**DEPARTMENT OF TRANSPORTATION**

**STATEMENT OF MARITIME ADMINISTRATOR**

**SEAN T. CONNAUGHTON**

**BEFORE THE**

**SUB-COMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION**

**OF THE**

**COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE**

**UNITED STATES HOUSE OF REPRESENTATIVES**

**ON THE**

**DEVELOPMENT OF SHORT SEA SHIPPING**

**FEBRUARY 15, 2007**

Good morning, Mr. Chairman and Members of the Committee. It is indeed a
pleasure to be here today to discuss the Department of Transportation's
efforts to build a public-private maritime partnership that will both
improve our transportation efficiencies and grow our economy. Today's
hearing initiates a dialogue that will lead to the expansion of the
Nation's marine transportation system. I think that it is fitting that
my first Congressional hearing as Maritime Administrator is on the topic
of short sea shipping[^1] or, as I have begun to call it, America's
Marine Highway. I believe this term more accurately describes the
nation's waterborne transportation system and the promise of its
extensive capacity.

I would first like to provide you with some of the history of America's
Marine Highway initiative, and discuss with you some of our plans for
the future. Early this decade, the Department of Transportation's
leadership recognized the need to address landside congestion through
the expanded use of waterborne transportation alternatives, specifically
through the use of the marine highway. When moving high volume and bulk
freight, short sea shipping is more cost effective, is more fuel
efficient per cargo ton mile, and is a vital alternative transportation
mode in a natural disaster. When fully integrated into the Nation's
transportation system, the marine highway will facilitate enhanced
freight flow, expand freight capacity, reduce congestion, and improve
air quality.

As a former County Executive in Northern Virginia, I am keenly aware of
how surface transportation congestion adversely impacts our daily lives.
The impact on our productivity is enormous. We lose 44 billion person
hours a year due to transportation delays[^2] -- translating into
billions of dollars of lost productivity. And, I also know first hand
that we cannot pave ourselves out of this situation.

A robust U.S. economy depends on the efficient movement of freight to
stimulate domestic production and satisfy consumer demand. Consider
these facts -- since 1995, container growth has increased by at least
10% every year and this growth is expected to continue. By 2020, every
major U.S. container port is expected to double the volume of cargo it
must process, with East Coast ports tripling in volume and some West
Coast ports quadrupling in volume. The United States is expected to
import 30 million containers in 2010 and 40 million in 2020. The
domestic tonnage of freight carried by all U.S. systems will increase by
67%, while international trade is expected to at least double.
Presently, this domestic freight is carried almost exclusively by road
or rail \-- coastal shipping handles only two percent of our domestic
freight, even though coastal counties hold more than half of the
Nation's population.

This massive growth means that our Nation must expand its overall port
volume capacity by 10% yearly just to sustain this expected growth -- an
annual capacity growth greater than the overall size of the ports of
Seattle and Tacoma combined. As Maritime Administrator, I am one of the
people responsible for finding a solution to our growing congestion
problems and I look forward to working with the Committee to determine
"where we go from here" in our quest to find solutions to a capacity
crisis that threatens to overwhelm our existing transportation system.

Clearly, the Nation's marine highway can help mitigate this congestion.
The world's waterways are an infinite system, and our marine highways
have infinite capacity. Unlike rail and roads, there are no fixed
infrastructure costs to develop transportation routes, and ships can
carry more cargo per dollar than any other method of transport. The full
scope of America's Marine Highway -- a system that includes not only our
coastal waters, but our inland waterway system and the Great Lakes, is
enormous -- and, if properly utilized and integrated, can help us expand
our way out of the crises before us. That is why I am here today and,
why I am so pleased that the Members of this Committee have made the
decision to investigate the advantages of our marine transportation
system.

It is my hope that your discussions will lay the groundwork for
legislative initiatives that will add new, permanent capacity to our
Nation's freight delivery systems and grow our economy. Now, I am not
naive enough to think that our marine highway will solve our congestion
problems overnight -- after all, much of the vessel capacity we will
need to accommodate our projected trade growth is still on the drawing
board.

However, a minimal reduction in the anticipated growth of trucks on
highways can make a significant difference. For example, one 80,000
pound tractor-trailer truck does as much damage to pavement as 9,600
cars. Alternatively, the use of America's Marine Highway would reduce
the costs of road maintenance and possibly extend the Present
Serviceability Rating (PSR) of roadways. Accordingly, this will benefit
the public, as well as State and Federal entities -- and assist our
transportation planners to properly allocate vital public resources.

America's Marine Highway has existed since our Nation's founding. It is
used today to transport over 1 billion tons of domestic cargo on an
annual basis, and clearly has room to grow. Transporting freight by
water has traditionally been for the movement of bulk commodities such
as coal, petroleum, grain, and lumber. Current waterway operations
thrive along the Mississippi and Ohio River systems, across the Great
Lakes, through the St. Lawrence Seaway, and along some coastal routes.
They already accommodate 13% of the national cargo tonnage for less than
2% of the national freight bill.

An excellent illustration is the use of barges in the Mississippi River
system. The river transports over 312 million tons of cargo per year
between its upper reaches in Minnesota and its lower parts into the Gulf
of Mexico.[^3] If this system had to be replaced, it would require over
12.4 million semi-trucks or 3.12 million rail cars to make up the
capacity difference.[^4] Annually, in rail capacity alone this would
consist of 31,000 trains pulling one hundred cars each.[^5]

In an attempt to develop our own water transportation initiative, we
looked to Europe. The European Union (EU) moves approximately 40% of all
its freight on the water. The EU Commission has vigorously supported the
concept of an integrated marine highway system for over twenty years,
and has recently set aside over one hundred million euros in a
multi-year program to provide incentives to shift freight from the
congested landside modes to the water. In October 2006, the Commission
awarded 16 projects totaling 21.7 million euros in an effort to divert
truck growth (134,000 truck loads) to the water.

As educational tools to facilitate a public dialogue on the issue of
increased waterborne freight movement, the Maritime Administration
(MARAD) has sponsored annual industry-wide conferences and initiated or
participated in a number of studies to examine the viability of
alleviating surface transportation congestion through increased
waterborne freight movements. Three major short sea shipping
conferences, sponsored by MARAD, were designed to create awareness and
open opportunities for the commercial industry regarding the use of the
marine highway. The 2002-2004 conference series emphasized the
advantages of short sea shipping to transportation planners and the
maritime stakeholder community as a means to accommodate trade growth.
The conferences catalogued the business dynamics of successful and
failed domestic waterborne services. The meetings also addressed issues
of facility design, workforce development, the identification of
potential research and development needs, expanded freight planning,
integration of short sea shipping services into the transportation
planning process, and public awareness.

In 2003, as a direct result of stakeholder requests made at the Agency's
first Short Sea Shipping Conference, MARAD founded the Short Sea
Shipping Cooperative Program (SCOOP). SCOOP is an industry-centered
organization which provides a forum for industry, labor, government, and
related transportation stakeholder groups to share resources and
information in the development of the Nation's marine highway services.

In September 2006, MARAD, in cooperation with SCOOP, hosted the first in
a nation-wide series of domestic shipper and short sea shipping operator
workshops. The workshop facilitated opportunities for discussion among
domestic shippers, third party logistics companies, truckers, and
domestic marine operators to engage in dialogue regarding the
feasibility and development of specific short sea shipping services in
the United States. Another in this series of workshops is scheduled
later this month in St. Petersburg, Florida.

One outcome of this series is the realization that large shippers are
currently not in a position to utilize inter-coastal shipping as those
services are currently configured. Transportation cost and
"just-in-time" delivery have been a major deterrent to any real
commitment to the use of waterborne transportation by the Nation's
shipper community. But, while time sensitive performance is important,
it was determined that shippers will utilize water transportation
alternatives as long as the marine operator can meet pre-agreed delivery
times at a lower cost. (Generally, smaller niche market shipping
companies handle less time sensitive cargo, such as hazardous materials,
more suitable to waterborne transportation services.)

Therefore, workshop participants have suggested an expanded outreach
emphasis on attracting mid-sized shippers to inter-coastal marine
operations. Participants also had a clear understanding that freight
congestion will ultimately require a larger share of the nation's
freight to move from the surface transportation system to water. The
workshops are generating a greater interest by industry in the
mitigation of congestion, improving safety, and the development of
greater efficiencies within the transportation system. It is important
to note that the workshop series is also attracting significant interest
by the nation's marine operators. The ultimate goal of this effort are
successful shipper-operator business arrangements that more fully
utilize the promise of our marine highway -- business arrangements that
begin to break the shipper "truck addiction.".

In the spring of 2006, the Maritime Administration and Transport Canada
jointly sponsored the North American Short Sea Shipping Conference in
Vancouver, Canada. At this meeting, our NAFTA trading partners expressed
interest in viable alternatives to reduce congestion, improve
reliability, increase capacity, efficiency, economic performance, and
extend the environmental sustainability of the transportation system. A
Trilateral Declaration was signed at the Vancouver Conference among
Canada, Mexico and the United States, committing the three nations to
expand marine highway operations in North America by establishing a
Steering Committee focused on the creation of a trilateral strategy.

The Trilateral Conference participants also agreed to foster the use of
short sea shipping operations by developing an interactive website that
will provide information and encourage business communications among
North American shippers and marine operators. To this end, MARAD is
developing the *North American Short Sea Shipping Electronic Information
Clearinghouse* (Clearinghouse), an interactive website, to provide
information and encourage business communications between shippers and
operators. In addition to providing updates on current short sea
shipping events, and other useful information links, the Clearinghouse
will permit shippers to electronically request assistance in locating
qualified marine carriers for the movement of domestic freight. When
fully operational, the webpage will be available to thousands of North
American shippers and marine operators to facilitate the increased
utilization of waterborne transportation sources in the movement of
freight.

Since 1999, MARAD has initiated or participated in studies to examine
the condition of the Nation's marine transportation system (MTS) with
the prime purpose of addressing surface transportation congestion
through the development of waterborne transportation alternatives for
the movement of freight.[^6] The input for this particular report came
from regional listening sessions, a National Conference on the Marine
Transportation System, and through the MTS Task Force. The "needs
assessment," the first of its kind, and the regional listening sessions,
laid the groundwork for the creation of the Secretary of
Transportation's Marine Transportation System National Advisory Council
(MTSNAC) and the overall MTS initiative. The MTSNAC provides a
structured approach for non-Federal stakeholders to provide input on
national-level issues.[^7]

The U.S. Chamber of Commerce (Chamber) released a study in March 2003,
which outlined the ability of the national transportation system to
respond to changing and increasing trade patterns. This study was one of
the first to call for a national freight policy within the Department to
include a national intermodal planning and development initiative, a
coherent environmental regulatory process, up-to-date freight data
collection, and the integration of the modes and labor into the planning
equation.[^8] The Chamber report was also one of the first studies to
clearly document the dangers of ignoring the dramatic increase in trade
and the resulting impact on the Nation's transportation system. The
study clearly supports the conclusion that the Nation cannot build
itself out of this impending capacity crunch.

In 2005, the Government Accountability Office (GAO) submitted a report
recommending that the Department of Transportation and MARAD "develop a
more thorough understanding of short sea shipping issues before defining
a Federal role involving substantial investment and, to encourage other
public-decision makers to use a systematic approach to investment
decisions involving freight mobility projects."[^9] The study, produced
at the request of the ranking Members of both the Senate Commerce and
House Transportation and Infrastructure Committees, essentially
recommended further analysis of the issue of short sea shipping before
significant public resources were committed to the development of this
type of marine transportation system.[^10] Our efforts to investigate
and promote the idea of short sea shipping have not required a large
expenditure of public monies. MARAD has, instead, focused on the
development of a public-private partnership to investigate, educate, and
recommend proposals to ease our growing freight capacity issues.

By way of example, MARAD, in November 2005, consulted in the production
of the

I-95 Corridor Coalition's "Short Sea-Study and Coastal Shipping Options
Study." The I-95 Corridor Coalition is a public-private partnership
composed of State DOT agencies and transportation planning organizations
along the Eastern seaboard, and the study assessed commodity flows and
attempted to determine the viability and sustainability of a short sea
shipping service along the Maine to Florida transportation corridor.

Phase II of the study commenced in late 2006 and sought to incorporate
the participation of metropolitan planning organizations (MPOs) to bring
water-based transportation, especially short sea shipping services, into
the overall local transportation planning process.

The Coalition study found:

> The I-95 Northeast and Mid-Atlantic corridor is physically suited for
> short sea operations.[^11] Congestion drives the business model for
> short sea shipping.[^12] In less than 15 years, the Corridor
> transportation system will be strained beyond capacity \-- truck
> traffic on the I-95 Corridor is expected to increase from 32,000
> trailers daily in 2004 to 58,000 trucks per day by 2020. State and
> MPOs must play a critical role in waterborne transportation
> development.[^13]

Additionally, the Department's Office of the Secretary (OST) recently
completed a study assessing the feasibility of short sea shipping
operations along four potential domestic U.S. traffic lanes or corridors
and determining if such services could serve as an economically viable
alternative to overland freight transportation. The study was specific
to the U.S. domestic market and excluded Canada and Mexico water
transportation routes. The study found that the primary economic
advantage of short sea shipping is its ability to generate significant
economies of scale by moving large numbers of highway trailer-loads on a
single vessel providing numerous labor, energy, environmental, and
infrastructure advantages.

The OST study found:

> There are significant perceived opportunities for short sea services
> in the domestic freight transportation market. Short sea shipping, as
> MARAD defines it, is currently in operation in the contiguous domestic
> trade. Short sea shipping can be particularly competitive for heavy
> and/or hazardous shipments currently moving over the road such as
> chemicals (a recurring finding in many studies). There are also
> significant interregional container flows (10 million container
> shipments per year from the Gulf to the New York region). Interviews
> with truckers revealed "interest with healthy skepticism" about short
> sea shipping, but ports and vessel operators were "supportive" or
> expressed "strong interest" in the concept.
>
> Of the corridors studied, short sea shipping appears to be competitive
> with other modes for service across Lake Michigan (above Chicago), and
> from the Gulf to the East coast, especially for chemical and bulk
> products. The study concluded by recommending that DOT encourage and
> facilitate short sea shipping by taking on a role similar to that of a
> "business development" department in a large corporation (e.g., market
> research and strategic plan development).

If the right incentives are offered to the maritime industry and its
supporting agencies, every citizen from our dockworkers to the American
consumer will benefit. Removing a significant portion of container
freight from the highways and railroads would have the effect of
increasing capacity on our surface modes as they exist in their present
size and operating methods.

Coastal shipping operators and those contemplating start-up services
have identified the Harbor Maintenance Tax (HMT) as a major impediment
to profitable domestic waterborne freight movements (notably goods
moving in containers). The maritime industry has consistently pointed
out that the HMT is particularly burdensome for container feeder
services since the tax is assessed twice, once for the international
movement and again on the domestic waterborne leg of the trip. Trucks
and trains do not pay the HMT. As such, potential marine highway
operators envision themselves at a competitive disadvantage when
considering a new service (since any potential business plan must
include the payment of a tax that may or may not be ultimately
collected). Further, the elimination of the HMT for the domestic
movement of cargo containers would have negligible impact on our
nation's Treasury. A SCOOP commissioned study dated October 2005, "Short
Sea Shipping and the Harbor Maintenance Tax" found that domestic
container HMT movements only yielded the Treasury \$1.7 million - \$1.9
million per year.[^14]

As you know, legislative proposals to waive the HMT have been introduced
in Congress. In the last Congress, Congressmen Philip English (R) of
Pennsylvania, Chris Shays (R) of Connecticut, Dave Weldon (R) of
Florida, and Congresswoman Stephanie Jones (D) of Ohio introduced
legislation to exempt either truck cargo, containerized cargo carried
between mainland U.S. ports or certain geographic areas from the tax. No
committee action was taken on any of these proposals. However,
Congresswoman Jones re-introduced HMT exemption legislation this week.

Recent interest in eliminating the Great Lakes region HMT is shipper and
port driven due to the desire to stimulate cross-lake services that
avoid the additional hours necessary to move cargo around the Lakes on a
crowded surface transportation system. This type of industry interest
and activity may serve as a catalyst for Congressional action,
especially if a possible proposal can be crafted to carve-out an
affordable "first step" in eliminating the HMT for a specific market.
Any related development of new Great Lake marine highway services will
ultimately provide this Committee with a "test case" model to gauge the
impact of HMT relief on industry growth. The expansion of marine highway
services on the Great Lakes will ease surface congestion, improve
"just-in-time" delivery, and grow the Midwest economy.

A related effort to eliminate certain customs fees to achieve some type
of modal shift in the Gulf of Mexico might also serve as a stimulant for
start-up cross Gulf marine services.

Any new proposal to eliminate all, or a portion, of the HMT will require
significant stakeholder support to achieve ultimate passage. Waiving the
HMT, in specific markets, as well as eliminating certain custom fees,
will clearly encourage greater use of the marine highway, reduce
landside congestion, and ultimately enhance just-in-time delivery.

The Maritime Administration seeks a larger role in the development of
new North American marine highway services designed to mitigate
congestion (especially border and corridor related congestion).
Expanding waterway use is the only policy choice that offers this unique
and direct outcome, short of constructing new capacity. Accordingly, the
Maritime Administration seeks to identify and catalogue obstacles to
waterborne trade and explore viable legislative and policy proposals for
the elimination of those obstacles. We will also seek to integrate the
marine highway into the national, state, and local transportation
planning process. Specific efforts are underway to facilitate a series
of national "one on one" dialogues between transportation users and
providers in an ongoing effort to, identify impediments to the expanded
utilization of waterborne transportation, accelerate the modal shift
from surface to waterborne transportation, and build consensus support
for a policy reform package.

MARAD is also actively working to highlight existing marine highway
services that illustrate, in a practical way, the promise of the marine
highway. For example, Columbia Coastal Transport is a reliable U.S.-flag
barge operator that works in close cooperation with carriers, ports, and
labor to provide essential containerized cargo feeder services linking
ports in North America. Its five barge services link the ports of New
York, New Jersey, and Boston; New York, Baltimore, and Norfolk; Norfolk
and Baltimore; and, Charleston, Savannah and Miami. Recently, the
company announced a new service linking the ports of Baltimore and
Philadelphia. They offer complete transportation services for project
cargo including: heavy lift truck hauls; rail coordination;
lift-on/lift-off service; roll-on-roll-off barges with access to shallow
and undeveloped ports; and, a full array of port logistics services.
Columbia Coastal services by-pass much of the I-95 surface corridor and
offer shippers a reliable, cost-effective, and environmentally-friendly
transportation alternative to a congested surface transportation system.

Osprey Lines is another prime example of a marine operator that plays a
vital transportation role, in this case moving agricultural products in
the country's heartland. Osprey first initiated services between Memphis
and New Orleans in 2004. The company now offers container-on-barge
services to ports in the Gulf of Mexico and along the U.S. inland
waterway system including Houston, Lake Charles, New Orleans, Baton
Rouge, Memphis, Chicago, Pascagoula, and Mobile. Its primary customers
are ocean carriers who use Osprey's container on barge services to
re-position containers for their customers at various locations on our
Nation's inland waterways. These containers are then loaded mostly by
agricultural shippers who use Osprey's services to return them to deep
water ports in the Gulf of Mexico. Osprey, like Columbia Coastal, uses
the marine highway to offer a low-cost transportation alternative to
product providers and shippers -- and, to the benefit of the American
consumer.

The increased use of water to move cargo is evident along many crowded
coastal transportation corridors and border crossings. Cargo ferry
services are coming on-line to avoid choke points along the coasts and
in the Great Lakes. These services have sprung up out of economic
necessity to avoid land-based obstacles that inhibit the timely and cost
efficient movement of cargo and passengers. I believe it is the role of
government to provide these emerging services with the tools to succeed
and expand. It is clear, that given the proper tools, many other
successful niche market marine services can emerge, not only as a
solution to some of our freight flow and congestion issues but, as a
catalyst for the development of our Nation's underutilized port
capacity.

Maritime community stakeholders have sent the message that the time for
talk is now at an end. They want affirmative action that focuses on the
expansion of America's marine highway \-- action to achieve a true modal
shift that will ease landside congestion problems, improve
transportation efficiencies, and grow our economy. Clearly, our freight
congestion problems will not be solved without an active public-private
partnership that focuses on initiatives designed to eliminate obstacles
to the expansion of our transportation choices \-- a marine stakeholder
driven partnership that begins at the local level and ensures an
integrated transportation planning process. This partnership will build
on the successful marine highway services I have discussed before the
Committee today and fulfill the vision of a truly intermodal National
transportation system. Congress plays an integral role in this
partnership -- the way forward in solving our freight congestion
problems begins here in this Committee.

I stand ready to assist you in addressing an issue that is vital to our
continued economic security -- the development of America's marine
highway. I want to thank the Members of this Committee and Chairman
Oberstar for their leadership in holding this hearing today. I will be
happy to answer any questions you might have.

\##

[^1]: Short Sea Shipping is defined as commercial waterborne
    transportation that does not transit an ocean. It is an alternative
    form of commercial transportation that utilizes inland and coastal
    waterways to move commercial freight from major domestic ports to
    its destination.

[^2]: Texas Transportation Institute as cited by the U.S. Department of
    Transportation press release:
    http://fhwa.dot.gov/pressroom/fhwa0220.htm

[^3]: U.S. Waterway Transportation System -- Transportation Facts,
    USACE, December 2005 (latest available).

[^4]: Based on truck capacities of 25 tons each and rail cars of 100
    tons each as cited at Port of Tulsa, OK fact sheet:
    http://www.tulsaweb.com/port/facts/htm.

[^5]: Rail cars carrying 100 tons each applied to trains of 100 rail
    cars each. Ibid.

[^6]: U.S. Department of Transportation, *An Assessment of the U.S.
    Marine Transportation System: A Report to Congress,* ONE DOT
    (Washington, D.C.: September 1999).

[^7]: Council recommendations, which may reflect broad-based consensus,
    could provide support to advance Administration goals, such as
    seeking legislative change to address a specific problem or to
    improve the MTS.

[^8]: U.S. Chamber of Commerce, *Trade and Transportation: A Study of
    North American Port and Intermodal Systems,* National Chamber
    Foundation pp.30-31 (Washington, D.C.: March 2003).

[^9]: GAO, *Freight Transportation: Short Sea Shipping Option Shows
    Importance of Systematic Approach to Public Investment Decisions,*
    GAO-05-768 (Washington, D.C.: July 2005).

[^10]: Ibid., p. 48

[^11]: The region's economy and industry base is very diverse...as a
    result, a wide variety of commodity types are shipped into, and out
    of, the Coalition's region. There are many potential markets for
    short sea shipping operations, particularly in areas with
    underutilized port capacity.

[^12]: U.S. freight transportation demand is projected to increase 60%
    percent by 2020 (five trillion ton miles).

[^13]: The Coalition is working to convince local MPOs to include water
    transportation issues in their overall transportation plans.

[^14]: The report [Short Sea Shipping and the Harbor Maintenance
    Tax]{.underline} can be found on the Short Sea Shipping Cooperative
    Program website: [www.shortsea.us](http://www.shortsea.us/).