are out there for a very long period of time. We
ought to have the same treatment for our merchant mariners, and
we were very close to getting that done in the Tax Act of 2004.
I will give credit to then-Chairman Bill Thomas, who saw the
wisdom of this proposal, concurred with it, and was attempting
to win support from the previous Administration and from the
Senate. The only thing they could reach agreement on was the
tonnage tax. So we ought to recapture that second piece and
provide benefit for mariners. The harbor maintenance tax, it is
double taxation. It hurts us on the Great Lakes in competition
with Canadians. Canadian vessels are outside the harbor
maintenance tax and so they are capturing a good deal of the
cross-border trade. And we ought not to let that continue and I
expect that when we get our water resources bill ready for
Floor action, we will include the repeal or modification of the
harbor maintenance tax.
Now, Mr. Shapiro and Mr. Reinhart, you have referred to
unfunded mandates, construction standards and a host of other
things. We have had the Title XI Construction Loan Guarantee
Program and the Operating Differential Subsidy Program, and
they didn't work for one reason or another. We spent $10
billion or $11 billion on those programs over a number of years
and our fleet kept going down.
There are obstacles, no question about it, but Mr. Keefe
had some very thoughtful suggestions: approve applications
subject to appropriations; an expedited review process for
MARAD; the Capital Construction Fund to allow companies to
accumulate their fund, but expand that fund to use some of it
for maintenance and repair.
We are doing that in the transit program now for smaller
metropolitan areas. Those 250,000 or less population can use,
the transit agencies, can use some of their capital account for
operating and maintenance needs. If the principal applies
there, we could apply it here to maritime as well.
So I want Mr. Shapiro and Mr. Reinhart, and perhaps others
who want to chime in on it, to give us your thoughts about how
we can deal with these, in particular these construction loan
guarantee and other aids to maritime.
Mr. Shapiro. Mr. Oberstar, it would be my pleasure to
address that.
Firstly, I think we can all look back on the failure of the
ODS system. The operating differential subsidy system was set
up in a way that it didn't encourage the owner or operator at
the time, and this program has been expired now for 15 year, 16
years. It did not encourage the owner or operator to be
efficient in its management of the vessel because the overtime
cost above the foreign cost was paid for by the U.S.
Government.
That, in fact, was exactly what we addresed, and I was one
of four industry people put on Secretary Pena s Working Group
on Maritime Subsidy Reform that came up with the MSP program.
We took a fixed amount, $2.9 million now, which we know doesn't
give you parity with the foreigners, but it gave you a strong
enough footing that with the carriage of cargo preference, you
could bridge that difference. And that is what we have done.
So I think the failure of the ODS system was corrected in
the MSP system when it was put together, number one.
With regard to shipyards, every one of us supports U.S.
shipyards to the extent we can and we would like to have a
vibrant shipbuilding industry in the United States. Our problem
is that we are competing with foreign-built ships in the
foreign commerce of the United States, not in the domestic
commerce of the United States.
So unless the government can provide a subsidy to the
shipyard, which gives you a foreign capital cost equivalent,
you can't compete. And I think that is precisely why the CDS
program failed is that it was at 42 percent at the time; 42
percent of the cost of the ship was paid to the shipyard.
Today, it is 200 percent differential. So you would have to
pay for a $50 million ship overseas, you would end up paying
today $150 million for that same ship because of the subsidies
that the foreign governments put in place to promote their own
domestic shipyards.
So all of us will support legislation that takes care of
American shipyards. Unfortunately, it has to be the government
that does it, not the shipping companies. The shipping
companies can't sustain that kind of capital burden, the
foreign trading shipping company.
Mr. Oberstar. And I think the Chairman will understand in
Baltimore, we had a vibrant shipbuilding industry and Mr.
Cummings grew up in Baltimore. He knows the city. He knows its
connection to the waterway, and you worked there. I didn't know
that.
Mr. Shapiro. Mr. Oberstar, my wife is from Baltimore and I
went to Sparrows Point Shipyard and Key Highway. When I first
got into this business, all of the vessels of the company I
started with were being repaired at Key Highway or built at
Sparrows Point. So I am well aware of what has taken place
since.
Mr. Oberstar. All right. Let s go.
Mr. Reinhart?
Mr. Reinhart. Thank you, Mr. Oberstar.
Philip defined the ODS pretty well. We did not participate
in ODS. We have been in the Maritime Security Program as
Maersk.
On the construction, the viability of the U.S. yards is a
challenge just like the viability of the shipping yards in all
of the developed nations. We would like to see it vibrant, but
that would be more of a government responsibility.
In international trade, the differential has grown so far
that we brought in the ships from the international marketplace
to trade internationally. Maersk is a domestic or documentation
citizen company, so we do not participate in the coast-wide or
the Jones Act trades, which is another strong area that
supports our shipyards here in the United States.
Mr. Oberstar. Any others have comments about how we can
close this gap? If it is a 200 percent differential today, that
is a stunning gap in competition. Well, they do pay their
workers less. They have lower cost of materials, but all those
are government-subsidized.
I know how the Japanese do that. I know their tax
structure. I know how the Bank of Japan intervenes in providing
financing to shipbuilding, steel manufacturing to their high-
tech industry. They are unabashed about it. They don't
apologize to anyone. They just go ahead and do it and then they
take the markets away from us.
Mr. Shapiro. And the Korean and Chinese yards are even more
subsidized thank the Japanese yards.
Mr. Oberstar. Sure.
Mr. Shapiro. But they are subsidized by their governments.
Mr. Oberstar. Mr. Keefe, do you have any further expansion
on your well thought out observations?
Mr. Keefe. Yes, sir. What I should have said to Ms.
Richardson is that when you asked me about the different
things, the enforcement of the cargo preference. I should have
probably keyed on that. We have these laws set up. What we have
to do is enforce what we have set up.
I can go back 40 years ago, way before my time, the
president of my union, his name was Jesse Calhoun, and he was
at that point--do you remember him?
Mr. Oberstar. I remember him well.
Mr. Keefe. At that point in time, he was testifying about
the U.S. merchant jobs going overseas to foreign flag, U.S.
flag going foreign flag. And then in the labor movement, a lot
of his counterparts, presidents in the labor movement, listened
to him, but now 40 years later, most of those presidents, if
they were still around, would realize what he was pointing out
basically the warning signal that most of our jobs have gone
overseas in all sectors of labor.
So it is very, very difficult once you have lost that
workforce, it is very difficult to bring it back. Through these
programs, whether it be Maritime Security Program, Cargo
Preference Program, any type of tax incentive-type program,
that is what keeps us alive because otherwise we are going to
die on the vine here.
I am sitting up here with two other officer unions and one
unlicensed union, and if you add the three of us together, just
the officer unions here, I would be willing to bet that we are
probably 15,000 strong today. That is our membership. But I
think the unlicensed is probably three times that. But when we
are looked at in a business world on cost, it is very, very
difficult for U.S. labor to compete with foreign labor. And
that is why we need these programs and that is why we need
these incentives to keep going.
Mr. Oberstar. Thank you.
That really raises the last issue I want to explore, and
that is ship registers. We have seen and we are witnessing now
the danger of foreign ship registers. The spill in the Gulf,
B.P. built or ordered built the drilling ship in South Korea,
350 some million dollars. They registered it in the great
maritime trading nation of the Republic of the Marshall
Islands, which registered it in a ship register maintained by a
foreign entity in Reston, Virginia.
The oversight of the safety and maintenance of that vessel
is done by the U.S. Coast Guard under international
regulations, which are far less stringent than U.S.
regulations. If that were a U.S. vessel, the Coast Guard would
spend two to three weeks on an inspection, whereas it is only
six to seven or eight hours because it is an international
registry.
So why would B.P., a foreign-flag operator, register a
vessel in the Marshall Islands? Why would Transocean, a Swiss
company which has the drilling operations onboard that vessel,
why would they engage in operations in the exclusive economic
zone of the United States as foreign operators? Because all of
their costs are vastly less than if they were registered in the
United States.
So we reported a bill from this Committee. I hope we can
bring it to the House Floor this week, I am expecting some go-
ahead sign from our House leadership, that will require those
vessels and those drilling operations to be U.S. flag. And Mr.
Taylor's amendment would require them to be U.S.-built, and Mr.
Cummings flag requirement as well, the Chairman of this
Subcommittee. We had whole bipartisan support for those
provisions when we moved the bill in this Committee.
And there are objections raised that, oh, you will be in
violation of the World Trading Organization. Well, I said fine.
So are all these other 25 companies. Let someone bring suit. By
the 10 years it takes to prosecute a complaint in the WTO, we
will have ships built. We will have them operating U.S. flag.
We will be having U.S. seafarers on board those vessels. And
the U.S. will benefit.
That is our exclusive economic zone and we shouldn't have
this slipshod operation. But I just want to point out that
various countries now have established second registers,
international registers. The Norwegians registered on their
international ship register must fly the Norwegian flag; must
employ Norwegian ship masters. They can employ mariners from
other countries, but those mariners are subject to Norwegian
law and collective bargaining agreements.
Suppose we did the same thing for the United States? What
would you shipowners think about that? And Mr. Keefe, what
would you think about that?
Mr. Keefe. I went overseas for an ITF meeting and I
happened to be speaking with some of my counterparts from
Brazil, Australia, what have you, and I happened to speak to
some management people before I went over to Sweden. It was
over in Stockholm. And at one point, we came this close of
signing an agreement. It was over the Isle of Man. And thank
God I didn't because when I walked into this meeting over in
Stockholm, I started expressing that I was going to go ahead
and sign a contract. And the Australian says with a very strong
accent, he says: Have you ever heard of cabotage laws? I said
yes I have. And he said: Well, we have them, too.
And then he said, well, let me introduce you to the
Brazilian man. So I go over and see the Brazilian
representative. He says: Oh, you want to sign a contract with
so and so? He says, well, you are going to join our union. And
I am looking at him. Each country, that I am unaware, they have
their own laws, whether it be cabotage; whether they have
certain periods of you have to have all Brazilians, say, on a
rig for 30 days, and then after that they extend it 15 or 14,
whatever.
I don't know the particulars, but what I was educated going
overseas is that most of these countries, even if I was to
sign, say, a contract outside of the U.S. is that they have
their own restrictions, if you will, whether it be union or
what have you, organizations that keep you from going in there.
Mr. Shapiro. Mr. Oberstar, with regard to open registries,
I could tell you I would be opposed. This Country is in an
economic recession. We are coming out of probably our most
vulnerable point in the last 40 years, 50 years, maybe longer.
We need jobs for Americans and we need jobs for people, and I
don't think we ought to set standards to hire foreigners to
fill those positions. We ought to train Americans to do them.
Mr. Oberstar. Mr. Reinhart?
Mr. Reinhart. A second registry would be a registry light.
I think we have a good registry. We just have to enforce the
U.S.-flag rules and encourage employment for the U.S. merchant
marine. Other shipowners can put their flags under these other
registries. I don't see a need for a second registry in the
United States. We just have to strengthen the one we have.
Mr. Oberstar. Strengthen the one we have. Good advice, good
counsel, I am for it.
And I thank my colleagues on the Committee for your
forbearance. I know I went on, but I will just close by
observing that when I had Committee selection, or when
Committee selection came up in 1974, I of course first chose
the Committee on Public Works, as it was called then. And then
the Merchant Marine and Fisheries Committee, because my father
had told me when I graduated from high school, he said I want
you to advance your education. I want you to realize your
dreams. Mine was to serve in the U.S. merchant fleet, but I
couldn't. As the oldest of eight children, I had to go out and
work and support the family.
And when I called and told him that I had gotten on the
Merchant Marine and Fisheries Committee in his honor, this
tough underground iron ore miner of 40 years cried over the
phone. I am still here pursuing that dream of his.
Mr. Cummings. Mr. Chairman, thank you very, very much.
Mr. LoBiondo, did you have anything else?
Any other Members of the Committee?
Ms. Richardson?
Ms. Richardson. I just had a couple of questions I didn't
get to ask to Mr. Johnsen and any of the other operators. The
subsidy programs that came before the MSP program have been
viewed to be too restrictive. For instance, operators were not
able to deploy their ships quickly enough to take advantage of
opportunities in different trades. They had to build their
ships in a U.S. yard even though the U.S. construction subsidy
often didn't cover the full cost differential of building the
vessel in the U.S. shipyard compared to a foreign shipyard.
Does the current subsidy program allow enough room for
innovation? And does the current system allow you enough
latitude to compete in the way that you would like?
Mr. Johnsen. The current MSP program is a big improvement
over the predecessor programs. It does allow flexibility, and I
think Mr. Shapiro alluded to that earlier. That has been an
important step.
The next step is to make sure that it is properly funded.
If we have the proper funding, we will compete internationally
and we will innovate. We have a record of having done that in
the past.
Ms. Richardson. OK.
And Mr. Shapiro and Mr. Reinhart, chapter 553 of Title 46,
U.S. Code, contains our cargo preference laws which you guys
have just been discussing in the last couple minutes. Section
55-305 requires that ships that are foreign-built or rebuilt
outside of the U.S. must be documented under the law for three
years.
Given that all the vessels receiving the MSP program
funding were built in foreign shipyards and that they carry
some of the cargo preference, is it time to repeal that rule in
your opinion?
Mr. Shapiro. Not in my opinion. I think they are two
separate trades. The MSP vessels which serve the military have
access to carry preference cargoes, but there is a limitation
on certain amounts of cargoes that they can carry. There is a
bulk trading fleet which is under U.S. flag which was built
under Section 615 of the Merchant Marine Act, which was an
amendment to the 1936 Act, which permitted vessels built with
national defense features and military approval to be built
overseas and bought into the U.S. flag right away without
waiting three years to re-flag.
There is an excess tonnage today to carry food aid cargo.
Most of us who have food aid business are sitting waiting for
the government to ship some. We keep hearing it is coming, but
it is certainly not coming the way it has been in other years.
The MSP program has access to the program, but it is a
limited access based on the commodity, the type of shipment
that is being moved.
Mr. Reinhart. If I may make one quick comment on your
earlier question and then answer this. The flexibility under
the current MSP program has worked quite well and the success
is proven by satisfying the military s requirement. And that
did include a lot of U.S.-flag operators that are documentation
citizens, not Section 2. There have been a lot of requests
today to strengthen the Section 2 requirements as we go
forward. That would be a risk to the flexibility of that
program. It has worked quite well with international operators.
Secondly, on the three-year rule and cargo preference, if
we are to expand the fleet and grow the business that comes
under cargo preference, we may have to find some ways to work
with the three-year rule that does not limit the protection in
the marketplace so it stays stable. But if we are going to go
from 94 ships to 150 ships because we are going to expand the
programs, you are going to have find some legislative language
that will bring those ships in without causing instability in
the marketplace.
Ms. Richardson. OK.
And then my last question, I have one minute for my labor
friends to the left of me. We had quite a lot of stimulus money
that was provided, $787 billion to be exact. Were any of those
funds being able to utilize for job training and to incentivize
and help us in your arena in terms of the workers? Any of you
can respond.
Mr. Keefe. We haven't received any. I should take that
back. I think we received a very, very, very small amount and
it was down at our training school. We brought in a community
college that received some of the stimulus to put a few
students through our school down in Eastern Maryland, but we
directly didn't receive anything.
Mr. Doell. I believe with the officers unions, we didn't
get any in AMO, but we train our own people. We have our own
training program, as do the MEBA and the Masters, Mates and
Pilots. So I think as far as the licensed unions are concerned,
I would say no.
Mr. Marcus. On behalf of MMP, I would agree with Mr. Keefe
and Mr. Doell. Masters, Mates and Pilots has not received any,
and to my knowledge the U.S.-flag merchant marine as a whole
has not seen any of this funding in terms of building merchant
marine programs, be it training or any other program.
Mr. Turner. I concur with the Captain. SIU, nothing, and
the industry as a whole, literally nothing.
Ms. Richardson. OK.
Thank you, gentlemen, for all your testimony.
Mr. Cummings. I want to thank all of you for your
participation. It has been extremely helpful.
This hearing is now at an end. Thank you.
[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]