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81–148 PDF 2014

MARITIME TRANSPORTATION: THE ROLE OF U.S. 

SHIPS AND MARINERS 

(113–16) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COAST GUARD AND MARITIME TRANSPORTATION 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MAY 21, 2013 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

Available online at: http://www.gpo.gov/fdsys/browse/ 

committee.action?chamber=house&committee=transportation 

(II) 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

BILL SHUSTER, Pennsylvania, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee, 

Vice Chair 

JOHN L. MICA, Florida 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

SAM GRAVES, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

LOU BARLETTA, Pennsylvania 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

DANIEL WEBSTER, Florida 

STEVE SOUTHERLAND, II, Florida 

JEFF DENHAM, California 

REID J. RIBBLE, Wisconsin 

THOMAS MASSIE, Kentucky 

STEVE DAINES, Montana 

TOM RICE, South Carolina 

MARKWAYNE MULLIN, Oklahoma 

ROGER WILLIAMS, Texas 

TREY RADEL, Florida 

MARK MEADOWS, North Carolina 

SCOTT PERRY, Pennsylvania 

RODNEY DAVIS, Illinois 

VACANCY 

NICK J. RAHALL, II, West Virginia 

PETER A. DEFAZIO, Oregon 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

TIMOTHY J. WALZ, Minnesota 

STEVE COHEN, Tennessee 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN GARAMENDI, California 

ANDRE ́ CARSON, Indiana 

JANICE HAHN, California 

RICHARD M. NOLAN, Minnesota 

ANN KIRKPATRICK, Arizona 

DINA TITUS, Nevada 

SEAN PATRICK MALONEY, New York 

ELIZABETH H. ESTY, Connecticut 

LOIS FRANKEL, Florida 

CHERI BUSTOS, Illinois 

SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION

DUNCAN HUNTER, California, Chairman 

DON YOUNG, Alaska 

HOWARD COBLE, North Carolina 

FRANK A. LOBIONDO, New Jersey 

PATRICK MEEHAN, Pennsylvania 

STEVE SOUTHERLAND, II, Florida, 

Vice Chair 

TOM RICE, South Carolina 

TREY RADEL, Florida 

VACANCY 

BILL SHUSTER, Pennsylvania (Ex Officio) 

JOHN GARAMENDI, California 

ELIJAH E. CUMMINGS, Maryland 

CORRINE BROWN, Florida 

RICK LARSEN, Washington 

TIMOTHY H. BISHOP, New York 

JANICE HAHN, California 

LOIS FRANKEL, Florida 

NICK J. RAHALL, II, West Virginia 

(Ex Officio) 

(III) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... iv 

TESTIMONY 

PANEL 1 

Hon. John D. Porcari, Deputy Secretary, U.S. Department of Transportation .. 3 

General William M. Fraser III, Commander, U.S. Transportation Command ... 3 

PANEL 2 

Fred Harris, President, General Dynamics NASSCO, on behalf of Shipbuilders Council of America ................................................................................ 20 

Joseph H. Pyne, Chairman and Chief Executive Officer, Kirby Corporation, 

on behalf of American Maritime Partnership .................................................... 20 

Mike Jewell, President, Marine Engineers’ Beneficial Association ..................... 20 

Augustin Tellez, Executive Vice President, Seafarers International Union ....... 20 

PREPARED STATEMENTS AND ANSWERS TO QUESTIONS FOR THE 

RECORD SUBMITTED BY WITNESSES 

Hon. John D. Porcari: 

Prepared statement .......................................................................................... 36 

Answers to questions from the following Representatives: 

Hon. Duncan Hunter, of California ......................................................... 42 

Hon. John Garamendi, of California ........................................................ 43 

General William M. Fraser III: 

Prepared statement .......................................................................................... 47 

Answers to questions from the following Representatives: 

Hon. Duncan Hunter, of California ......................................................... 52 

Hon. John Garamendi, of California ........................................................ 53 

Fred Harris: 

Prepared statement .......................................................................................... 55 

Answers to questions from Hon. John Garamendi, of California ................. 77 

Joseph H. Pyne: 

Prepared statement .......................................................................................... 86 

Answers to questions from Hon. John Garamendi, of California ................. 94 

Mike Jewell: 

Prepared statement .......................................................................................... 103 

Answers to questions from Hon. John Garamendi, of California ................. 112 

Augustin Tellez: 

Prepared statement .......................................................................................... 115 

Answers to questions from the following Representatives: 

Hon. Duncan Hunter, of California ......................................................... 122 

Hon. John Garamendi, of California ........................................................ 122 

iv 


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SUMMARY OF SUBJECT MATTER 

TO: 

FROM: 

RE: 

Members, Subcommittee on Coast Guard and Maritime Transportation 

Staff, Subcommittee on Coast Guard and Maritime Transportatioll 

Hearing on "Maritime Transportation: The Role of U.S. Ships and 

Mariners." ---~ 

PURPOSE 

On Tuesday, May 21, 2013, at 9:30 a.m .. in 2167 Rayburn House OtJice Building, 

the Subcommittee on Coast Guard and Maritime Transportation will meet to examine the 

contributions ofU.S.-tlagged vessels and American mariners to our economy and 

national security. 

BACKGROUND 

U.S. Maritime Industry Statistics 

Cunently, there are more than 40,000 non-fishing related commercial vessels 

documented (flagged) in the United States. The vast m"jority of these vessels are 

engaged in domestic waterborne commerce, moving oYer 1 00 million passengers and 

$400 billion worth of goods between ports in the U.S. on an annual basis. Each year, the 

domestic fleet carries over a billion tons of cargo through the inland waterways, across 

the Great Lakes, and along the coasts, contributing S I 00 billion in economic output. 

Of the 40,000 U.S.-flagged vessels, approximately 93 are cunently employed in 

international commerce moving goods between l! .S. and foreign pOl1S. Over the last 35 

years, the number of U.S.-flagged vessels sailing in the intcmational trade has dropped 

jJ'om 850. The percentage of international commercial cargoes calTied on U.S.-tlagged 

vessels has fallen from 25 percent in 1955 to approximately 2 percent today. 

There arc currently 117 U.S. shipyards that build new vessels. There are over 200 

aclditional facilities engaged in ship repair. Of the 117, only 6 are major shipyards 
v 


Insert offset folio 2 here 81148.002

capable of building large naval vessels and oceangoing commercial ships. Since 1983. 

the U.S. has lost approximately 300 shipyards. 

The U.S. maritime industry currently employs more than 260.000 Americans. 

This includes approximately 65,000 mariners, 95,000 port workers, and 100,000 shipyard 

employees. These jobs represent approximately $29 billion in annual v"ages. 

Throughout our history, the Navy has relied on U.S. tlag commercial vessels to 

carry weapons and supplies and terry troops to the battlefield. During Operations 

Enduring Freedom and Iraqi Freedom, U.S.-flag commercial vessels transported 63 

percent of all military cargos moved to Afghanistan and Iraq. An additional 35 percent of 

the total cargo was carried on government-owned sealift vessels activated from reserve 

status and crewed by American mariners. 

U.S. Maritime Laws and Programs 

Since 1789, Congress has passed several laws to help kccp the U.S. maritime 

sector competitive in the global economy and maintain a sealift and shipyard industrial 

capacity necessary for our national seeurity. Current laws and programs include: 

Jones Act 

The Jones Act first came into effect as part of the Merchant Marine Act of 1920 to 

encourage a strong U.S. Merchant Marine for both national defense and economic 

security. The Jones Act contains a number of provisions designed to protect U.S. 

shipbuilding and mariner jobs: 

1. U.S. Owned and Flagged - Chapter 551 of title 46, United States Code, requires 

that merchandise and passengers being transported by water between two points 

in the U.S. must travel on U.S.-citizen owned vessels nagged in the U.S. with a 

coastwise endorsement; 

2. U.S. Built- Chapter 121 of title 46, United States Code, requires vessels seeking a 

coastwise endorsement to have becn built in the United States. Chapters 551 and 

801 of title 46, United States Code, also place restrictions on the involvement of 

foreign-o\vTIed, -built, and -flagged vessels in towing, dredging, and salvage 

activities in U.S. waters; 

3. U.S. Crewed - Chapter 81 of title 46, United States Code, requires the master, all 

of the officers, and at least three-quarters of the crew to be U.S. citizens in order 

for a vessel to be documented in the United States; and 

4. Rebuild/Ref1ag Prohibition - Chapter 121 also prohibits vessels that were once 

eligible to engage in eoastwise trade and then later sold to a toreign citizen, or 

documented under a foreign registry, or rebuilt outside the U.S. from engaging in 

the coast\\iise trade (a vessel may be considered rebuilt when work perfonned on 

2 
vi 


Insert offset folio 3 here 81148.003

its hull or superstructure constitutes more than 7.5 percent of the vessel's 

steel weight prior to the work). 

The Coast Guard is responsible for reviewing applications from vessel o\vners 

seeking a coastwise endorsement to participate in the Jones Act trade. The Coast Guard 

determines whether the owners meet the U.S. citizenship requirements and whether the 

vessel was built in the U.S., or the extent to which it was rebuilt outside the U.S., before 

it will issue a coastwise endorsement. Customs and Border Protection determines 

whether the cargo to be moved on a vessel constitutes "merchandise" under section 

55102 of title 46, United States Code, and is therefore subject to the Jones Act. 

Section 501 oftitle 46, United States Code, provides a mechanism to waive the 

Jones Act and other vesscl navigation and inspection laws. The Jones Act can be waived 

by the Secretaries of Defense and Homeland Security in the interest of national defense. 

Waivers by the Secretary of Homeland Security first require a determination by the 

Administrator of the Maritime Administration (MARAD) that U.S.-t1agged, -owned, 

-built, and -crewed vessels are not available to meet national defense requirements. 

Domestic Shipbuilding Programs 

In addition to the Jones Act, the federal government supports the viability of the 

domestic shipbuilding industry through a combination of laws and programs including: 

I. Tariffs - Under the Smoot-Hmvley Act of] 930, U.S. vessel operators are liable 

for a 50 percent duty on maintenance and repairs performed on their vessels at 

overseas shipyards. 

2. Capital Construction Fund - First established by the Merchant Marine Act of 

1936 (46 U.S.C. 53501 et seq.), the Capital Construction Fund (CCF) enables 

U.S. vessel owners and operators to defer federal incomc taxes on their income by 

depositing the income in a CCF. Income deposited in a CCF may only be used to 

finance thc construction, reconstruction, or acquisition of a vessel built or rebuilt 

in a U.S. Shipyard. As of 20 J 0, over 180 companics had established a CCl". 

3. Title XI Federal Ship Financing Program - Established by Title XI of the 

Merchant Marine Act of 1936 (46 U.S.c. 5370let seq.), the Title XI program 

provides federal government loan guarantees to (1) vessel operators for the 

purpose of financing or refinancing the construction or reconstruction of vessels 

in U.S. shipyards, and (2) U.S. shipyards for the purpose of financing advanced 

shipbuilding technology for a facility located in the U.S. Loan guarantees cannot 

exceed 87.5 percent of the project's actual cost. 

The Title XI program has not received funding for new loan guarantees since FY 

2011. No funds are requested in MARAD' s FY 2014 budget request. There is 

currently $38 million in Title XI loan subsidies available, which equates to 

3 
vii 


Insert offset folio 4 here 81148.004

approximately $420 million in available loan guarantees. MARAD has pending 

applications for $525 million in loan guarantees. 

4. Small Shipyard Grants Section 3508 of the National Defensc Authorization Act 

for Fiscal Year 2009 (P.L. 110-417) established the Assistance to Small Shipyards 

Grant Program. Under the program, U.S. owned and operated shipyards with less 

than 1,200 production employees are eligible to receive matching grants from 

MARAD to finance capital improvements and equipment purchases. 

The FY 2014 budget does not include funds for the grant program. On March 23, 

2013, MARAD posted a notice soliciting grant applications for the $10 million 

the program received in FY 2013. Since 2010, thc number of grant applications 

has exceeded the funds available. 

Cargo Preference 

To ensure sealift capacity and guarantee a skilled cadre of U.s. seafarers, several 

laws were enacted beginning in 1904 to require certain percentages of government 

impelled cargo to be carried on U.S.-owned, -flagged, and -erewed vessels. Government 

impelled cargo is ocean borne cargo moved either as a direct result of federal government 

involvement, or indirectly through financial sponsorship of a federal program, or in 

connection with a guarantee provided by the federal government. The following is a 

breakdown of the percentages of cargo required to be carried on U.S.-owned. -flagged, 

and -crewed vessels undcr the Cargo Preference Program: 

1. Military Cargo - 100 pcrcent (governed by Military Cargo Preference Act of 

1904,10 U.S.c. 2631); 

2. Export-Import Bank - 100 percent (governed by Public Resolution 17,48 Stat. 

SOO); 

3. Federal Civilian Agencies Cargo - at least 50 percent (governed by Cargo 

Preference Act of 1954,46 U.S.C. 55301 et seq.); and 

4. Agricultural Cargoes - at least 50 percent (governed by the Food Security Act of 

1985,46 U.S.C. 55311 et seq. Section 100124 of Public Law 112-141 reduccd 

the level from 75%). 

Food For Peace: Under the Food for Peace program, the U.S. Agency for 

International Development purchases agricultural commodities grown by U.S. farmers 

and distributes it to starving populations around the world. Pursuant to cargo preference 

laws, 50 percent of Food for Peace cargo must move on U.S.-owned, -flagged, and -

crewed vessels. The President's FY 2014 budget proposes to restructure the Food tor 

Pcace program and cut funding available to purchase and transport U.S. agricultural 

commodities from 75 percent to 55 percent. This decrease in cargo is expected to reduce 

the number ofU.S.-t1agged vessels and jobs for American mariners. The President's FY 

4 
viii 


Insert offset folio 5 here 81148.005

2014 budget proposes to offset some of the job losses by providing an additional $25 

million to the Maritime Security Program to support activities yet to be specified. 

Enforcement: Section 3511 of the National Defense Authorization Act for Fiscal 

Year 2009 (P.L. 110-417) authorized the Secretary of Transportation to audit cargos 

shipped by other federal agencies to determine compliance with cargo preference laws 

and to impose penalties, including fines, on agencies and individuals found in violation. 

The provision required MARA.D to promulgate regulations to carry out the new 

authorities. MARAD has yet to wTitc such regulations. 

l'vlaritime Security Program: 

The Maritime Security Act of 1996 (P.L. 104-239) established the Maritime 

Security Program (MSP), replacing the Operating Differential Subsidy Program 

established under the Merchant Marine Act of 1936. MSP provides direct financial 

assistance to the operators of U.S.-owned, -f1agged, and -crcwed vessels to make their 

vessels available to support military sealift during times of war or national emergency. 

Currently, 13 vessel operators operating 60 vessels receive $2.1 million per vessel per 

year under MSP. 

Section 3508 of the National Defense Authorization Act for Fiscal Year 2013 

(P.L. 112-239) reauthorized MSP through FY 2025. MARAD recently informed MSP 

participants that due to the FY 2013 sequester, it will not be able pay the nIlI monthly 

stipend in August 2013 or any stipend in September 2013. 

l\;farine Highways Program. 

Section 1121 of the Energy Independence and Security Act of2007 (P.L. 110-

140) directs the Secretary of Transportation to establish a short sea transportation 

program and designate short sea transportation projects to mitigate lands ide congestion or 

promote short sea transportation. Using this authority, the Secretary has designated 11 

Marine Highway Corridors, 4 Connectors, and 3 Crossings. 

In 2010, the Secretary designated eight Marine Highway Projects along the 

Corridors, Connectors and Crossings. Designated MaTine Highway Projects may 

compete for Marine Highway Grants to acquire equipment and make other improvements 

to facilitate service along a designated Corridor. To date, $7 million has been awarded to 

six entities for this purpose. MARr\D's fY 2014 budget does not include funding for 

furthcr Marine Highway Grants. 

5 
ix 


Insert offset folio 6 here 81148.006

WITNESSES 

Panel I 

The Honorable John Porcari 

Deputy Secretary 

Department of Transportation 

General William M. Fraser, III 

Commander 

U.S. Transportation Command 

Panel II 

Mr. Fred Harris 

CEO 

NASSCO 

on behalfof 

Sbipbuilders Council of America 

Joseph H. P)ue 

Chairman and CEO 

Kirby Corporation 

on beha?lof 

American Maritime Partnership 

Mr. Mike Jewell 

President 

Marine Engineers' Beneficial Association 

Mr. Augustin Tellez 

Executive Vice President 

Seafarers International Union 

6 
(1) 

MARITIME TRANSPORTATION: THE ROLE OF 

U.S. SHIPS AND MARINERS 

TUESDAY, MAY 21, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COAST GUARD AND MARITIME

TRANSPORTATION, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, Washington, DC. 

The subcommittee met, pursuant to call, at 9:35 a.m., in Room 

2167, Rayburn House Office Building, Hon. Duncan Hunter (Chairman of the subcommittee) presiding. 

Mr. HUNTER. The subcommittee will come to order. Good morning. 

The subcommittee is meeting today to review the current state 

of the U.S. maritime sector and examine the importance of U.S.- 

flag vessels and American mariners to our economy and national 

security. 

The U.S. maritime industry currently employs more than 260,000 Americans, providing more than $29 billion in annual 

wages. There are more than 40,000 commercial vessels currently 

flying the American flag. The vast majority of these vessels are engaged in domestic commerce, moving over 100 million passengers 

and $400 billion worth of goods between ports in the U.S. on an 

annual basis. Each year, the U.S. maritime industry accounts for 

over $100 billion in economic output. 

Beyond the important contributions to our economy, a healthy 

maritime industry is vital to our national security. Throughout our 

history, the Navy has relied upon U.S.-flag commercial vessels 

crewed by American merchant mariners to carry troops, weapons, 

and supplies to the battlefield. During Operations Enduring Freedom and Iraqi Freedom, U.S.-flag commercial vessels transported 

63 percent of all military cargo moved to Afghanistan and Iraq. 

Since we cannot rely on foreign vessels and crews to provide for 

our national security, it is critical that we maintain a robust fleet 

of U.S.-flag vessels, a large cadre of skilled American mariners, and 

a strong shipyard industrial base. Unfortunately, over the last 35 

years, the number of U.S.-flag vessels sailing in the international 

trade has dropped from 850 to less than 100. In the same period, 

we have lost over 300 shipyards and thousands of jobs for American mariners. 

To make matters worse, the President has sent Congress a budget that proposes to restructure the highly successful Food for Peace 

program. Since 1954, the Food for Peace program has provided agricultural commodities grown by U.S. farmers and transported by 

2 

U.S. mariners on U.S.-flag vessels to those threatened by starvation throughout the world. The President’s restructuring of Food 

for Peace will eliminate a vital program for our farmers, put U.S. 

mariners out of work, and undermine our national security by cutting the domestic sealift capacity on which our military depends. 

I hope my colleagues will join me in rejecting this misguided proposal. 

We are joined today by the Deputy Secretary of Transportation. 

I thank him for being here. 

As he is keenly aware, the Maritime Administration has faced 

very valid criticism in recent years over its handling of Jones Act 

waivers and enforcement of our cargo preference laws. I hope that 

the new leadership that will be taking over at both the Department 

and MarAd in the coming months take seriously their mission to 

promote and protect the U.S. maritime industry. 

I hope to see a renewed commitment to programs like Title XI 

that help to grow jobs, expand our economy, and maintain critical 

shipyard industrial capacity. I also hope the new leadership at 

MarAd and DOT will work closely with industry to reduce Jones 

Act waivers. Finally, I hope they will stand up when other Federal 

agencies seek to disregard our cargo preference laws and use the 

authority Congress gave them to stop them in their tracks. 

If we want to grow our economy and remain a world power capable of defending ourselves and our allies, we must work together 

to strengthen and preserve our maritime industry. 

I thank the witnesses for appearing today and look forward to 

working with them to accomplish these important goals. 

With that, I yield to Ranking Member Garamendi. 

Mr. GARAMENDI. I thank you, Mr. Chairman. And thank you for 

your leadership on this critical issue and for scheduling today’s 

hearing to examine the status and role of the U.S. merchant marine within the Marine Transportation System. Such an examination is both overdue and important. 

Tomorrow is National Maritime Day. Since establishment in 

1933, we pause on May 22nd to recognize the many selfless contributions made by the men and women of the U.S. merchant marines, both past and present, in meeting our country’s economic 

and security needs in both wartime and peace. Such recognition is 

well-deserved, and it is appreciated by a grateful Nation. 

Yet, despite the voluminous history of the U.S. merchant marine, 

the current challenges facing the maritime industry portend a future that offers anything but smooth sailing. Today, the U.S.-flag 

oceangoing fleet in foreign trade is comprised of fewer than 100 

ships, a decline of over 80 percent from the 1979 fleet level of 576 

vessels. As a result, of the 78 percent of U.S. exports and imports 

transported by water, less than 1.5 percent is carried under the 

U.S. flag. 

The U.S. coastwise fleet has fared better and continues to provide vital maritime transportation within the U.S. coastal waters 

and inland waterways. Nevertheless, the Jones Act continues to 

come under attack by critics, despite the fact that Jones Act trade 

constitutes a substantial component of U.S. shipyard activity and 

is necessary for maintaining our national defense capability. 

3 

Cargo preference requirements continue to be whittled away, if 

not ignored, by Federal agencies, as if those requirements were a 

hindrance and not the law of the land. Not only does this reduce 

the number of job opportunities for U.S. seafarers, it denies important cargoes to U.S. carriers, which also provide invaluable sealift 

capabilities when our armed services are deployed abroad. 

Mr. Chairman, your comments on P.L. 480, the Food for Peace 

program, are well-taken, and I agree with you. 

In closing, Mr. Chairman, on National Maritime Day it is important that we celebrate our maritime heritage. But this year we 

would be wise to examine how we can reinvigorate the U.S.-flag 

fleet, what we might do to rebuild and expand the U.S. shipbuilding capacity, and what we can do to ensure that our maritime 

transportation remains prominent in the discussions of our national foreign policy. 

I look forward to the hearing. I thank our witnesses, and let’s get 

on with it. 

Mr. Chairman, I yield. 

Mr. HUNTER. I thank the ranking member. 

On our first panel of witnesses today are the Honorable John 

Porcari, Deputy Secretary of Transportation; and General William 

Fraser, Commander of U.S. Transportation Command. 

Deputy Secretary Porcari, you are recognized for your statement. 

TESTIMONY OF HON. JOHN D. PORCARI, DEPUTY SECRETARY, 

U.S. DEPARTMENT OF TRANSPORTATION; AND GENERAL 

WILLIAM M. FRASER III, COMMANDER, U.S. TRANSPORTATION COMMAND 

Mr. PORCARI. I thank you, Chairman Hunter and Ranking Member Garamendi. I appreciate the opportunity to be here today to 

discuss maritime transportation issues. 

A strong maritime industry is critical to America’s national and 

economic security. President Obama and all of us at the Department of Transportation are committed to working with our public 

and private partners to train new mariners and provide support for 

our foreign and domestic trading fleets, U.S. ports, and shipyards. 

The maritime industry is facing many challenges. In the wake of 

the global recession, low freight rates can still be found on many 

international trading routes. Preference cargoes have also begun to 

decline for U.S.-flag vessels that participate solely in foreign trade. 

These changes are due in large part to falling volumes of Department of Defense cargoes associated with the drawdown of military 

operations in Iraq and Afghanistan, as well as declines in agriculture preference cargoes. We expect that in the near term the industry will continue to adjust to the market. 

Despite these ongoing fluctuations, U.S.-flag commercial vessels 

involved in military sealift are strongly supported through the 

MarAd-administered Maritime Security Program. The MSP, as you 

know, is a fleet of 60 privately owned vessels. These ships are active, commercially viable, and available to meet national defense 

and other security requirements. And thanks to the 2013 National 

Defense Authorization Act, which President Obama signed in January, existing MSP operating agreements have been offered through 

2025. 

4 

The Department of Transportation continues to support compliance with the Jones Act, and ships that are trading under it continue to do well. 

Likewise, the recent surge in domestic crude oil production has 

increased demand for domestic self-propelled tanker vessels. A recent industry projection foresees 10 to 14 new oceangoing tankers 

entering the fleet by 2018. 

New containership orders being placed under the Jones Act are 

also encouraging. These containerships would be powered by U.S.- 

produced liquefied natural gas and would be among the most environmentally friendly forms of freight transportation on Earth. 

The Nation’s ports are also successfully preparing for the future. 

The American Association of Port Authorities reports that U.S. seaport agencies and their private-sector partners plan to invest a 

combined $46 billion over the next 5 years in capital improvements 

to their marine operations and other port properties. 

The Department of Transportation is complementing these in- vestments. Since 2009, we have awarded more than $350 million 

in TIGER grants that are helping to modernize our ports, improve 

rail infrastructure serving ports, and increase exports. We have 

also awarded more than $149 million in small shipyard grants to 

120 projects in 28 States and Guam. These investments have 

helped small shipyards get new contracts and have increased exports of commercially built vessels. 

Additionally, the Maritime Guaranteed Loan Program, better known as Title XI, has helped leverage more than $650 million in 

new investments in U.S. shipbuilding during the first term of the 

Obama administration. We currently have the budget authority to 

guarantee $420 million worth of additional shipbuilding projects. 

The Department of Transportation is also committed to educating and training the next generation of maritime professionals. 

As part of this commitment, we have placed a renewed focus on 

preparing thousands of young people to enter the maritime workforce through the U.S. Merchant Marine Academy and six State 

maritime academies. 

As I said earlier, all of us in the administration are committed 

to a strong maritime industry. We are working to balance our longterm needs with the challenges of today. 

As part of the President’s 2014 budget request, we have proposed 

restructuring the Public Law 480 Title II food aid program to allow 

local and regional procurement of food and to improve the ability 

of U.S. food aid to reach emergency needs quickly and with less adverse impacts on markets and farmers in countries receiving the 

food aid. 

Under the President’s proposal, 55 percent of Title II food aid 

funds would still be spent in the United States. Of that, 50 percent 

of the cargoes would move on U.S.-flag vessels. In its initial assessment, DOD has stated that changes in the food aid program will 

not impact the maritime industry’s ability to crew the surge fleet 

and deploy forces and cargo. 

Furthermore, to mitigate any impact on vessels and mariners, 

the administration is proposing a $25 million targeted operating 

subsidy for military-useful vessels. Preliminary planning for this 

funding envisions a three-pronged approach whereby some of the 

5 

funding would provide a stipend for militarily useful vessels not enrolled in the MSP, other sums would be used to reimburse eligible 

cost for mariners to retain or renew active U.S. Coast Guard-issued 

merchant marine credentials, and some funds would provide apprentice training for key merchant mariner skills. We will work 

with our key stakeholders and our Federal partners on how best 

to use this funding to minimize any impact. 

I thank you, Mr. Chairman, for allowing me to share this time 

with you today. I look forward to answering any questions that you 

might have. 

Mr. HUNTER. Thank you, Mr. Porcari. 

General Fraser, you are recognized. 

General FRASER. Chairman Hunter, Ranking Member 

Garamendi, and distinguished members of this committee, it is indeed an honor to be here with you today as the Commander of 

United States Transportation Command. 

Our total force team of men and women, military and civilian, 

are dedicated to providing reliable, seamless logistical support to 

our warfighters and their families around the globe. The dedicated 

professionals at the United States Transportation Command simply 

could not accomplish this global mission without the capabilities 

provided by the United States strategic sealift fleet and our steadfast merchant mariners. 

USTRANSCOM relies on both Government-owned vessels and 

those accessed via commercial industry. Our Government-owned 

fleet includes 60 total vessels from the Military Sealift Command’s 

surge fleet and the Maritime Administration’s Ready Reserve 

Force. All Government-owned and commercial vessels are critical 

for the Department of Defense’s ability to surge to meet future 

global requirements. I am grateful to the Congress for your continued support of this global mobility requirement and capability, 

which is unique to the United States. 

Although our organic assets are vital during contingency operations, the vast majority of the sealift needs during steady state 

and nonsurge periods comes from our commercial partners. Access 

to the commercial fleet is formalized through programs such as the 

Voluntary Intermodal Sealift Agreement, the Maritime Security 

Program, and the Voluntary Tanker Agreement. These programs 

allow us and the Department of Defense to gain access to United 

States commercial capabilities while ensuring the availability of a 

viable U.S.-flag fleet and United States citizen merchant mariner 

pool in times of the national emergency. 

The Maritime Security Program provides access to a fleet of 60 

military-useful commercial vessels that are operating in international commerce and exercising intermodal networks throughout 

the world and jobs for our United States merchant mariners. I also 

want to thank Congress for extending the MSP program an additional 10 years to 2025. 

Maintaining a responsive sealift capacity and experienced merchant mariners to crew our ships in a time of need is essential to 

meeting the Nation’s defense requirements. I am confident the U.S. 

maritime industry will continue to meet our defense needs with the 

capacity and the responsiveness that befits their heritage, and I 

will work closely with the Maritime Administration and our indusVerDate Aug 31 2005 15:23 Jan 16, 2014 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\CG\5-21-1~1\81148.TXT JEAN
6 

try partners to ensure we can rely on that capability for many 

years to come. 

Chairman Hunter, Ranking Member Garamendi, distinguished 

members of this committee, I want to thank you again for your continued support of United States Transportation Command and our 

total force team. I am grateful for the opportunity to appear before 

this committee today and would ask that my written statement be 

submitted for the record. I look forward to your questions. 

Thank you, sir. 

Mr. HUNTER. Gentlemen, thank you very much. And let me start 

by saying, thank you both for your service to the country, whether 

it is in transportation or the military. We all appreciate it. 

Mr. Porcari, let’s start with this. You talked about the Title XI 

program. You talked about the small shipyards grants program. 

Yet the administration didn’t fund either one of them. So I expect 

that the administration knew or thought that Congress would fill 

in the blanks for them on that. 

So, if it is so beneficial, as you stated, why wouldn’t the President request funding for it? 

Mr. PORCARI. First, Mr. Chairman—it is a great question. 

Mr. HUNTER. In fact, let me specify, too, the President has never 

requested funding for Title XI, ever. 

Mr. PORCARI. Mr. Chairman, on Title XI, we currently have 

about $420 million of authority for additional projects for—— 

Mr. HUNTER. That is about $30 million, right? 

Mr. PORCARI. It is—approximately. And, given what is in the 

pipeline, we believe we can process the applications that are currently in the pipeline. There may be need for additional capacity 

beyond that. It is a situation that we would like to be in. 

But Title XI is one of the tools that we use. I would also point 

out, you mentioned small shipyard grants, which we have made 

good use of. Third, it is not strictly a maritime program, but the 

single biggest winner, in some ways, of our TIGER program has 

been the maritime industry because we have been focusing on the 

landside connections as well. Ports in the maritime industry only 

function as well as the intermodal connections. And we have been 

trying to remove bottlenecks, whether it is on dock, whether it is 

with the freight railroads or in other places. It is a holistic approach to trying to encourage the maritime industry. 

We believe very strongly in a U.S.-flag fleet, and we will continue 

to do so. 

Mr. HUNTER. I would agree, the landside improvements are vitally important as well. 

Let me ask you this. I am seeking about $70 million in Title XI 

funding to bring it up to $100 million, which is about a billion dollars or more, $1.3 or $1.4 billion in funding. What do you estimate 

that would do to the shipbuilding industry if that over a billion dollars in funding was able to be made of use and granted to the industry to build commercial ships? 

Mr. PORCARI. Should Congress provide those funds, Mr. Chairman, we would work to, first of all, make sure that we are improving the process of Title XI loans. We know that, in terms of the 

timing, the responsiveness, and the interaction with applicants, the 

7 

process can be and needs to be reengineered. And we would focus 

on that for a more responsive Title XI process. 

We would also try to encourage, wherever possible, loan applications that most directly benefit both shipbuilding and long-term 

employment of U.S. mariners. 

Mr. HUNTER. And for both gentlemen, my last question; then I 

will yield to Mr. Garamendi. 

As the Food for Peace program gets slashed, you said, Mr. 

Porcari, that DOD has stated that right now that will not have an 

impact on the crewing of the vessels that are needed for military 

capacity. 

But let’s look out 5 or 10 years, and I would like you both to just 

tell us here very bluntly: What do you think the impact is going 

to be over the next decade if we cut the Food for Peace program 

and those ships go away and those mariners go away and that 

training pool for our ship drivers and ship crew goes away? 

Mr. PORCARI. Mr. Chairman, first and foremost, we can’t afford 

to lose that capacity, whether it is the actual vessels or, more importantly in some ways, the U.S. crews. 

We know that the industry is changing. Food aid is only one component of it. What we want to focus on is things like energy transport, where we believe in the future there are growth opportunities 

in the industry for a U.S.-flag fleet and U.S. mariners. 

Going out 5 or 10 years, I personally can’t really project that, but 

I don’t think that we should have overdependence on any portion 

of the cargo spectrum, including food aid. 

Mr. HUNTER. Before General Fraser answers, I would venture 

that if you are going to offset this with energy or if we have other 

plans, that you do them simultaneously or maybe make sure one 

is in place first before cutting the, you know, current program. Otherwise, you are not going to have that capacity to move the energy 

stuff because it will be gone. 

General Fraser? 

General FRASER. Chairman, thank you very much. 

As previously stated, DOD did take a look at this initially, and 

as it stands alone, it would not have a significant impact on our 

ability to reach into the merchant mariner pool to satisfy our military requirements. 

As the global distribution synchronizer and provider of transportation for DOD, I do look at where industry has been, and what 

history has shown us. Both you and Ranking Member Garamendi 

spoke in your opening comments about how we have seen things 

change over time. I think that is something that, as we look forward to the future, and not being a predictor of the future, we need 

to take into consideration as we work together. 

I promise to continue to work very closely with MarAd as we define what the military requirements are in the future in meeting 

our surge capacity and capability and those merchant mariners 

that are needed, which are great value to our surge capacity in the 

future. And we will do that. 

Mr. HUNTER. General, did you use food aid mariners to crew 

ships whose capacity you used in Enduring Freedom and Iraqi 

Freedom? 

8 

General FRASER. Sir, when we actually go out and seek merchant 

mariners, I do not know where they come from. We work with 

MarAd as they man the ships—— 

Mr. HUNTER. To the best of your knowledge. 

General FRASER [continuing]. Because there is a large pool of 

merchant mariners from which they reach to obtain both the licensed and the unlicensed personnel to crew these ships. 

Mr. HUNTER. Would it be reasonable to say that you use those 

crews that crew the food aid ships? 

General FRASER. Sir, I think that is something that I would have 

to dig into the details as to exactly where they came from. But I 

know that those who are working in the commercial industry who 

are maintaining their licenses, the skill sets of those merchant 

mariners from which we pull, are sailing on all kinds of ships that 

are in the commercial industry. 

Mr. HUNTER. Thank you, General. 

Mr. Garamendi, you are recognized. 

Mr. GARAMENDI. Thank you, Mr. Chairman. 

And, gentlemen, thank you for your service as well as for your 

testimony today. 

I am not at all sure that we have an overall strategy to maintain 

the merchant marine capability and its direct effect upon national 

security. The trend lines are terrible. This industry, if one were to 

take a look at this as a—the overall trend lines, you have to say 

it is disappearing, perhaps to the point where we will not have the 

capability for national defense or to maintain a vital part of our 

economy. 

I think what I would like to really focus on are some of the specific elements in it. I think the administration is dead-wrong with 

regard to Food for Peace for a variety of reasons. One of them is 

the loss of capacity within the United States. A second one is a 

breakup of the political support for the food program overall. That 

current support comes from farmers, the merchant marine industry, and those who are interested in making sure people around the 

world have food to eat when they don’t have it otherwise available. 

So I think the administration is wrong on this one. I am going 

to do everything I can to reverse the administration’s position. I 

understand you two gentlemen are good soldiers and carrying out 

your task. 

So, having said that, apparently there is a loss of capacity. Otherwise, the administration would not be proposing the $25 million 

to somehow make up for that loss. 

Mr. Porcari, how exactly is that supposed to work? 

Mr. PORCARI. Well, first of all, the food aid proposal is designed 

to be more efficient, deliver more food aid, and minimize disruption 

on local markets. 

The $25 million that you refer to is a reflection of the fact that 

we know that the industry is changing. We need to preserve key 

skills. Doing that through potential concepts like aid to militarily 

useful vessels that are not currently in the MSP fleet; making sure 

the Coast Guard credentials, oceangoing credentials of mariners 

are maintained; apprenticeship training for specific skilled trades, 

for example, that are critical today and tomorrow in the merchant 

9 

marine fleet. Those are some of the ways that we think that this 

$25 million proposed by the President can be used. 

It is a reflection of the understanding that we know that the 

maritime world is changing and we know that we need to preserve 

the capacity both on the vessel side and, importantly, with the 

crews. 

Mr. GARAMENDI. Is the $25 million over and above the ongoing 

Food for Peace P.L. 480 program? 

Mr. PORCARI. Yes. This is an additional $25 million, Mr. 

Garamendi, that is specifically for assistance to the merchant marine—— 

Mr. GARAMENDI. Wouldn’t we be better off if we put $25 million 

directly into the P.L. 480 program and just have more capacity and 

more food aid around the world, rather than trying to carry on a 

program of maintaining the skill sets through what appears to be 

a hopeful program but not yet in existence? 

We have $25 million extra. Why don’t we just provide more food 

where it may be needed around the world? 

Mr. PORCARI. We know that with the steady loss of merchant 

marine capacity since World War II that we need to do things differently, that we need to actually make sure that we are building 

on things that work. We know, for example, the MSP program has 

worked, and it has worked well, with its 60 vessels. 

Going beyond that to both vessels and crews that would provide 

additional capacity is something that we believe we can use this 

$25 million usefully for. And we look forward to input from industry, our partners at DOD, and others to determine the best ways 

to use it. It is a way to pivot toward the future and start getting 

directly to some of the skilled trades and other needs. 

Mr. GARAMENDI. Mr. Porcari, do you have a specific plan of action for the use of the $25 million? You have mentioned several different ways it could be spent. Is there a specific program that you 

can give to us that you are going to—how you are going to spend 

that money? 

Mr. PORCARI. These are potential options right now, the once 

that I mentioned. We do not want to move forward without specific 

input from industry from—— 

Mr. GARAMENDI. So the correct answer is ‘‘no.’’ 

Mr. PORCARI. The correct answer is ‘‘no.’’ 

Mr. GARAMENDI. Thank you. 

It just seems to me, somewhere the administration has found 25 

million extra dollars to backfill and to handle a problem that it is 

creating by changing the P.L. 480 program. 

Wouldn’t it be better to put that $25 million directly into the P.L. 

480 program, provide the additional support around the world for 

food and emergency relief, rather than to create what amounts to 

a welfare program for unemployed mariners and ships that are not 

being used? 

Mr. PORCARI. The long-term prospects for food aid, because they 

are uncertain as a useful tool for the maritime industry, using the 

$25 million and targeting what we know are needed skills and 

needed vessels, we believe, is a good option. 

Mr. GARAMENDI. Well, I disagree. I will let it go at that and just 

say I strongly disagree, and I will do everything I can to see that 

10 

the $25 million goes into providing food aid directly rather than in 

trying to find some way to educate, reeducate mariners that are 

not able to work because you have taken the program away from 

them and the farmers. And you have also created a very serious 

political problem, in that the support base for the Food for Peace 

is going to be significantly eroded. 

Now, there are a bunch of other questions. I have occupied more 

than 5 minutes, but I like the way my clock runs, because it 

doesn’t. But I think I had best let it go at that, Mr. Chairman, and 

come back with another round later. 

Mr. HUNTER. I thank the ranking member. 

Mr. Coble is recognized. 

Mr. COBLE. Thank you, Mr. Chairman. 

Good to have you gentlemen with us this morning. 

Mr. Porcari, as you know, the Jones Act requires merchandise 

and passengers moving between two points in the U.S. to be carried only on U.S.-flagged, U.S.-crewed, U.S.-owned, and U.S.-built 

vessels. 

The Coast Guard and Maritime Transportation Act of 2012 included language to improve the level of disclosure and accountability in the Jones Act waiver process. What steps has the administration taken to implement the requirements of the 2012 act? 

Mr. PORCARI. We have, first of all, worked very closely with our 

partners at DHS and other agencies in the Jones Act waiver evaluation process. 

I would point out that in previous opportunities with the Strategic Petroleum Reserve, a blanket waiver had always been issued. 

We took the unprecedented step of not issuing a Jones Act waiver 

with the last SPR release, with the idea that we could maximize 

the use of Jones Act vessels wherever possible. 

That is something we take very seriously. We are obviously complying with the requirements that were put in place in 2012. We 

think, beyond that, doing work upfront, for example, with the Department of Energy, on sizing of vessels, the timing of any SPR release, just as one example, is very helpful in maximizing the ability 

of Jones Act vessels to compete. 

We have recently during Hurricane Sandy issued, for the first 

time, because it was a true emergency, a limited blanket waiver of 

limited duration. And it was from point to point, so instead of a 

blanket waiver that would allow widespread use of non-Jones Act 

vessels, it was very much targeted for a short-term issue until the 

refineries, the pipelines, and the distribution system were back up 

and running in New York. 

We think that kind of very specific, targeted use of the waiver 

process as a last resort where we have to is the way to go. We will 

work very closely on the notification process, as required. 

Mr. COBLE. I thank you for that. 

General, if there is a significant reduction in the number of 

trained American mariners and military-capable U.S.-flag commercial vessels, how would that impact the ability of TRANSCOM to 

successfully conduct its mission? 

General FRASER. Well, thank you very much. 

11 

As I look at this particular PB that is put forward, P.L. 480 will 

not have a significant impact on our ability to reach into the merchant mariner fleet to satisfy our requirements. 

As I take a look, though, at the trend that we have discussed 

here previously, I think that is something that we need to continue 

to work with the Maritime Administration to ensure that our requirements are met in the future. 

We completed a Mobility Capabilities Requirements Study, which 

defines the amount of square footage that we need in order to meet 

our military requirements. Right now that is slightly in excess of 

19 million square feet. We have those ships identified that meet 

that requirement, as well as the pool of merchant mariners that 

would help us fulfill the requirements to meet our military needs. 

So we would continue to work with the Maritime Administration 

if further reductions were to take place. 

Mr. COBLE. Thank you, gentlemen. Good to have you both with 

us. 

Mr. Chairman, I yield back. 

Mr. HUNTER. I thank the gentleman. 

Ms. Hahn is recognized. 

Ms. HAHN. Thank you, Mr. Chairman. 

And I want to say that it certainly is timely that we are holding 

this hearing on the role of U.S. ships and mariners today, as tomorrow is National Maritime Day in this country. And until I came 

to Congress, I attended every single year a wonderful ceremony 

that we have in San Pedro, where we actually have a memorial to 

merchant mariners, and we honor them every year, a group of men 

and a few women. 

More merchant mariners were lost in our wars than any other 

branch of the military. Our merchant mariners, by the way, still 

don’t receive the benefits that they deserve, and I plan on reintroducing legislation that will maybe compel this Congress to pay the 

survivors the benefits that they deserve. This is a branch of our 

military that really, many times, goes unrecognized and unhonored 

as they should, so it really troubles me. 

And I would like to associate my remarks with my friend and colleague from California, Ranking Member Garamendi, who says, as 

I do, that we completely disagree with the administration’s attempt 

to restructure the Food for Peace program. It will reduce the 

amount of U.S.-flag vessels participating in this program. 

In an industry that employs more than 260,000 American workers and contributes $29 billion to our economy in their annual 

wages, I have serious concerns with what this could mean for our 

maritime workers. That is why I signed a letter, led by my friend, 

Congressman Cummings, opposing any changes that would ultimately lead to job losses in the American shipping industry. 

While you two sit here today and talk about the $25 million that 

will be used to reimburse the U.S.-flag vessel operators for this program, many of our merchant mariners and our maritime friends 

were walking the halls of Congress last month, going from office to 

office expressing their very deep concern of what this is going to 

do to this industry, to their lives, preserving the ships, preserving 

these kinds of skills. 

12 

So I still can’t figure out—maybe, Mr. Porcari, you can address 

this—why the administration is pursuing a policy that will devastate the U.S. shipping industry and put American jobs at risk. 

And is there a way that we could work with you to ensure your 

concerns—which I am not really clear on what the concerns are— 

without making these kinds of changes that will harm good American jobs? 

I am kind of with John Garamendi. Why don’t we take this $25 

million, put it toward the program and strengthen it? 

Mr. PORCARI. Well, first, we are happy to work with you on this 

proposal. 

For the Maritime Administration and the Department of Transportation, we see an essential element that we have to preserve. I 

mentioned earlier that the Maritime Security Program is successful 

by any standards. 

It is important to point out that, in the current fiscal year, between the continuing resolution and then the sequester following 

it, for the first time we have been unable to honor our current commitments to the 60 vessels in the program. 

And I know your question is related to food aid. I do want to 

point out that it is imperative that we have a program that we 

know works, that is preserving the jobs, that is preserving the capacity for urgent national needs in times of the emergency. And we 

want to make sure that we are continuing to fully fund it. The 

President has proposed that for fiscal year 2014. 

On the food aid proposal, the administration proposal is aimed 

at being more effective and efficient in actually delivering food to 

needed recipients and minimizing the distortion on the local markets at the same time. We, in interagency discussions, have really 

focused on the ability to do that and make sure that we are not 

impacting the merchant marine industry. 

And it has also provided us an opportunity to continue to outline 

how critical this capacity is for the Nation, from a jobs perspective, 

from a national defense perspective, and for responding to natural 

disasters. 

Ms. HAHN. I know my time is up, and I will have more questions 

maybe on the next round. But, again, it seems like this is 

counterintuitive to the program that exists now. It is a successful 

program. It creates good American jobs. There is an apprenticeship 

program built into it. 

It is also, you know, something we are proud of in this country. 

We love this Food for Peace program. This is our ships, our Americans. We are doing, you know, what America is known for. And it 

feels good that we are using ships and American crews to do something peaceful and something good instead of just always employing them in times of war. 

So this is a program that I think the American people support, 

and I agree that it is a bad idea to get rid of it. 

Thank you. 

Mr. HUNTER. I thank the gentlelady. And we will have a second 

round. 

Ms. HAHN. OK, good. 

Mr. HUNTER. Mr. Rice is recognized. 

13 

Oh, he is not—I would like to add then, it almost seems—the upsetting part isn’t that the Food for Peace program was canceled, 

but it almost seems like it was flippantly cancelled. Because you 

have an ongoing study on—or you haven’t done a study yet on exactly how you are going to use the $25 million in the MSP, but you 

are going to use it there somehow. DOD has an ongoing study. And 

you are able to say that right now there is not going to be any impact to be able to crew ships, but you can’t tell me in 10 years what 

the impact is going to be. You haven’t done a study on that; you 

don’t know. 

So it seems like Congress and different administrations sometimes have a very shortsighted view on things like national security, where it looks good right now and we realize in 5 years that 

it was a horrible mistake and it is going to cost us 20 times as 

much to recapitalize the fleet and to get more mariners so we can 

crew these ships. 

So I would say that, at the very least, this was done flippantly 

without regard to knowing exactly how many people you need to 

have going into the future. This committee is not going to make the 

mistake of being shortsighted. 

Mr. Cummings is recognized. 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

It is good to see both of you here, and thank you for being here. 

Secretary Porcari, MarAd has informed U.S. vessels that, due to 

sequestration, it will not be able to pay the full monthly MSP stipend in August 2013, which is, of course, right around the corner, 

and it will not pay any stipend in September 2013. 

What will be the effect of these reduced or missed payments on 

the vessels participating in the MSP program? 

Mr. PORCARI. Mr. Cummings, thank you for the question. 

This is first time that we have not been able to honor the Maritime Security Program commitments. As you point out, the cumulative effects of first being funded through a continuing resolution, 

which kept the dollar number at $174 million rather than $186 

million, and then taking an additional $19.1 million out through 

sequester has had a very direct impact in the middle of a fiscal 

year. 

In discussions with leadership of the companies that participate 

in MSP, we know it is going to have a very dramatic impact. We 

feel strongly that we owe consistency and predictability to the industry so that they can make investment decisions and they can 

grow. This directly cuts against that consistency and predictability. 

We know it will have a negative impact. We will do everything 

we can to minimize it. 

Mr. CUMMINGS. Well, if sequestration continues and the MSP 

program continues to be reduced, do you believe this may cause 

vessels to leave the program? 

Mr. PORCARI. It certainly could happen. 

It is important to point out that the President is requesting full 

funding of the MSP program for fiscal year 2014 in his budget. We 

believe very strongly that that for fiscal year 2014 and beyond is 

needed to stabilize the program. 

14 

Again, this is a program that we know works for the Nation’s 

needs and is a very cost-effective investment for times of emergency. 

Mr. CUMMINGS. Now, according to the talking points prepared by 

DOD, and I quote, ‘‘Military cargoes represent the preponderance 

of U.S. Government-impelled cargoes,’’ end of quote. 

Assuming you agree that this is the case, what is the impact of 

the drawdown from Iraq and now Afghanistan on the U.S.-flag 

fleet? 

Mr. PORCARI. The drawdown in Iraq and now Afghanistan clearly 

has a negative impact on U.S.-flag fleet. Military cargoes, as you 

point out, are one of the most important parts of the cargo base 

that the U.S.-flag fleet relies on. This is happening at the same 

time that the MSP program is not fully funded. It is happening at 

the same time as other impacts on the industry. 

We know that this argues for a strong maritime strategy across 

the board that fully utilizes all U.S. cargoes. We have been working 

with the Export-Import Bank, for example, to make sure that we 

are capturing cargo opportunities that we haven’t before. We have 

been working directly with the Department of Energy to make sure 

that, where they have cargoes for wind energy projects and other 

things, that we are capturing cargoes wherever possible. 

In sum, we know that the U.S.-flag fleet needs a stable base to 

grow on. We think the energy sector and others will be part of that 

base in the future, but we need to get there, we need to transition 

to that. 

Mr. CUMMINGS. Uh-huh. 

Let me ask you, General Fraser, how important is the maintenance of a viable U.S. merchant marine to our military? 

General FRASER. Sir, the maintenance of merchant mariners is 

critical to our ability to meet the requirements that we have laid 

out in the Mobility Capabilities Requirements Study, as they would 

man those ships for us in a time of emergency response. 

Mr. CUMMINGS. Let me ask you, finally, Secretary Porcari, 

MarAd is granted sole authority by section 3511 of the Duncan 

Hunter National Defense Authorization Act for Fiscal Year 2009 to 

ensure that shippers are complying with our cargo preference laws. 

Those who do not comply with these laws can face civil penalties 

for each day they remain in violation. 

How many potential violations of cargo preference laws has 

MarAd investigated in the last year? And has any entity ever faced 

a civil penalty for violating the cargo preference laws? 

Mr. PORCARI. Mr. Cummings, I am not sure if any shipper has 

faced penalties for that. I will check and respond for the record. 

[Please see Mr. Porcari’s response to Hon. Hunter’s first question 

for the record on page 42 and Hon. Garamendi’s first question for 

the record on page 43.] 

Mr. PORCARI. I do know that we have a much higher level of engagement within the Department of Defense on this, with the idea 

of, before a violation would happen and before cargo transportation 

selections are made, engaging the appropriate people and making 

sure that both the letter and the spirit of the law is being followed. 

You can expect that we will be even more aggressive about that in 

the future. 

15 

Mr. CUMMINGS. Thank you very much, Mr. Chairman. 

Mr. HUNTER. I thank the gentlemen. 

Mr. Rice is recognized. 

Mr. RICE. Thank you, gentlemen, for being here. 

And I am certainly no expert in maritime affairs; I am a tax lawyer. I am very concerned about U.S. competitiveness and United 

States jobs. 

And I sit here and look at these statistics that were provided by 

the committee, and it says there are 93 currently employed ships, 

currently employed in international commerce, moving goods between U.S. and foreign ports. Over the last 35 years, the number 

of U.S.-flag vessels sailing in international trade has dropped from 

850 to 93, I guess. The percentage of international commercial cargoes carried on the U.S.-flag vessels has fallen from 25 percent in 

1955 to approximately 2 percent today. 

Obviously, we are not doing something right. Do you guys have 

any suggestions for how we can make our American commercial 

fleet more competitive in the world? 

Mr. PORCARI. If I may, sir, just to start, yes, we believe that, first 

of all, the Government-impelled cargoes that are currently carried 

by the U.S.-flag fleet form the foundation of the viability of the 

fleet. 

And I would point out that the vast majority of nations that are 

engaged substantially in maritime trade do some version of the 

same thing, that some Jones Act-like provisions provide a base capacity for many of those nations. 

We know that in the future the cargo mix is likely to be different, the types of vessels are likely to be a different mix. And, as 

I previously mentioned, focusing, among other things, on energy 

transport, given the rising domestic energy production, we think 

has real prospects for the Jones Act trade, both coastwise and inland. That is certainly a growth opportunity and one that we are 

going to work very hard to exploit. 

Mr. RICE. This also says, since 1983 the U.S. has lost approximately 300 shipyards. Seems like the Jones Act is—it seems like 

we are backing up. I mean, clearly, this is not working. What can 

we do? How can we make ourselves more competitive? 

I mean, I think what you just said is that the business provided 

by the Government provides a base for these 93 remaining vessels. 

If the Government wasn’t providing them this business, would we 

be down to zero? 

Mr. PORCARI. If we weren’t down to zero, it would certainly be 

a substantial reduction. But that is one of the reasons we believe 

so strongly in cargo preference and the Jones Act. 

Mr. RICE. Why are we not competitive today? What is it about 

our American fleet that makes it where we can’t compete with the 

rest of the world and we are only carrying 2 percent of commercial 

cargo? How can we fix it? 

Mr. PORCARI. Well, the U.S.-flag fleet, I would point out, follows 

safety standards that not everyone else in the world does. In terms 

of maritime worker training, we generally do more than others. 

There are other nations that subsidize, either directly or indirectly, 

use of maritime vessels. And those are, in that sense, competitive 

disadvantages. 

16 

That is why it is important to make sure, whether we are talking 

about the maritime crews, the ships, the shipyards, or all of the associated parts of the industry that are all vital, that we have to 

make sure that we are keeping a base of industry and U.S. crews 

that can serve the Nation in the future. 

Mr. RICE. I guess, you know, the definition of ‘‘insanity’’ is to 

keep doing the same thing and expect a different outcome. We have 

lost almost 90 percent of our fleet in the last 35 years. I think we 

need to rethink our policies and do what we can to make our—I 

don’t know why in the world—America can compete in anything. 

We are the greatest Nation on Earth. And to sit here and watch 

our industry die makes absolutely no sense to me. 

We need to start from the ground up, and we need to come up 

with policies where our mariners can compete. 

Thank you very much for being here. 

Mr. HUNTER. I thank the gentleman. 

We are going to start one more round of questions. And we will 

try to do it quickly because we have a second panel we would like 

to get to, as well. 

General Fraser, I have some stuff in front of me. Let me see if 

I can phrase this right, too. I have different quotes from different 

people. 

General McNabb testified before Congress about the critical role 

cargo preference laws have in ensuring TRANSCOM has a domestic sealift capacity to successfully conduct its mission. He says, 

‘‘While cargo preference laws and national defense sealift policies 

ensure the viability of a U.S.-flag commercial fleet’’—and he also 

wrote a letter to Congressman LaTourette in 2011. And he says— 

this is from your predecessor—‘‘The movement of U.S. international food aid has been a major contributor to the cargo we have 

moved under the cargo preference law that our U.S. commercial 

sealift industry depends on. Any reductions will have to be offset 

in other ways to maintain current DOD sealift readiness.’’ 

There is no plan yet for the $25 million in offset. So have things 

changed so that it is no longer needed and his concerns are no 

longer valid? 

General FRASER. Sir, merchant mariners continue to be critical 

to our ability to meet our requirements. 

And as we look at the size, if I might, based on the size of the 

merchant mariner pool that we have to pull from and the requirements as laid out in our requirements study, we have sufficient 

mariners to meet those requirements should we have to generate 

the surge fleet and the Ready Reserve Force. 

As we continue to move forward and if there are other changes, 

we will continue to work very closely with MarAd to ensure that 

that requirement is not only understood but we are able to meet 

that requirement moving into the future and not increasing risk to 

our readiness. 

Mr. HUNTER. General, let me ask you this. If you know that right 

now you meet the requirement, how much in excess over the requirement are we right now? So if you know what the requirement 

is and you know what that number is, then you should know the 

number of people that we are in excess of the requirement. 

17 

General FRASER. Based on the numbers that I have, the merchant mariner pool right now is slightly in excess of 15,000 mariners, of which at any time there are approximately 7,000 or so that 

are at sea doing their job. The others are maintaining certification, 

getting ready to go, doing these types of things. 

So that, then, leaves a pool of which we need approximately 

3,000 mariners to man our surge and Ready Reserve Fleet. So we 

would draw from that remaining pool of merchant mariners that 

are current, qualified, certified, licensed to fulfill that requirement. 

Mr. HUNTER. So, out of those 15,000 then, as you say, 7,000 are 

active doing stuff, being mariners, the other 7,000 are not at any 

given time. And out of that 7,000 that are active, you pull 3,000? 

General FRASER. The others are getting ready to go, maintaining 

their certifications, doing these types of things. They are part of the 

pool. We would pull from the pool. We would turn to MarAd, who 

would then reach out to industry based on the capabilities that we 

would need to man the ships, depending upon the types of ships 

that we were getting underway. They would then put this team, 

this crew together and then be ready to sail in minimum time. 

Mr. HUNTER. So, as the cargo preference laws change, if they do, 

and the Food for Peace program gets slashed, what do those numbers go to? What is your estimate? You go from 15,000 to 10,000, 

8,000? As those U.S.-flag vessels go foreign-flag, how many mariners do we lose? 

Mr. PORCARI. I am—— 

Mr. HUNTER. I am sure the administration wouldn’t cut the program without knowing how many mariners we would lose out of 

that pool. 

Mr. PORCARI. Mr. Chairman, I don’t have that number. I will be 

happy to provide the committee with what information we do have. 

Mr. HUNTER. All right. I thank the gentleman. 

Ms. Hahn, do you have more questions? 

Ms. HAHN. Yes. 

Mr. HUNTER. Ms. Hahn is recognized. 

Ms. HAHN. I just want to say on this, about building more ships, 

more American-flag ships in this country, shipbuilding is such, 

again, another overlooked industry that can add to the economy. 

These are great jobs when we build ships. You know, these are, 

like, our machinists, our electricians, our metalworkers. I mean, 

these are great jobs and skills that we are losing in this country. 

One of the areas that we are not involved in is the cruise industry. And according to a 2011 statistical snapshot taken last year by 

MarAd, the American cruise industry had a record year, with 71.8 

million passengers. In fact, the North American cruise industry has 

been one of the bright spots in the shipping industry. It has consistently done well year after year, even as we remain in an otherwise sluggish economy. 

However, except for a few small coastwise vessels and riverboats, 

nearly all of the 200 oceangoing cruise ships in the North American 

market are foreign-flag ships. This discrepancy is also evident in 

our cargo fleet, where only 2 percent of the international commercial cargo is carried by U.S.-flag vessels, down from 25 percent 60 

years ago. 

18 

I represent the Port of Los Angeles, and I am supporting all 

ships that call on American ports and serve American passengers. 

I do wish we could focus more on how we could build more U.S.- 

flag ships for our cruise industries. 

Why aren’t we creating more U.S.-flag ships in this country? And 

what can we do to ensure that more of these ships are built and 

operated, owned and operated here? And is MarAd’s policy to refrain from financing new cruise ships one of the major hurdles preventing U.S.-flag cruise fleets? 

Mr. PORCARI. Well, first, if I may, the cruise ship industry, with 

its dramatic growth to and from U.S. ports, does present a potential opportunity, and we recognize that. And, further, with only one 

exception that I am aware of, they are not American-flag vessels. 

It is an industry that we would like very much to encourage. 

There may well be opportunities in the future to do that. I am 

aware of only one potential proposal for a Title XI loan guarantee 

for a cruise vessel that in this administration never got beyond the 

discussion stage. 

The speculative nature and financial viability of some of those 

vessels and companies is an open question. We have a fiduciary responsibility, as you know, in the Title XI program to make sure 

that the loan guarantees are being used for projects and employing 

people at shipyards with a very high degree of likelihood of success. 

And that is the tact we have taken. 

I would put the cruise ship business on the opportunity list, 

along with some others that I have mentioned, again, including energy. 

Ms. HAHN. So you are saying here today that you are not going 

to have a policy to refrain from financing new opportunities for 

cruise ships? 

Mr. PORCARI. Current policy is not to finance cruise ships 

through the Title XI program. There have not—I have not seen or 

am not aware of any proposals that would drive us to change that 

policy, because—— 

Ms. HAHN. Well, there are probably not any proposals, because 

the policy exists. 

Mr. PORCARI. Well, we actually have had at least one proposal 

that I am aware of, but again the financial viability of which was 

shaky at best. 

Ms. HAHN. Well, I really think this is an opportunity and I would 

hope that MarAd would consider lifting this policy and looking to 

possibly finance. This is a huge opportunity. I mean, the fact that 

we have no U.S.-flag cruise ships, and as we have seen recently, 

there have been some major disasters at sea, it seems there is an 

opportunity to build a better cruise ship, one that is safer and more 

efficient. 

We also have a problem, I know in Los Angeles, of detaining foreign crews from disembarking from the cruise ships in port because 

of the potential opportunity for folks who want to flee and come to 

this country. So there are problems that I think we could address 

with building U.S.-flag cruise ships. 

Mr. PORCARI. If there is a—— 

Ms. HAHN. I mean, even Disney. I couldn’t believe the Disney 

ship was not, I mean, U.S.-flag. That just hurt. 

19 

Mr. PORCARI. Well, first, I think U.S. industry and U.S. labor 

would certainly point out that a U.S. built and maintained and a 

U.S. Coast Guard certified cruise ship fleet is a safer, better alternative and more reliable. 

What I will tell you is if we have a viable proposal on a cruise 

ship, we will certainly entertain that. 

Ms. HAHN. OK. Thank you. 

Mr. HUNTER. Mr. Rice is recognized. 

Mr. RICE. Thank you, Mr. Chairman. You know, sitting here and 

listening and looking at these statistics, I don’t think I have ever 

seen a more clear example of a failure of a protectionist policy, and 

I really don’t want to sit here and continue what we are doing and 

watch our maritime industry disappear. So I would ask the chairman if we could convene another hearing with some maritime commercial shippers and ask them their opinion about what we can do 

differently to try to make our ship building business more competitive. 

Mr. HUNTER. The gentleman is in luck. That is the next panel. 

Mr. RICE. Great. 

Mr. HUNTER. Yeah. In about 5 minutes. Does the gentleman 

yield back his time? 

Mr. RICE. I do. 

Mr. HUNTER. I would like to recognize the ranking member for 

one last question. 

Mr. GARAMENDI. Thank you. I am really concerned here. The talk 

is good, that is, the direction that you want to go is good, but the 

programs and policies are going the opposite direction. General 

Fraser, in your testimony you talked about the need to recapitalize, 

yet money for recapitalization is not available. We talk about the 

need for encouraging the use of American shipping, and yet the administration calls for repeal of Public Law 480 that goes exactly 

the opposite direction. We have Title XI out there that is supposed 

to be used, but yet very little has been done in new programs, 

takes forever to get a loan approved, if at all. We just heard in response to Ms. Hahn’s question that, no, we are not going to do the 

commercial—the tourist ships. 

So it goes on and on, but there isn’t an overall strategy and an 

implementation of a strategy. The pieces of the puzzle are disjointed and in some cases are taken off the board. So I think we 

really need to settle on do we want, do we need, must we have a 

domestic merchant marine available for national security purposes, 

General Fraser? If so, then what are we going to do to make that 

happen? How are we going to recapitalize? Where is the money 

going to come from? Do we want a commercial merchant marine for 

any number of reasons, for jobs, for enhancing the American economy? Do we want a ship building industry in the United States? 

If the answer to these questions is yes, then we need to have a 

coherent national policy and the money to support it. We have seen 

five fiscal crises in the last 2 years. Each one has diminished the 

money available for Federal programs, including programs that are 

being discussed today. 

So I would like to work with the administration, the Department 

of Transportation and, General Fraser, in your programs in developing a coherent national strategy that fully employs the commerVerDate Aug 31 2005 15:23 Jan 16, 2014 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\CG\5-21-1~1\81148.TXT JEAN
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cial marine base and meets the needs of national security. I don’t 

think it exists today. I think it is incoherent, I think it is incomplete, and in many ways one hand is harming the other, so one program is harming the other program. 

With that said, I am going to yield back my time. I want to 

thank the gentlemen for participating. Mr. Porcari and General 

Fraser, thank you very much for your testimony. I know that I, and 

I am sure the chairman, look forward to working with you on developing a coherent program, one in which every element necessary 

for national defense and for economic growth in this Nation is in 

place, vibrant and healthy. 

I yield back. 

Mr. HUNTER. Thank the ranking member. 

Mr. Porcari, for the record, could you get back to us, too, on when 

the shipyard economic benefit study is due to be released, too? 

Mr. PORCARI. I will be happy to. I know it is imminent. I will get 

you an exact date. 

Mr. HUNTER. Thank you, gentlemen, for your time. If there are 

no further questions, so we will call the second panel of witnesses. 

Thank you. 

Mr. PORCARI. Thank you. 

Mr. HUNTER. All right. We will convene now. Is everybody ready? 

Thank you for being here. Our second panel of witnesses include 

Mr. Fred Harris, president of General Dynamics NASSCO, appearing today on behalf of the Shipbuilders Council of America; Mr. Joseph Pyne, chairman and CEO of Kirby Corporation, appearing 

today on behalf of the American Maritime Partnership; Mr. Mike 

Jewell, president of the Marine Engineers’ Beneficial Association; 

and Mr. Augi Tellez, executive vice president of the Seafarers 

International Union. 

And we will start with Mr. Harris. You are now recognized. 

TESTIMONY OF FRED HARRIS, PRESIDENT, GENERAL DYNAMICS NASSCO, ON BEHALF OF SHIPBUILDERS COUNCIL OF 

AMERICA; JOSEPH H. PYNE, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, KIRBY CORPORATION, ON BEHALF OF AMERICAN MARITIME PARTNERSHIP; MIKE JEWELL, PRESIDENT, 

MARINE ENGINEERS’ BENEFICIAL ASSOCIATION; AND 

AUGUSTIN TELLEZ, EXECUTIVE VICE PRESIDENT, SEAFARERS INTERNATIONAL UNION 

Mr. HARRIS. Chairman Hunter, Ranking Member Garamendi and 

members of the subcommittee, I am Fred Harris, president of General Dynamics NASSCO. We build U.S. Navy ships and large 

oceangoing commercial ships in San Diego. We repair and maintain 

Navy ships in San Diego, Norfolk, and Mayport. I am vice chair of 

the Shipbuilders Council of America, which represents shipyards 

and partners that supply and support U.S. vessel construction and 

repair. 

It is a pleasure to testify regarding the industry and the important Federal policies, including the Jones Act and the Title XI loan 

guarantee program. Our Navy and Coast Guard are without equal 

and their strategic importance is unquestionable; however, our 

commercial maritime industry is often overlooked as a vital element of our Nation’s maritime strength. It ensures skilled mariners 

21 

and ships are available in time of war or emergency to transport 

material by sea. From 2002 to 2008, U.S.-flag vessels carried 97 

percent of sealift material to Iraq and Afghanistan. A significant 

portion of that material was transported by way of activating the 

ready reserve fleet. 

The Jones Act is critical to our Nation’s maritime strength. The 

act requires that cargo transported between U.S. ports be moved on 

U.S.-built, U.S.-flagged, and U.S.-crewed and -owned ships. It ensures that experienced U.S. mariners are available to crew ships in 

times of crisis or conflict, enabling the timely movement of supplies. Maintaining the Jones Act is vital to ensure America preserves its commercial shipbuilding industry and thus its naval 

shipbuilding industry and capability. 

A number of U.S. shipbuilders are internationally competitive in 

the offshore support vessel marketplace and others are becoming 

world leaders in propulsion LNG technologies. 

The Jones Act dry cargo fleet needs to be recapitalized. Also, projected demand is high for new crude and product carriers. The 

Jones Act ensures this work will be performed in the U.S., helping 

maintain our workforce of skilled engineers and trades people. In 

addition, it ensures development of innovative technologies and 

best practices that benefit both commercial and military shipbuilding. 

General Dynamics NASSCO has proven we can dramatically 

lower the cost and reduce the time it takes to build high-quality 

naval vessels while also constructing Jones Act ships. Today we are 

achieving major efficiency gains and setting new standards constructing the mobile landing platform ships for the Navy. We recently signed a two-ship contract with TOTE, a forward-looking 

Jones Act owner, to construct the world’s largest LNG-powered container ships, which will be dramatically more fuel efficient and exceed all emission requirements. Building those and other commercial ships will reduce the costs of U.S. Government shipbuilding. 

Revitalizing the Maritime Administration’s Title XI loan guarantee program is essential to modernizing the Jones Act fleet and 

sustaining the shipbuilding industry in the U.S. Title XI provides 

Government guarantees on private sector loans for commercial 

shipowners constructing new ships and offers better terms and lowinterest rates, leveraging an average of $11 of private investment 

for every $1 of Federal guaranteed funds. 

The program has provided strong support for the industry; however, the Title XI program must receive adequate congressional 

support to be beneficial to the commercial shipbuilding industry. 

First and foremost is sustained, dependable finding. No funds were 

appropriated to support this program in fiscal year 2013 and none 

are proposed in PB 2014. We are grateful for continued efforts in 

Congress to provide Title XI funding, including the efforts of Chairman Hunter and other Members. 

Second, the loan guarantee process requires significant reform to 

restore the program’s effectiveness as a timely aid to ship construction financing. 

The shipbuilding subcommittee of the DOT Maritime Transportation System National Advisory Council has made thoughtful recVerDate Aug 31 2005 15:23 Jan 16, 2014 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\CG\5-21-1~1\81148.TXT JEAN
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ommendations regarding needed reform, the details of which are in 

my written testimony. 

Thank you again for the opportunity to address the committee. 

I look forward to your questions. 

Mr. HUNTER. Thank you, Mr. Harris. 

Mr. Pyne, you are now recognized. 

Mr. PYNE. Thank you, Mr. Chairman. Chairman Hunter, Ranking Member Garamendi, committee members, good morning. My 

name is Joe Pyne. I am the chairman and CEO of the Kirby Corporation. Kirby is the Nation’s largest maritime company. Kirby is 

a publicly traded New York Stock Exchange company with a market cap of about $4.6 billion. We employ over 4,600 people, some 

2,500 of them are Jones Act mariners, and we operate a fleet of 

over 1,300 Jones Act vessels. 

I am here today on behalf of the American Maritime Partnership, 

AMP. AMP is the coalition that represents the U.S. domestic maritime industry. 

The Jones Act not only helps ensure national security, but it also 

provides good paying jobs with good benefits for workers in America. The domestic maritime industry sustains approximately a half 

a million jobs. Our industry takes care of its people. At Kirby, 

entry-level vessel jobs pay an average of $45,000 a year. With some 

hard work and training, which we provide at our training center, 

a high school graduate working for Kirby can earn over $130,000 

a year after a few years on one of our boats. 

Many segments of the fleet are growing and recapitalizing. For example, my company, Kirby, has invested over $2.1 billion in 

Jones Act assets in the last 5 years. TOTE, a west coast company, 

is building a new state-of-the-art LNG-powered ship for the Puerto 

Rican trade. Hornbeck Offshore is building a new generation of offshore supply vessels that will work in both domestic and international trades, demonstrating that American vessels can compete 

in world markets. And Crowley Marine has recently invested about 

a half a billion dollars in two new tankers and two large articulated tug barge units, each with a capacity of 330,000 barrels. 

Year in and year out, the domestic fleet serves the needs of 

America. Nobody talks about waiving the Jones Act when the market for our services is soft. When the markets are tight and owners 

need to add capacity, even discussing waivers or changes to the 

Jones Act makes matters worse. It sends a chilling message to operators who need to build new vessels to support shippers’ needs. 

It causes shippers to be less committed to supporting new Jones 

Act vessels to support their requirements. 

The Jones Act is a key part of our national defense. The vessels 

themselves, the people who man them, the shipyards who build 

them each play a critical role. The Jones Act supports homeland security also. Our mariners are the eyes and ears of homeland security on the water. They safely and securely transport hazardous 

cargoes through many parts of our Nation and through populated 

areas. We do not want to turn these cargoes over to foreign workers on foreign vessels. 

The Jones Act sustains American jobs, plays a vital role in national defense and helps protect the homeland. How can Congress 

support this? I suggest the best form of support is to maintain the 

23 

certainty that has been expressed by generations of American leaders that our domestic merchant marine is not for sale and the 

Jones Act will remain the law of the land. 

Our industry is making a huge commitment to serve the future 

transportation needs of this Nation. Vessels are 30- to 40-year lived 

assets. In order to make these long-term investments, we need confidence that the Jones Act is secure. 

On behalf of AMP, thank you for your support of the Jones Act 

and all that it represents for America. And thank you for the opportunity to be here today. 

Mr. HUNTER. Thank you, Mr. Pyne. 

Mr. Jewell, you are recognized for 5 minutes. 

Mr. JEWELL. Chairman Hunter, Ranking Member Garamendi 

and members of the subcommittee, I am pleased to have the opportunity to appear before you on behalf of the American Maritime Officers, Master Mates and Pilots, and my union, the Marine Engineers’ Beneficial Association. 

History has repeatedly proven and policymakers have recognized 

that it is in the best interest of the United States to maintain and 

support a strong U.S. merchant marine. As stated in the Merchant 

Marine Act of 1936, it is necessary for the national defense and development of its foreign and domestic commerce that the United 

States shall have a merchant marine sufficient to carry its domestic waterborne commerce and a substantial portion of the waterborne export and import foreign commerce. 

Today U.S.-flag commercial vessels and our American merchant 

mariners are responsible for transporting only 2 percent of our 

country’s foreign commerce. Mr. Chairman, that is hardly a substantial portion. 

We believe the best way to achieve the goals of the 1936 act is 

for Congress and the administration to fund and protect existing 

programs and promote forward-thinking policies that encourage 

new tonnage to operate under the U.S. flag. 

Other nations around the world are now recognizing the value of 

their merchant fleets. Just yesterday it was reported that the Chinese are increasing the support to their maritime industry, implementing subsidies, encouraging long-term supply chain contracts 

and strengthening their influence within the marketplace. 

The Maritime Security Program and U.S. cargo preference statutes are among the cornerstones of American merchant policy. In 

May of 2011, General Duncan McNabb, Commander of 

USTRANSCOM, stated, to date over 90 percent of all cargo to Afghanistan and Iraq is moved by the U.S.-flag vessels. He went on 

to note that the U.S. cargo preference laws have helped to ensure 

the continued viability of both the U.S. fleet and the pool of citizen 

mariners who man these vessels. 

Sequestration is having a major impact upon the Maritime Security Program, because in August, the MSP funding runs out. This 

coupled with the fact that the U.S. military cargo preference cargoes continue to decline and the administration’s budget proposal 

on the Food for Peace program has left our deep sea carriers in 

doubt if they can continue to fly the American flag. 

We are deeply troubled by the administration’s recent proposal 

to begin replacing the existing Food for Peace program with a proVerDate Aug 31 2005 15:23 Jan 16, 2014 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\CG\5-21-1~1\81148.TXT JEAN
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gram that simply provides U.S. taxpayers’ dollars to other nations 

to purchase foreign agricultural commodities and use foreign shipping services. Americans should be proud that the Food for Peace 

program not only demonstrates the generosity of the American people to help the world’s most needy people, but also results in significant economic and strategic benefits for our country. 

As Congress considers a broad overhaul of the U.S. tax policies, 

the competitiveness of the U.S. merchant fleet and U.S. mariners 

should be top priority. To this end, we believe changes should be 

made in our tax laws that can foster the growth of the United 

States maritime industry and equal the playing field for the U.S.- 

flag merchant marine as we compete internationally. 

We would note that we greatly appreciate the support of the 

members of this subcommittee for the enactment of the 2004 tonnage tax legislation for U.S.-flag vessels. 

Congress should enact policies to promote a vibrant short sea 

shipping industry. We ask the committee, through its formation of 

the Panel on 21st-Century Freight Transportation, to include maritime and short sea shipping as a top priority. 

The export of liquefied national gas and the growth of the cruise 

ship industry represent a very large and potentially booming industry for the U.S. merchant marine. Our unions supply LNG deck 

and engineering officers to crew and operate LNG ships. U.S. merchant marine officers are now working aboard LNG carriers operating in the international fleet. We ask the committee to encourage 

the employment of the U.S. merchant mariners aboard these vessels participating in the export of natural gas. 

With regard to the cruise industry, 10 million passengers 

boarded cruise ships in the United States in 2012, yet U.S. mariners are notably absent aboard these cruise ships internationally. 

We ask Congress and the administration to encourage the employment of the U.S. merchant marine aboard these cruise vessels. 

President Ronald Reagan once said that the maritime industry 

is a key contributor to our economic strength and security of our 

Nation when the Nation was founded. Its continued growth and 

prosperity is necessary to the overall growth of the economics in 

America, and we agree. 

We look forward to working with you, Mr. Chairman, and your 

subcommittee in order to promote and expand the U.S. merchant 

marine. 

Mr. HUNTER. Perfectly timed, by the way, Mr. Jewell. Thank you. 

Mr. Tellez, you are recognized. 

Mr. TELLEZ. Good morning. Thank you, Mr. Chairman, Ranking 

Member Garamendi, members of the committee. A special good 

morning to our friend, Lucinda. My name is Augi Tellez. I am the 

executive vice president of the Seafarers International Union, and 

I bring you greetings and salutations from my boss, Michael Sacco, 

president of the Seafarers International Union. 

Thank you for holding this hearing. And a special thank you to 

Chairman Hunter for his excellent op-ed in the Washington Times 

earlier this month. I would also ask that my written testimony be 

added to the record. 

Listening to the previous speakers, I am going to go off script 

and beg your indulgence while I do a little soapbox here. 

25 

My colleagues and I, the union officials in this room and 

throughout the country, are proud to represent thousands of patriotic Americans, men and women who ply their trades every day, 

along with others who are not represented by us, but they all do 

the same thing. They ply their trades on the rivers, lakes, domestic 

waters and international waters under conditions, whatever conditions nature or our enemies decide to throw at us. We do so every 

day with little or no fanfare unless we are attacked by pirates and 

Tom Hanks decides to make a movie about us. 

We have been a critical component of our country’s economic and 

national security from the founding days of the republic. We are a 

critical part of every armed conflict, from the Revolution to today’s 

conflict in Iraq and Afghanistan, as mentioned before, carrying 

over 95 percent of all seaborne cargoes going into the theater. 

We have rebuilt and fed the world since General Marshall had 

a plan, including the most recent disasters in—the tsunami and in 

Haiti, and we continue to feed the world under the current Public 

Law 480 cargoes program. 

We are always there when the balloon goes up and we hope to 

be there whenever the balloon goes up, but in order to do that we 

need to have a strong foundation of a vibrant and viable commercial fleet. And unfortunately in this world, in order to maintain 

that, it has to be a public-private partnership. 

The other speakers have mentioned the components of that 

three-legged stool, number one being the Jones Act. I won’t expound on the Jones Act, because Mr. Pyne has done an admirable 

job both in his oral and his written testimony. I will add one thing, 

and it is a hot-off-the-press study indicating, contrary to assertions 

by folks that the Jones Act is responsible for a rise in gas price, 

the percentage of gasoline that is carried and impacted by the 

Jones Act turns out to be 6.7 percent of the gasoline in this country. The major impact happens to be the Tampa area, and the impact on price there is.015 cents. So for those who get up and bemoan the Jones Act and its impact on gasoline prices, they are just 

way off base. 

MSP. MSP is critical to the efforts by TRANSCOM to support 

our troops. It ensures that 60 vessels, modern vessels, are there 

carrying that cargo. One of the objectives that is sometimes forgotten in the MSP program was to recapitalize our international fleet. 

So even though it is less than 100, the 60 ships in the MSP program, because of the way the program was set up, are new ships. 

Currently as we are speaking, I believe Mike can correct me if I 

am wrong, Maersk, Inc., has just replaced and recapitalized two of 

their vessels, if not three, with new vessels coming in as part—the 

beginning of their recapitalization program. 

Public Law 480. You notice that when unencumbered by the administration’s contrary view, past commanders of TRANSCOM attest to the value of the Public Law 480 program and its importance. So we will grant General Fraser our benefit of the doubt. He 

is a good partner and a good leader and a good soldier. 

MarAd itself has an internal study that does in fact show that 

10 years, when you take that long-term view, somewhere down the 

line there is a looming shortage in particular areas of the fleet, of 

the manpower pool, rather. When you couple that with less than 

26 

100 ships in international trade, then one ship, let alone eight or 

10, is just one too many to lose. It will have an impact on our ability to man ships and create a manpower pool. 

Congress has always saw fit to support the merchant marine and 

the United States maritime industry. We hope that you will continue that fight, and we look forward to working with you to ensure 

that the United States merchant marine is there whenever we are 

needed. I thank you for your time. I am prepared to answer any 

questions. 

Mr. HUNTER. Perfectly timed, too, Mr. Tellez. You guys must 

have practiced this, I am guessing. 

Well, let me say thank you for being here. And there is a good 

quote that I like to repeat as often as possible, and it is he who 

controls the oceans controls the world, whether you are talking 

merchant mariners, you are talking the U.S. Navy. You know, 20, 

30 years ago we had over 400, I think 480 something, probably 

higher, naval ships that we operated. Now we are going to be dropping down probably below 300. The Navy comes out with study 

after study showing that as the world gets crazier and things get 

worse and worse, we somehow need fewer ships, not more. 

So my question for all of you is, and if you can tell me there is— 

we have mentioned MSP, we have mentioned food aid, we have 

talked about Title XI. If you were to say what is the most important thing in the industry to keeping those shipyards rolling so 

that if we do have a need—which I think if you take the 50-year 

view, you are going to have another conventional war in the ocean 

again. You have a lot of smart Ph.D.’s from different military 

schools saying you are never going to have surface fleets fighting 

each other again on the open oceans. I would disagree. And you as 

commercial shipbuilders are going to be the ones who have to build 

those naval ships the way that GM used to have to make tanks. 

And if we get in a big protracted war again, that is what is going 

to happen. 

You are vital to the Nation’s security interests, and I would like 

to know the most important thing you think can be done in a private-public way with the U.S. Government’s help to keep your industry going. 

Mr. Harris. And by the way, Fred, I don’t think that is a San 

Diego accent you have, is it? 

Mr. HARRIS. Mr. Chairman, it is not. 

Mr. HUNTER. OK. 

Mr. HARRIS. Let me start by saying from the Government side, 

because we build both commercial and Government ships in this 

country, from the Government side, having a shipbuilding plan 

where you understood what was in front of you and was every year 

consistent and didn’t change every month would be a big start to 

help the shipbuilding industry. The Government would like us to 

invest hundreds of millions of dollars in facilities. Generally, shipyards don’t have a problem in doing that as long as they understand what the investment is and what the return may be in front 

of them. So sustained and steady shipbuilding, understanding the 

Government policy. 

From the commercial side, I think the biggest value for American 

shipbuilding would be keep the Jones Act and then support Title 

27 

XI. How do you support Title XI? We need to have adequate funding on a yearly basis and we need to sustain that year after year 

after year. And I am not telling you that is a lot of money, because 

of the multiplication factors. I think in the neighborhood of $50 

million, $60 million, in some years even less, but in that range 

would give the shipbuilding industry and the owners the ability to 

go borrow money and build and recapitalize the fleets. 

The other thing that has to go on is, and some of it was mentioned this morning, is that the Maritime Administration has to get 

to be much more streamlined and much more responsive to loan 

applications. I can design a ship and build it before an owner will 

get notification he either is or is not approved for a loan. Design 

it and build it, 2 years. That is really not healthy, because how 

could you as an owner go forward to plan your recapitalization if 

you are not sure if you are going to get a loan or not in that timeframe? 

Now, it is not just MarAd’s fault. It is also sometimes the owners 

don’t provide all the information, but it is a combination, and a restructuring or review of that policy would be a good thing for the 

American commercial shipbuilding industry here. And again, as I 

said, maintaining the Jones Act and keeping the Jones Act strong 

and safe will help American shipbuilding. 

As you mentioned, in this country 300 shipyards have gone out 

of business since 1953. There are somewhere around 400,000 people involved directly in U.S. shipbuilding, either Government or 

commercial, doing supplies, equipment, or building ships themselves. 

It takes us a good 5 years in the shipbuilding business to learn 

the skill of shipbuilding. When you take our high-end trades, our 

electricians, our welding specialists, it is a 5-year journey. Losing 

them and trying to revitalize or reconstitute the industry would 

never work. I have been involved in a number of different evaluations in different countries, like the U.K. They have lost their shipbuilding industry. It is gone. And once it is lost, it will be very difficult, if ever, regained again. And in the U.K., for example, they 

recently just went and bought three tankers for their Royal Navy 

Auxiliary, and they bought them from Korea. No one in the U.K. 

was able to bid on them and build those ships. So it doesn’t take 

long for the industry to go away. If it does, it will be very difficult 

to recapitalize or to reconstitute. 

So keeping the Jones Act strong and getting Title XI funding 

fixed are important. And I think also the point you made earlier 

about a national maritime policy. We do not have one. And right 

now today if you said, what is our national maritime policy? It is 

very fragmented. And looking at since 1936, MarAd has made some 

800 loans on ships that were built under the Title XI or previous 

program, but a guaranteed loan program. Recently the funding is 

not there, it hasn’t been appropriated, and it has taken so long for 

owners to go in, ships are just aging in place. The noncontiguous 

liner fleet is some 30-plus years old, inefficient, highly pollutant, 

won’t meet the international standards unless the ships are rebuilt. 

Mr. HUNTER. Thank you, Mr. Harris. And we will come back 

around. I would like to get all of your answers for that question 

28 

on what the most important thing is, and we will wait till my colleagues have a chance to ask questions. 

Mr. Garamendi. 

Mr. GARAMENDI. Well, as much as I like to listen to myself, I 

would like to have your question answered by the gentlemen. So 

let’s just continue on. 

Mr. PYNE. I think I can be succinct. To remove uncertainty and 

confirm the importance of the Jones Act—— 

Mr. HUNTER. Mic. Pull that closer to you, the microphone closer 

to you. Thank you. 

Mr. PYNE. Is that better? OK. 

Remove the uncertainty and confirm the Jones Act. Investors, operators, owners, shipyards have a hard time dealing with uncertainty, and if Congress sends, and Government agencies send 

mixed messages, it really does dampen the enthusiasm for making 

the investment. 

I think that we are actually in a unique time in America. We are 

in the middle of an energy revolution that is going to drive lots of 

transportation requirements. And those transportation requirements are not only going to be marine, they are going to be rail, 

pipeline, even truck. Volume drives utilization in our business. Utilization drives efficiency and price and produces the comfort level 

to make investments. 

The more ships we build, the more efficient we will become. We 

will lower the cost of construction. That happens in the barge business. We build a lot of barges. We do it competitively on a global 

basis. I think we can do that from a ship perspective if we build 

enough of them. 

What we don’t need is a mixed message that says we are going 

to compromise the Jones Act, which makes it much more difficult 

for a company like Kirby to invest in it. 

Mr. JEWELL. I agree with the ranking member that we need a 

strategic plan. It is best summed up in three things. Without a 

company or a ship built in the United States, we cannot crew it. 

And without a crew, you can’t sail. But without a ship, you can’t 

have the crew to do that. 

And I do disagree with an earlier panel member, I truly believe 

that there are not 15,000 mariners out there; it is significantly less. 

And when we lose ships, we lose our membership. And once the 

membership is gone, it trickles down to all the schools. And take 

the $25 million. I am clueless on where it goes. Is it a 1-year deal? 

Is it a 2-year deal? We all have schools, we are all highly skilled. 

What are you going to reeducate us to do with that $25 million? 

But I truly believe it is the three things. You have to have a company to order the ships built in the United States, and then we can 

crew it. Thank you. 

Mr. TELLEZ. In the General’s defense, that 15,000 number was 

given to him by one of his staff, and that 15,000 probably represents a number of deep sea licenses and documents issued in a 

particular time period. The actual manpower pool that he can grab 

onto to support his ships is, as Mike said, far less than that. 

Compounding that issue is also there is a group, the mean age, 

I believe, within the officers is somewhere 55 years old, so you have 

a whole generation of officers that are soon to be retiring out. 

29 

Where is the training? Where are the platforms where you train 

the people to replace them to move up? And that is the concern 

with those numbers. 

If I were a shipowner, I guess I would say the most important 

thing to me would be the preservation of cargo. What can Congress, 

what can the Government do to make sure that I have got cargo? 

And the first thing is probably to enforce the existing laws on the 

books to make sure that there is no leakage. And by that I mean 

if a cargo is deemed to be reserved for a U.S.-flag ship, well, then 

it should be on the U.S.-flag ship and not be circumvented and put 

on someone else’s ship. 

The second part of that is to maybe apply the cargo preference 

laws to other cargoes that have been excluded in the past. That 

way you broaden the base and, therefore, keep those ships that 

Mike is talking about going. 

I believe cargo would be the most important thing to keep. With 

cargo on your ship, everything else falls in place. Cargo is what 

makes a ship go. So I would say the most important thing would 

be the preservation and the expansion of cargo for our vessels. 

Mr. GARAMENDI. Thank you, Mr. Chairman. And I thank you for 

the answers. We really have all the elements of a strategic plan, 

it is just they are not pulled together in a way that directs the policy of the U.S. Government. 

You mentioned cargo. We have cargo rules. We have laws. We do 

need to have regulations written. And I was talking to the chairman about the necessity of MarAd writing the regulations of a 

2009 law. So that needs to be done. 

The waivers, there is a meeting going on I think next door with 

the outgoing Secretary of Transportation. I had a discussion with 

him about waivers that were routinely available in previous administrations. He said he was going to stop the waivers. And I think 

Mr. Porcari now looks at every waiver in the surface transportation, but I don’t think he is looking at every waiver in maritime 

transportation. He ought to. And he ought not allow many of them, 

if any of them, because that is your cargo. 

On the other side, the loan programs, you know, why are they 

not being processed? And why are we not appropriating a steady 

flow of money? There is nothing more damaging to an industry 

than start-stop. And the two gentlemen, you spoke to that. If you 

don’t have certainty, you are not going to make the investment that 

is necessary for the future productivity of that shipyard, for example. 

And so we need to on our side have a continuity in our appropriations and in our policy. The administration needs to make sure 

that a waiver is absolutely essential, just not a routine matter, so 

that you have the cargo side of it. 

I am perplexed by the administration’s 480 policy and their new 

welfare program. The $25 million, you correctly—where is it going? 

What is it going to be used for? Is it going to continue, or is it simply a way of buying off some element of opposition? I suspect that 

this is exactly what it is about. So I would just as soon put the 

money back into the Food for Peace program and help more people 

around the world survive. 

30 

There is a whole series of questions that we have, and Mr. Chairman, if we could for the record provide questions to these gentlemen, specific responses, as well as to the previous gentlemen, if you 

could authorize that. 

Mr. HUNTER. Without objection. 

Mr. GARAMENDI. Thank you. I think we have covered it here with 

your questions about what is the most important thing to be done. 

And there were four different answers, and that is very, very helpful to me. 

I think what I would like to do is to address each one of you and 

ask you if there are things that you specifically think we need to 

know that have not yet been said. And for me, I would like that 

in the context of a national strategy, what could be added to that? 

As I said, I think we have the elements that are already in law, 

so it is a matter of pulling that together in a comprehensive way. 

But I will leave it open to you. What else do we need to do, meaning Congress? 

And we will start—let’s go reverse. Mr. Tellez. 

Mr. TELLEZ. Well, again, as I said, to enforce and really put some 

teeth into the laws that exist. I think you also need to take a longterm view, as the chairman is apt to say, instead of looking at, you 

know, fiscal year terms or even 5-year terms, the security of this 

Nation and the future of the merchant marine, you have to take 

a look in 10- and 20-year terms, what can we do now that is going 

to make sure that we are around in 10 and 20 years. 

A strong defense put up by Congress against some of these folks 

who are trying to whittle away at all the programs is a start, but 

as Mr. Pyne said, there is a future industry growing in this country 

that has to do with energy, whether it is LNG, whether it is gas, 

whether it is wind, and it is incumbent upon the industry to make 

sure we capture whatever we can from these emerging industries 

to make sure that we are part of that. 

Now, I have been going to meetings and meetings and conferences for the last 11 years either on short sea shipping or the 

new national marine highway, and I have yet to see a boat in the 

water. And we can talk and talk and talk, but at some point if you 

want a short sea shipping system, if you want a Federal marine 

highway, you have to get some boats in the water to make this 

thing work. And there are some good ideas out there that just need 

to be acted on, need to be grasped, understood and acted on to expand the business of business for our folks. 

Mr. GARAMENDI. Mr. Jewell. 

Mr. JEWELL. The one major thing I would like to say is about the 

education and training of the mariner pool. It roughly takes 8 to 

10 years to become a chief engineer or a master of the vessel, and 

they are the top guys on those vessels who take these ships around 

the world. Recently, because of the DOD drawdown, we just lost 

four ships. They will be gone at the end of this month, and they 

are called the C–10s. And that pool of mariners are gone, because 

once they actually get to sleep in their own beds, they don’t come 

back. They don’t come back. They truly don’t. And we have lost the 

expertise and training for these individuals. We are very skilled, 

we are very trained in making sure that that ship gets from point 

A to point B. 

31 

And I look at the food aid. When we deliver that cargo, we know 

at least that cargo got to the docks. 

So to me, the biggest thing is educating and keeping this trained 

pool that General Fraser is counting on, because once they leave, 

they are gone. They don’t come back to the industry, and we can’t 

afford to lose one ship. 

Mr. PYNE. You know, I actually think that if we define the parameters and then—and everybody understands what they are and 

then you let the market work within these parameters, this business will thrive, and that is taking out uncertainty so that you can 

make investments and know that the rules aren’t going to change 

after you have made an investment that is in a 30-year lived asset. 

It means a stable regulatory environment, tax policy that people 

understand, a consistent energy policy. If you do those things, I 

think that you will see this business grow and thrive. 

Our issue is just all the uncertainty that occurs when we start 

talking about, you know, waivers for the Jones Act when capacity 

is out there that can carry the cargoes. We talk about compromises 

to programs that support the maritime business. If we could just 

get a more certain set of rules, I think we would do fine. 

Mr. GARAMENDI. Mr. Harris. 

Mr. HARRIS. Yeah. I would concur with Mr. Pyne that—— 

Mr. HUNTER. Microphone. 

Mr. HARRIS. Sorry—that, you know, sustained policies, sustained 

programs, good understanding of what is coming in the next 5 

years to 10 years so you can invest. There has been a lot of press 

lately about being able to, for example, in this country build the 

number of ships necessary. Somebody talked about we need 30 

product carriers in the next 3 to 4 years. The industry today could 

probably build 10 a year. It would take us a year to sort of get the 

design done and then start building. So there is capacity here to 

do that and there is capability and talent here to do that, and capability and talent to man the ships. So thinking that it is all done 

is wrong, but putting forth a sustained maritime policy, the Government shipbuilding program, we understand what is in front of 

us, we will bring people back into this business and industry. 

Mr. GARAMENDI. Mr. Chairman, with the ability to send specific 

questions off to the panel, I think I will let it go at that. The marine highway, we haven’t discussed that much, but the consistency 

of policy and a national strategy that is implemented through the 

years, coherent, each element in place with a consistent level of 

funding through the years is I think where the answer will lie to 

most of this. 

Mr. Chairman, I yield. 

Mr. HUNTER. Thank the gentleman. Mr. Rice is finally recognized. 

Mr. RICE. Thank you, Mr. Chairman. 

Mr. Pyne, why have we lost 90 percent of our capacity in the last 

35 years? What is it that makes us not competitive? 

Mr. PYNE. I think that—excuse me, Congressman. 

You know, foreign-flag vessels play by a different set of rules. If 

they played by the same rules that U.S.-flag vessels played by, I 

think that you wouldn’t have lost that capacity. 

32 

Mr. RICE. You said if we played by the same rules that the U.S.- 

flag vessels played by? 

Mr. PYNE. Yes. That is correct. If you applied the same set of 

laws, if you applied the labor laws, environmental laws, in some 

cases higher standards, paid foreign crews at U.S. labor rates, 

which aren’t excessive, and made them pay taxes. There are a lot 

of foreign owners who do not pay taxes and there are a number of 

countries that actually subsidize their maritime businesses. It is 

not a level playing field. If you had a level playing field, I think 

that indeed you would recapture a lot of that lost cargo. 

Mr. RICE. Yeah. I am just trying to understand and learn, and 

if I sound too aggressive, I am not trying to attack you, I am just 

trying to understand why. Where are—you know, we are building 

ships in the United States today, correct? 

Mr. PYNE. Yes, we are. 

Mr. RICE. How many do we build in a year? 

Mr. PYNE. I will defer to Mr. Harris. 

Mr. HARRIS. Yes. Generally between Navy ships and oceangoing 

commercial ships, maybe an average of 12 to 15. 

Mr. RICE. And how many are being built worldwide? 

Mr. HARRIS. Oh, we build less than .2 percent of the total population. There are shipyards in Korea that build in 1 year what we 

would build in 15. 

Mr. RICE. And why is Korea—why is this business located in 

Korea? Why can’t we compete with Korea? Is it again because of 

the Government regulation you were talking about? 

Mr. HARRIS. It is some of that. With Government regulations, 

OSHA standards, environmental standards, they are absolutely not 

where we are today, so they get to build their ships in a bit different environment. But the other thing is that today, for example, 

in Korea, we are not talking about having a committee meeting. 

There is a cabinet position called the ministry—the Minister of 

Shipbuilding. That is his job. One job. It is an important national 

item. 

Talking about American shipbuilding as compared to Korean 

shipbuilding is apples and watermelons. The volume is the issue. 

Mr. Pyne referenced volume. Volume is the issue. When you are 

building 12 to 15 ships a year in 5 or 6 different shipyards around 

the U.S. and you are building 225 in 1 shipyard alone in Korea, 

you quickly—not only from a material standpoint. Steel. In this 

country in shipbuilding, we consume about 100,000 pounds—I 

mean, 100,000 tons of steel a year. In Korea, for their shipbuilding 

industry, it is about 16 million tons a year. So when I go buy steel, 

and I buy at the best price I can get it in the U.S., I buy steel, it 

is at least $300 a ton more than the steel bought in Korea. 

Mr. RICE. Just because of their volume? 

Mr. HARRIS. Because of their volume. 

Mr. RICE. OK. Well, I would like to get our volume up. Korean 

ships, the ones that are built there, are they all flagged in Korea? 

Mr. HARRIS. They are flagged internationally. 

Mr. RICE. Everywhere. 

Mr. HARRIS. All over the—— 

Mr. RICE. All over the place. And what determines where they 

flag them? 

33 

Mr. HARRIS. Whoever the owner is who comes to buy them. 

Mr. RICE. But why does an owner choose—where are most ships 

flagged? 

Mr. HARRIS. Where are they flagged? 

Mr. RICE. Yeah. Where are they mostly flagged? 

Mr. PYNE. Well, they are—— 

Mr. HARRIS. Mic. 

Mr. PYNE. Yeah. Panama, the Bahamas. 

Mr. HARRIS. Liberia. 

Mr. PYNE. Liberia. 

Mr. RICE. Why? Why would they choose to flag in Panama, for 

example? 

Mr. HARRIS. No Coast Guard regulations, not like U.S.-flag ships, 

you know, different—— 

Mr. RICE. More Government regulation and taxes is what you 

are saying, right? 

Mr. HARRIS. But also they don’t pay the tax or any of it, and they 

crew—you may have a Liberian registered flag, Panamanian flag 

with a crew from halfway around the world in some other country. 

Mr. RICE. All right. U.S. ships, the ones that we are building, are 

they flagged around the world or mostly flagged in the United 

States? 

Mr. HARRIS. Flagged in the U.S. So by—— 

Mr. RICE. Are all of them flagged in the United States? 

Mr. HARRIS. I don’t know for sure. There may be some smaller 

ones that are not, but I would say the vast majority. 

Mr. RICE. Most all of them. Why would a U.S.-flag ship not be 

flagged in Panama? 

Mr. HARRIS. Because if they wanted to engage in Jones Act 

trade, they have to be U.S.-flagged and U.S.-built. And they also 

then have to pay U.S. taxes and have to be subject to U.S. OSHA 

requirements, safety requirements and built with those requirements. 

Mr. RICE. Well, you know, I hear you saying that one of the reasons we can’t compete is because other countries subsidize their 

shipping fleet, but, gosh, looking through this notebook and the 

Jones Act itself, it appears to me the United States is really heavily subsidizing our shipping fleet. 

What you are telling me, I think the basis of it is, is that because 

of Government tax and regulation, we can’t compete. Is that what 

you are saying? I mean, when you boil it down, that—— 

Mr. HARRIS. No, I am saying this, and I will say it clearly: volume is a big issue, and no matter what you do with volume, unless 

you have comparable volume—— 

Mr. RICE. Yeah, but we had the volume at one time. We did. We 

were building, I think they said, 25 percent of the ships. We had 

the volume and we lost it. 

Mr. HARRIS. And then—— 

Mr. RICE. And why did we lose it? That is what I am trying to 

get to. And what I want to do is change whatever that is to make 

us more competitive. 

Mr. HARRIS. What happened is internationally shipowners that 

are not American shipowners, many of them found that they could 

build ships overseas for much, much, much less cost and then regVerDate Aug 31 2005 15:23 Jan 16, 2014 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 P:\HEARINGS\113\CG\5-21-1~1\81148.TXT JEAN
34 

ister them under some other flag and not end up being U.S. inspected. 

Mr. RICE. OK. Well, if that is the problem, if they found that 

they could flag it for much less cost, then what we need to do is 

structure ours where they can flag it here for no more expensive, 

right? I mean, why can’t we be competitive with the rest of the 

world? There needs to be a balance between, you know, regulation 

and cost. And if our regulatory policy is so expensive that it destroys an entire industry, which it looks like where we are headed 

here, we have lost 90 percent of ours in the last 35 years, then 

maybe we ought to look at our regulatory policy. 

Mr. PYNE. And, Congressman, we wouldn’t disagree with that, 

but it is more complex than that. In your State the textile industry 

has essentially been exported for many of the same reasons. It is 

just a lot cheaper to make something in Bangladesh than it is in 

the United States. So it is a very, very complicated economic situation. 

Having said that, we would welcome the opportunity to come 

visit with you and—— 

Mr. RICE. I would love that. I need to learn more about this. 

And with respect to the textile industry, you know, I agree with 

you that the vast bulk of it has been exported, but that being said, 

you know, we are carrying 2 percent American-flag ships, I think 

you said carrying 2 percent of the world’s cargo, sounds like most 

of that is coming from the U.S. Government. 

Mr. PYNE. Well, no. There is a much broader tug and barge business, which I represent, that carries, you know, millions of tons of 

cargo, millions of barrels of cargo competitively on the inland waterway system of the United States as well as the three coasts and 

Alaska and Hawaii. So there—we are talking about a hundred ship 

fleet mostly here, but there is a much broader commercial maritime business in the U.S. than just those ships. 

Mr. RICE. Well, you know, as bad as the textile industry has 

been hurt, I promise you a lot more than 2 percent of the textiles 

in the world are being created in the United States. 

Mr. PYNE. Right. 

Mr. RICE. But we don’t have the apparent protectionist policies 

with respect to that industry that we do here. 

Mr. PYNE. Yeah. 

Mr. RICE. One more thing. My time is way over, I am sorry, but 

post-Panama canal ships, these huge containers that, you know, 

are going to drive down the cost of shipping worldwide, are we 

building any of those in the United States? 

Mr. HARRIS. No. 

Mr. RICE. I think that is a—— 

Mr. HARRIS. We are not. We are building in the neighborhood of 

3,500 TDU would be the upper end of the ships we are building. 

Mr. RICE. That is a very sad commentary. Are any of those going 

to be flagged in the United States? Any of them? 

Mr. HARRIS. Not that I know of. 

Mr. RICE. Gosh, we need to reexamine this. We are doing something very, very clearly wrong. Anyway, I would love to talk to you 

about it, I would love to learn more about it. I know that I am 

not—— 

35 

Mr. HARRIS. Well, just to add one more thing here, when Mr. 

Pyne talked about what happens in the world, for example, right 

now what is going on in large container ship shipbuilding, Hanjin, 

a company in Korea, has been established in Korea for years. They 

just opened up a brand-new shipyard in the Philippines, 20,000 

shipyard workers building ships. They pay their shipyard workers 

in Korea about $35 an hour. They pay their shipyard workers in 

the Philippines $3 an hour. So trying to compete with that internationally is very difficult. 

Mr. RICE. I said in a Ports Subcommittee meeting a month ago— 

I have repeated this a lot of times—but a representative of the 

Maersk shipping line was there, and he said that they were building distribution centers in the Caribbean because they didn’t want 

to deal with the United States Government. That is a mighty scary 

statement to make. People used to come here because they wanted 

to deal with the United States Government. 

We need to reexamine these policies, and we need to come up 

with something to help you guys be competitive. 

Thank you very much. 

Mr. TELLEZ. May I just clarify something? And it goes back to 

what Mr. Pyne was saying. 

The domestic Jones Act industry is a vibrant, growing industry. 

It is viable, and there are companies out there—along with Kirby, 

there is Crowley—there are companies out there that have invested 

billions of dollars in recapitalizing their fleets for domestic trade. 

So the domestic trades, the Jones Act fleets are growing, they are 

being modernized, and they are a going concern. 

So we have to differentiate between the loss of the international 

fleet and their cargoes and the Jones Act and the domestic fleet. 

Two very different animals. 

Mr. HUNTER. Gentlemen, thank you. This has been one of the 

most informative and interesting hearings we have had, especially 

getting the administration and DOD’s side prior to your testimony. 

So thanks for what you are doing for the industry and for the country. 

And, with that, the subcommittee stands adjourned. 

[Whereupon, at 11:35 a.m., the subcommittee was adjourned.] 

36 


Insert offset folio 7 here 81148.007

STATEMENT OF JOHN D. PORCARI 

DEPUTY SECRETARY 

U.S. DEPARTMENT OF TRANSPORTATION 

BEFORE THE 

HOUSE COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION 

Maritime Transportation: The Role of U.S. Ships and Mariners 

May 21,2013 

Chairman Hunter and Ranking Member Garamendi, thank you for the opportunity to present testimony to 

the Subcommittee regarding the role of the U.S.-flag maritime fleet, the maritime workforce, and 

shipbuilding to protect the Nation's commercial and defense requirements. The Department of 

Transportation (US DOT) has the responsibility for promoting the U.S.-flag fleet including U.S. cargo 

preference requirements for Federal agencies. I am John Porcari, Deputy Secretary of Transportation, 

testifYing on behalf of U.S. Transportation Secretary Ray LaHood. 

RECENT TRENDS AND CURRENT CHALLENGES FOR THE U.S. MERCHANT MARINE 

To understand the role of ships and mariners, it is necessary to understand US. maritime policy in its two 

primary dimensions, coastwise or cabotage trade and international trade. Since the enactment of U.S. 

cabotage law in 1817, our national policy for coastwise commerce is to reserve this trade for U.S. ships 

and U.S. mariners. Contemporary cabotage policy continues under the Merchant Marine Act of 1920, 

commonly referred to as the Jones Act, with coastwise trade also referred to as Jones Act trade. The 

Jones Act was designed to encourage development of a national flag fleet and to protect that fleet from 

anti-competitive practices by foreign carriers. The national policy for international maritime commerce 

was set forth in the Merchant Marine Act of 1936 which included the premise that a substantial portion of 

our foreign trade should be carried on U.S. ships. Intersecting all of this is our national security policy 

which stipulates that our domestic merchant marine, both ships and mariners, shall serve as a naval 

auxiliary in times of war or national emergency. 

There are many complex factors that influence current conditions and the long-term outlook in the 

domestic oceangoing trad~s of large self-propelled vessels. with some factors for Jones Act ships 

indicating that the industry is trending toward a growth phase in the oceangoing segment. Self-propelled 

oceangoing vessels of 1,000 gross tons or more each in the Jones Act trades experienced a net decrease of 

15 vessels since the beginning of 20 1 0, with 91 vessels currently operating, primarily because of the 

retirement of older tankers as a result of the Oil Pollution Act of 1990. At the same time, there has been 

an offsetting increase in large oceangoing tank barges, most in the form of articulated tug-barges (ATBs) 

that function in much the same way as self-propelled oceangoing vessels but with smaller crews and 

slower speeds. Importantly, the recent surge in domestic cmde oil production has increased demand for 

new domestic self-propelled tanker vessels. One recent industry projection foresees roughly 10 to 14 new 

oceangoing tankers entering the fleet by 2018, and demand for even more vessels. Recent 

announcements of new containership orders to work in the Jones Act trades are also encouraging signals 

for industry growth. These containerships would be powered by U.S.-produced liquefied natural gas 

(LNG) and would be among the most environmentally friendly form of freight transportation on earth. Of 

course, the numbers above do not include the many thousands of other smaller vessels, such as tugs, 

smaller barges, service boats, and others described below that are part of the inland and coastal waterway 

trades. 

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Insert offset folio 8 here 81148.008

Jones Act commerce also encompasses the Great Lakes and inland waterways. A recent MARAD study 

on the Great Lakes dry bulk fleet indicates that the fleet has weathered the recession and is generally 

healthy, although the drop in coal cargoes transported on the Lakes due to inexpensive natural gas and 

other factors is a concern to the industry. 

The Bureau of Labor Statistics reports that the number of mariners involved in coastal and inland 

transpOltation has been holding constant or increasing slightly during the last several years, reaching 

almost 37,000 as of20J2. A smaller pool of approximately 15,000 actively sailing mariners who hold the 

necessary U.S. Coast Guard (USCG) credential and international endorsement to sail in the commercial 

oceangoing U.S.-nag shipping industry is the primary source of mariners to crew the sealift ships that our 

Nation relies on in times of war, national emergencies, natural disasters, and other contingencies. 

The sufficiency ofthis mariner pool to support a large-scale activation ofthe DOD and USDOT sealift 

fleet depends upon the health and size of the commercial U.S.-flag oceangoing merchant fleet. A Heet 

that is sufficiently sized will result in a critical mass of merchant mariners with the necessary credentials 

to meet the crewing requirements of both the commercial and sealift neets during national emergencies. 

As of today, the matiner pool is adequate for both of these sealift needs. However, we are concerned that, 

the costs of operating under U.S. registry may result in continued reductions in the oceangoing 

commercial neet. MARAD is working closely with DOD and industry to support the U.S.-flag neet and 

to facilitate the retention of these mariners including the establishment of a working group to develop a 

national sealift strategy that ensures the long tenn viability of the U.S. Merchant Marine as a naval 

auxiliary and as a U.S. presence in international trade. 

Over 97% of our foreign trade is carried on foreign-flag vessels, particularly the growing number of 

larger containerships that are being widely deployed on the world's oceans. These large vessels, which 

exceed 5,000 twenty-foot equivalent unit (TEU) containers are already aniving at U.S. West Coast and 

East Coast ports. As the expansion of the Panama Canal nears completion, some East Coast and some 

Gulf Coast ports are investing in the necessary infrastructure to compete for a share of this market. The 

major West Coast ports already have channel depths and pier-side cranes that can service these vessels, as 

do two East Coast ports, and other major East Coast and Gulf Coast ports will be prepared for vessel calls 

by post-Panamax ships by the time the expanded Panama Canal is fully operational. The American 

Association of Port Authorities reports that U.S. seaport agencies and their private-sector partners plan to 

invest a combined $46 billion over the next five years in capital improvements to their marine operations 

and other port properties. MAP-21 directs US DOT to establish a national freight planning process that 

will, among other o~jectives, identif'y needs for improved intennodal connections between ports and the 

surface transportation system. 

Not long ago there was a concern that two major U.S_ commercial shipyards would be laying off 

employees, but the new construction projects are creating the prospects of much stronger employment in 

the future, replacing some of the void left from a reduction in U.S. Navy shipbuilding contracts. Gulf 

Coast shipyards are now very busy building offshore platform supply vessels to support the oil and gas 

industry. It is important to note that the U.S. shipyard industry is benefitting greatly from the Jones Act, 

which requires ships in the domestic trades to be built in U.S. shipyards. Commercial orders filled by 

these yards also benefit the U.S. Navy as a result of increased shipyard efficiency associated with greater 

shipyard utilization and commercial production methods. Smaller shipyards are also benefiting from 

investments made under the Small Shipyard Grant Program, enabling them to produce or service vessels 

more efficiently. 

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USDOT/MARAD ROLE IN SUSTAINING THE VIABILITY OF THE INDUSTRY 

USDOT and MARAD have been working on many initiatives to provide support to the marine 

transportation system. The initiatives include support to our foreign and domestic trading fleets, 

innovations in support to u.s. ports, assistance to shipyards, and strengthening of our nation's ability to 

train new mariners. Even so, we acknowledge that much of the progress and innovation in the U.S. 

maritime sector is driven by commercial companies and port authorities that handle the day-to-day 

investment in and operation of the marine transportation system. 

International Trade: Ensuring U.S. Maritime Capabilities to Meet National Security and 

Economic Needs 

MARAD administers the Maritime Security Program (MSP), a fleet of 60 active, commercially viable, 

militarily useful, privately-owned vessels available to meet national defense and other security 

requirements. On January 2, 2013, President Obama signed the Fiscal Year (FY) 2013 National Defense 

Authorization Act (NDAA) that authorizes the Secretary of Transportation to extend existing MSP 

operating agreements through September 30, 2025. The current annual stipend payment per ship of $3.1 

million was extended through FY 2018, increasing to $3.5 million in FY 2019-FY 2021 and $3.7 million 

in FY 2022-FY 2025. 

During the coming months, MARAD intends to make promulgating cargo preference related regulations a 

priority, but the timeframe to accomplish this is uncertain. These regulations will serve as implementing 

regulations, encompassing recent changes in the cargo preference program, including those enacted by 

MAP-21. The regulations will also aim to eliminate ambiguity in current procedures and compliance 

requirements. 

With regard to sealift, MARAD has made significant progress in improving the readiness and efficiency 

of the government-owned sealift fleet over the last several years. In particular, it has restored the 

readiness of eight Fast Sealift Ships and brought these ships into the MARAD Ready Reserve Force 

(RRF) fleet, saving the government roughly $20 million per year in readiness costs. MARAD has also 

identified efficiencies capable of producing an additional savings in federal vessel management and is 

working with the U.S. Navy on implementation. MARAD demonstrated the national and homeland 

security values of this fleet through the quick-response activation and use ofRRF and National Defense 

Reserve Fleet (NDRF) vessels during the relief effort for the earthquake in Haiti and during the response 

to Superstorm Sandy. 

The President's FY 14 Budget proposes restructuring the P.L. 480 Title II food aid program to allow local 

and regional procurement offood and to improve the ability of U.S. food aid to reach emergency needs 

quickly and with less adverse impacts on markets and farmers in countries receiving the food aid. Under 

the President's proposal, 55 percent of Title Il food aid funds would still be spent in the United States in 

FY 2014 and ofthat, 50 percent of the cargoes would move on U.S.-flag vessels. DOD has stated that its 

initial assessment is that changes to the Food Aid Program will not impact the maritime industry's ability 

to crew the surge fleet and deploy forces and cargo. Furthermore. to mitigate any impact on vessels and 

mariners, the Administration is proposing a $25 million targeted operating subsidy for military-useful 

vessels. Preliminary planning for this funding envisions a three-pronged approach whereby some of the 

funding would provide a stipend for militarily useful vessels not enrolled in the MSP, other sums would 

be used to reimburse eligible costs for mariners to retain and or renew active U.S. Coast Guard issued 

merchant mariner credentials, and some funds would provide apprentice training tor key merchant 

mariner skills. MARAD will work with stakeholders and our Federal partners on how best to use this 

funding to minimize any impact. 

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Domestic Trade: .Furtbering U.S. Sbipbuilding and Jones Act Trade 

MARAD strongly supports and will continue to support compliance with the Jones Act. In some cases, 

emergencies, national defense, or other circumstances may require limited waivers to U.S. carriage 

requirements of some cargoes, such as during the recent response to Superstorm Sandy. Even in these 

situations, however, the use of Jones Act-eligible vessels must be maximized. Accordingly, MARAD has 

developed an improved Jones Act Waiver Process to achieve greater transparency and U.S. stakeholder 

participation during times of emergency or national defense needs. With regard to releases of oil from the 

Strategic Petroleum Reserve (SPR), MARAD has established precedent to avoid automatic large-scale 

blanket waivers of Jones Act requirements. In a first for any Administration, MARAD specifically 

arranged for U.S.-flag participation in the SPR release of September 20 II. 

MARAD has also obtained agreement with the Department of Energy to ensure U.S.-flag tank vessels and 

barges will have an opportunity for greater patiicipation in any future drawdown. In the past year, 

Congress has passed two pieces of legislation with the goal of improving communication and 

transparency in the Jones Act waiver and SPR crude oil transpot1ation process. In order to meet these 

new requirements, USDOT and MARAD have made preparations for better infonnation sbaring with 

industry and have developed a plan to reach out to industry leaders on Jones Act tank vessel availability 

whenever a drawdown of the SPR is imminent. During the Superstorrn Sandy lhel shortages, MARAD 

implemented innovative reporting requirements to provide transparency of Jones Act waiver utilization. 1 

USDOT and MARAD have undertaken numerous initiatives to help support the U.S. domestic maritime 

trades. One source of support to the U.S. shipyard industry and U.S.-flag carriers is the Maritime 

Guaranteed Loan Program, widely referred to as the Title XI program. MARAD is authorized to 

guarantee up to 87.5 percent of the obligations on private sector debt financing for ships constructed, 

reconstructed, or reconditioned in the United States. Over the last four years. Title XI has enabled more 

than $650 million in new investments in U.S. shipbuilding. 

The Title Xl program has never had to disapprove a creditworthy application due to a lack funding. 

There is currently enough budget authority to guarantee approximately $420 million worth of 

shipbuilding projects while the Title Xl program currently has applications pending for over $500 million 

in loan guarantees. However, no determination on the creditworthiness of the pending applications has 

been completed. MARAD recognizes the need to expedite responses to Title Xl applications. As a result, 

reform actions are being implemented including reevaluating application timing procedures and issuing 

guidance to improve the efficiency oftbe process. 

The Small Shipyard Grant Program, established lmder the FY 2006 NDAA, supports capital 

improvements to qualified shipyards. Since 2009, USDOT has provided more than $ I 49 million for more 

than 120 projects to help modernize U.S. shipyards located in 28 states and Guam. These grants have 

been helpful to shipyards in obtaining new contracts, including contracts to export vessels, and have 

contributed to the U.S. being a net exporter of commercially built vessels six out of the last 10 years, with 

a surplus of nearly $410 million. 

MARAD has made major progress in establishing the America's Marine Highway Program, which, over 

the long run, offers an important new market for Jones Act vessels. Under tbis program, MARAD 

supports and promotes the movement offreight in containers and trailers between domestic U.S. ports, 

1 Information Collection 2133-0545 allolYs the Maritime Administration to collect infonnation from coastwise 

qualified vessel owners. operators, chruterers, brokers and representatives. The information will be used specifically 

to determine if there are coastwise qualified vessels available for a certain requirement. 

4 
40 


Insert offset folio 11 here 81148.011

helping to relieve congestion on the Nation's highways and railroads. Over the last four years, MARAD 

established the formal program by issuing a final rule, designated 18 Marine Highway Corridors, issued a 

report to Congress on the status and outlook of the America's Marine Highway Program, invested $129.7 

million in 16 projects supporting Marine Highway objectives (largely through Transportation Investment 

Generating Economic Recovery (TIGER) grants), created concept designs for a potential new marine 

highway vessel, and undertook three market analyses of potential marine highway services. MARAD is 

currently in the process of coordinating the designation of additional Marine Highway Corridors, which 

will facilitate the ability of companies to establish services and to qualify for project grants. TIGER funds 

were appropriated and were in the FY 2014 budget. 

First Time Funding for Ports 

USDOT and MARAD have supported port investment through the award of TIGER grants to port 

authorities. Of those, 10 (totaling $122 million) were for Marine Highway projects and 15 (totaling 

$226.6 million) were awarded to improve and modemize ports and rail infrastructure serving ports, 

expand commerce, create jobs, and increase exports. These Federal funds were the first ever 

competitively awarded by USDOT for port infrastructure. MARAD also sponsored two National Port 

Summits that brought together the Nation's port directors for policy discussion with the Secretary of 

Transportation regarding the integration of water home transportation into the Nation's overall 

transportation system. 

Merchant Marine Academy Improvements: 

The U.S. Merchant Marine Academy (USMMA) at Kings Point, NY is a national asset and a top priority 

for USDOT and MARAD. The mission ofthe Academy is to educate and graduate licensed merchant 

mariners and leaders who will serve America's marine transportation and defense needs in peace and war. 

Along with the six State maritime academics, Kings Point plays a central role in preparing the Nation's 

licensed maritime workforce. 

Strengthening Capabilities to Assist Industry ,~ith Maritime Operational Issues 

MARAD has been providing important assistance to the maritime industry on issues that will reduce the 

cost of operating under the U.S.-flag. To do so, it has developed a comprehensive strategy for 

environmental, safety, and security initiatives. 

The Act to Prevent Pollution from Ships implements the provisions ofthe International Convention for 

the Prevention of' Pollution from Ships (known as MARPOL), including the annexes to MARPOL to 

which the U.S. is a party. MARPOL provisions address pollution from ships in the course of their normal 

operations, including in respect to oil, noxious liquid substances, garbage, and air emissions. Compliance 

with these provisions can impose significant costs on vessel owners. MARAD is working to assist U.S. 

vessel owners in their efforts to comply with these requirements. In concert with other federal, state and 

industry stakeholders, it is also assisting in the development of improved shipboard air pollution control 

technology, investigating the use of pier-side fuel cells to enable vessel cold ironing while in port, and 

exploring the possible use of renewable fuels, such as biofuel, in commercial vessels. In other work 

relevant to protecting the marine environment, MARAD has advanced a ballast water testing initiative 

and funded the first U.S. Coast Guard-certified lab for ballast water testing. 

Organi7.ationalOntreach 

MARAD will continue to push for improvements in its support to industry and the public through a 

variety of initiatives pertaining to organizational excellence. In FY 2010, MARAD, in collaboration with 

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Insert offset folio 12 here 81148.012

US DOT, re-established the Marine Transportation System National Advisory Council (MTSNAC) to 

advise the Secretary of Transportation on MTS issues, paying specific attention to the expansion and 

development ofthe Nation's marine highway and port system through its marine highway subcommittee 

and the Secretary's Port Advisory Council. 

Thank you for the opportunity to discuss the role of U.S. ships and mariners in meeting our Nation's 

commercial and defense needs. I am happy to respond to any questions you have. 

6 
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Insert offset folio 13 here 81148.013

Subcommittee on Coast Guard and Maritime Trausportation 

Hearing on Maritime Transportation: The Role of U.S. Ships and Mariners 

Tuesday, May 21,2013 

Questions for the Record to the Honorable John Porcari, 

Deputy Secretary, U.S. Department of Transportation 

Questions from the Honorable Duncan Hunter (R-CA): 

As noted at the hearing, the FY09 NDAA requires MARAD to issue regulations that would allmv 

the department to enforce existing cargo preference laws. To date, those regulations have not 

been issued. Cargo preference programs help maillfain the US.:flagjleet, 'which helps meet the 

nation '.I' national security needs, NoH', more than ever, it is critical that cargo preference laYt~s 

be enforced, as the drawdoll'll has resulted in a rapid decline of DOD cargoes. 

The NDAA provision allows the regulations to be dr(1{ied in such a way that gives MARAD the 

authoriZY to work with other gOl'('rnment agencies to ensure compliance with cargo preference 

laws and impose penalties on shippers that do not comply with those laws. It is critical that 

these regulations grant MARAD enforcement authority so the agency can properly administer 

the cargo programs {/wt support the US.:flag maritime industlY. Will these regulations reflect 

Congressional intent regarding lvfARAD 's authori~v and 'when call we expect to see those 

regulations issued? 

Issuing a ncw proposed rule to administer the cargo prelCrence program is a top priority and 

!'dARAD will inc(llllomte the statutory requirements into the new rull'. MARAD will work with 

our federal partners to devclop the proposed rule till' notice and public comment. In the 

meantime. MARAD continues to \\'01''' with U.S. government agencies to identify both civilian 

and military cargll opportunities t('r U.S.-flag carriers, 

Due to sequestration and thc FYJ3 Continuing Resolution, MSP isfacing a shortfall of over $20 

million. Consequently, carriers ,rill receive partial payments in August and no payment in 

September. I/the program is not/idly fimded, then the gOI'ernment will be in default of its 

obligations and thus participants will have the ability to leave the program. Should this occur, 

what impact would this have on sealift? Would it also negativcZv impact readiness? How do you 

intend to address thejimding short/all? What is the planfor 2014 should sequestration still be in 

e.((ect at the beginning of FYJ4? 

Recently. all (iO agreement holders suhmitted operating agreements to MARAD extending their 

commitments under the program thrllugh 2025 and none have indicated that they plan to leave 

the MSP program due to funding shortiillls in FY 201J. Currently. all 60 agreemcnt holders 

have been extended through January 15.2014. with the passage of the Continuing 
43 


Insert offset folio 14 here 81148.014

Appropriations Act. 2014. MARAD and the Department of Defense (DOD) are working elosely 

together to limit any negative impact to the program and to sealift capahilities due to budget 

e<)nstraints should a funding shorthlll occur aner January 15.2014. 

What would it mean in terms of helping to slistain thc US:flaggedfleet and US civilian mariner 

pool if USAID were to change its business practices? For example, go to service contracts; 

source loading; and, containerizatio/l ()fcargocs. To H·llat extent does the way the military does 

business with the carriers represent a model/or USAID to/Ol/OH'? What benefits could be 

accrued ifUSAID came under the Defense Transportation System? 

Long-term C<l1ltraets prtlvide certainty of future sen ices ttlr both the carrier and the shipper and 

could clll1tribute tll stability in the lI.S.-Hag Ileet. Where IOllt!-term contracts arc possible. they 

could alill\\ I(lr Jllore predictable sen icc and e,'sl. I'lltcntially lowering costs through increased 

competition. DOD elfectively and eftieicntly 1IlOH's a \aq amount orcaI'go through the Defense 

Transl'urtation System using almost e.\clu,;i\(:iy lJ's'-flag \'Cssels. Exploring long-telll1 shipping 

solutions <Ind other options. including opportunities within the Defense Transportation System. 

c(luld he bendicial to the U.S.-tlag fleet. At the same time. delivering i()()d aid. particularly in 

emergencies. may require different ptaclicc,; c()!llparl'd to deJi\'cring prl'dictablc shipmcnts of 

supplies to military bases abroad. 

Questions from the Honorable ,John Garamendi (D-CA) 

2009 NDAA Cargo Preference Rulemaking 

Mr. Porcari, Congress included in section 3511 of the 2009 National Defense Authorization Act 

amendments that strengthened cargo pre/erenee requirements/or the shipment of government 

impelled cargo on U.S . .flag vessels bvfederal agencies. MARAD initiated a rulemaking to 

implement these changes but a/ina! rule has never appeared. 

• What is the status ()/'this rulemaking? What is your department doing to push this rule 

through OMB? 

Issuing a proposed rule to administer the ulrt!(l preference program is a top priority and MARAD 

currently is c1e\'eloping rule language to update its cargo preference regulations and implement 

the enforcement provisions of the Duncan Ilunter National Defense Authorization Act for Fiscal 

y car 2009. I acknowledge the Ihtstration that has been expressed about the delay in 

implementing this rule: however. prior cft(1l1s to issue this rule have contributed to the current 

rulcmaking em,rt by the Department of Transportation (DOT) and MARAD. Preliminary draft 

rule language is under review within DOT. 

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44 


Insert offset folio 15 here 81148.015

Food for Peace Refonn 

lvIr. Porcari. this administration '.1' proposed restructuring oj'ri1e r(lOdfor Peace Program would 

appzyfor Fiscal Year 2014 but it is not clear what the administration '.1' intention is/or the olllyears. 

• What is the long-term strategy? Is this just the/irsl step in a multi-year strategy to 

gradualzy phase out allforeign/ood aid shipments abroad? 

• Is the administration committed to maintaining some percentage o(foreignfood aid 

shipments, and if so, what level might that he? 

Questions on the specitic structure (If I,\od ,tid rcf(>nn should be directed to the U.S. Agency It)]' 

International DC\ c1oplllcn1. For the FY' 2014 Budget. the Adlllinistrntiol1 proposal was 

cOl1structed so that (l\er hal f ofthe t(lod aid pnl\'ided under tlk' rcf(mll would lise U.S. 

cOlllll1odities ttl!' practical reasons. among others. 

Marine Highways 

Mr. Porcari, America's Marine High-way System consists of over 29,000 nautical miles of 

navigable watenwlYs, including rivers, bays, channels, the Great Lakes, and Saint Lawrence 

Seaway System and coastal routes. The Marine Highway system is a rohust and '-!flicien! means 

of'mol'ingfreight in terms of cost per ton-mile and yet, it is the most underutilized of our 

transportation modes. In 2007, water serdccs carried onlv 13 percent of the nation's ton-miles of 

domestic freight, downfi'om 26 percent in /965. Fortunately, a Marine Highway pilot project 

utilizing the Sacramento Ri"er corridor is pioneering the establishment ola container on barge 

ser"ice linking the ports olOakland, Stockton and West Sacramento. 

General/v, most observers consider Marine Highlmys a viable/i'eight transportation 

option that can relieve congestion and deliver environmental benefits, Why hasn't the 

administration requestedfill1ding to more/idly utilize and build out Marine Highways? 

The Administration has supported funding 1(\1' Marine Highways hoth through the Transpurtation 

Im'cst111ent Generating Economic Recovery (TIGER) and the Marine Higl1\vay Discretionary 

Grant Program. Both programs hmc pro\'iclcd tlmds. totaling 5> t 30 million since 2009. to help 

initiate 11CI\' Marine Highway S<;I'\'ices. MARAD has been able to leverage grant awards from 

those programs to help establish services in Calitclrnia and Virginia. and we arc seeing 

prospccti\'c nC\I' services along the Tennessec Tombighcc Waterway and the GulrCoasl. The 

3 
45 


Insert offset folio 16 here 81148.016

Administration. again t(l!' FY 2014. has requested S500 million in funding tt)r TIGER grants 

which will continue to prm"idc support ttl[ ports and Marine Highway sen ices. 

Mr. Porcari. the Maritime Guarantee Loan (Title XI) Program prOl'ides/or afidlfaith and 

credit guarantee «(debt obligations issued by Us. orforeign ship owners toflnance, refinance 

the construction, reconstruction. or reconditioning of us. flag vessels or eligible export vessels 

in Us. shipyards; or to guarantee obligations by us. shipyard owners tofinancc the 

modernization of shipbuilding technologies at Us. shipyards. At present, the Title XI program 

manages loan port/olio valued at $/.8 billion. the port/olio has declined by more than ha!ifi'om 

$4.2 billion port/olio in 2002 as MARAD has approvcdfewcr andfewcr loan applications. The 

administration has not rcquestedfill1ding other than/or administrative expenses/or the past two 

fiscal years. 

• Why has the administration decided to pull backfi'om making guarantees under Title Xl? 

• Do YOlt agree that Title XI could provide vel)' hclpfitl.financial assistance/or 

recapitalization of the Us. coaslH'isefleet, for re-poH'ering I'essels to comp(1' ,vith new 

emission requirements. alld to stimulate more shipbuilding acti\'i~v/or LNG tankers and 

LNG-poyvered vessels? 

• In your testimony at the hearing you indicated that the Title Xlfimding was slifticientfor 

applications "that are currently in the pipelinc. " but/hal there is current~y no needfilr 

additional capacity. Specifically, you stated that the needfor additional capacity "is a 

sitllation that H'C would like to be in " Has there been a decrease in Title Xl applications, 

lind if'so, has this in part been caused by the decrease infil/uling under Title XI? 

The Administration has not made any decisioll to pull hack li'om making guarantees under Title 

Xl. Currently there is S.\S million in funding mailabk to jZlr Title XI guarantees, 

Creditwi,trthll1cs:-, <.!\,.'{enninallons {)f the pending applicatipn:-; hav\.' nut been c~)Jllpklc-d: thcr~rnrc 

award" lIsing the S3l\ million ,an')'o\'cr balan,e haH: not bcenilladc yet. 

Yes. Title XI t1nancing could he llsed t()r !"l',apitali/ation nfthc U.S. ,nastl\ ise 11eel. including 

rC-JwII'cring \'C,;seis tn comply with nell emission requirements and tt)!" construding LNG 

tankers and l.NG-ptmcred H:sscls. 

The numher ofTitlc Xl applications has not decreased: rather, there recently has becn an 

increase in the numher of applicntions which now tntal oler $1 billion. It should be noted that 

all of these applications arc at various stages in the crcditwnl1hincss determination process. 

Support for the U.S. Merchant Marine 

4 
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Insert offset folio 17 here 81148.017

In general, there appears to be a strong consensus that the Congress and the Federal 

Government should do more to promote thc u.s. merchant marine. More specifical~v, the 

govcrnment should better support e[forts by the maritime industry to recapitalize assets and 

modernize and expand capabilities, preserve existing cargoes and identify new cargoes for u.s. 

carriers-both in the Jones Act trade and the Us. foreign trade -and promote opportunities to 

expand us. shipbuilding capabilities. 

• Beyond the obvious needjor a sufficient budget and reliable annual appropriations to 

support the us. merchant marine, ""hat are the three highest priorities that you would 

recommend the Congress consider to address these objectil'es? 

DOT and ["IARAD look j('r\lard to working with Congrc" on the issucs identitied in your 

question. Focusing on the eOlllmercial sector creates .iol" and ecolloillic opportunities tiH 

marincr,,- shipyanls and regional industries. To this end. stilllul'lting demand j(lr nell l'argo 

opportuuities j()]' the U.S.-Ilag tlc"t and implementing rcJ,'rm, to the Title XI program to 

encourage shipbuilding would bo,,,t the U.S, maritime indll'trl, SUPP(lrting thesc ancl other kc! 

MARAD programs ensures that the Natioll has thc U.S.-tlag IC,scls '111(\ U.S, marincrs nccc;'SHrI 

t" mcet our national security nceds, MARAD intcnds ttl 110,t a puhlic symposiul1l to discuss thc 

dC\'eioplllcnt 01"1 Maritimc Su ategy on J 4- 16 January 2() J 4. 

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Insert offset folio 18 here 81148.018

Statement of 

General William l\J. Fl'aser TIl, l'nitl'dl States Air' Force 

Commander, linited States Transportation Command 

Before the Committee on fransporlation and Infrastructure 

Subcommittee on Coast Guard and '\larilimc Transportation 

On "Maritime Transportation: The Role of LS. Ships and Mariner's" 

'\Iay 21, 20B 
48 


Insert offset folio 19 here 81148.019

Chairman Hunter, Ranking Member Garamendi, and distinguished members of the committee, it is 

my privilege as the Commander ofthe United States Transportation Command (USTRANSCOM) to 

testifY today. USTRANSCOM simply conld not accomplish its global mission withont the capabilities 

provided by the U.S. strategic sealift fleets and our steadfast merchant mariners. 

During major and contingency operations, sealift is the primary means for deploying the 

preponderance of combat equipment and sustainment for ground forces, and is essential to building up 

combat power and to seize the initiative. In a typical operation, over 90 percent of all cargo is delivered 

by sealift and the Department of Defense (DOD) is one of the largest single shippers of ocean cargo in 

the United States. 

USTRANSCOM relies on both government-owned vessels and those accessed via commercial 

industry. Our government-owned Heel includes 60 total vessels from the Military Sealift Command's 

(MSC) surge fleet and Maritime Administration's (MARAD) Ready Reserve Force (RRF). All 60 

vessels are critical for the DOD's ability to surge to meet our global requirements and all are funded 

through the National Defense Sealift Fuud (NDSF). I am grateful to the Congress for your continued 

support of this global mobility capability which is unique to the United States. 

USTRANSCOM is working with our commercial and U.S. Government sealift partners to find cost 

effective means to maintain and recapitalize this critical capability. With the average age of the RRF 

exceeding 36 years, and nearly 1.6 million square feet, or 27%, of Roll OnlRoll Off capacity retiring 

over the next 10 years, it is important to begin the process of recapitalization. Several options exist to 

recapitalize RRF vessels as they reach retirement such as extending the service life of the vessels or 

purchasing vessels currently in commercial service and converting them to U.S. specification through 

U.S. shipyards. We will continue to work with MARAD, the U.S. Navy and other stakeholders to find a 

reasonable solution to recapitalize the RRF. 

2 
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Although our organic assets are vital, the vast majority of sealift needed by USTRANSCOM comes 

from our commercial partners, Access to the commercial fleets is fornlalized through programs such as 

the Voluntary Intermodal Sealift Agreement (VISA), the Maritime Security Program (MSP), and the 

Voluntary Tanker Agreement (VT A). Through these programs, DOD gains critical access to U.S. 

commercial capabilities and their transportation network, while ensuring the availability of a viable 

U.S.-Hag maritime industry and U.S. citizen Merchant Mariner pool in times of national emergency. 

VISA and MSP have been extremely successful programs since their inception in the mid 1990's 

and provide the federal government shared access to an enormous amount of capability. Specifically, 

MSP provides a fleet of 60 military-useful commercial vessels operating in international commerce, 

intermodal networks throughout the world and jobs for our U.S. Merchant Mariners. Over 70 percent of 

the required sealift capacity needed for a national emergency would come from VISA as our national 

sealift preparedness program that incorporates the MSP vessels. I wan! to thank Congress for recently 

extending the MSP program an additional I 0 years to 2025. Preserving these progran1s preserves the 

U.S. Merchant Mariner base, a vital national asset that provides a portion of the manpower needed for 

surge operations. 

With the responsibility to manage the global mobility enterprise, USTRANSCOM benefits from a 

healthy U.S. Merchant Marine pool. U.S. Merchant Mariners support USTRANSCOM's ability to meet 

its military requirements, and its training and proving ground are the vessels committed to national 

security. Since 1990, the U.S.-flag oceangoing fleet ha, decreased from over 400 ocean going vessels, 

in excess of 1,000 tons, to its present 186, and commercial industry is preparing itself for the impact of 

the eventual decline in military cargo as the nation and its allies transition out of Afghanistan. Our 

primary concern from a national security perspective is the loss of merchant mariners used to man the 

strategic surge fleet. Since DOD's organic fleet is maintained with partial crews until needed for real 
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world operations, a loss of merchant mariners in commercial industry could risk bringing those ships to 

full operating status when the need arises. The most significant risk would be in critical skill sets such 

as tanker vessel and electrician-trained merchant mariners. We are working closely with MARAD to 

ensure continued support of the U.S.-flag fleet and retention of the critical merchant mariner skill sets. 

DOD supports the Administration's efforts to restructure the Food Aid Program to make it more 

efficient, and DOD's initial assessment is that changes to the Food Aid Program will not impact the 

maritime industry'S ability to crew the surge fleet and deploy forces and cargo. Furthermore, to mitigate 

impact to the maritime industry, the President's Budget provides $25 million as a targeted operating 

subsidy for military-useful vessels. We are working closely with MARAD to determine what portion of 

the merchant mariner workforce requires the greatest assistance. 

Our organic fleet is maintained and operated by American ship management companies. These 

companies conduct all organizational level maintenance, manage the U.S. citizen Merchant Mariners 

who man the ships, and oversee the lifecycle of the vessels under MARAD and MSC governance. All 

of DOD's organic vessels are required to undergo drydocking overhauls in U.S. shipyards every 5 years 

to maintain their regulatory certifications. The maritime defense industrial base, beyond providing 

shipbuilding capacity for the U.S. Navy, provides this capability. The current fiscal environment at 

DOD makes new vessel construction difficult: therefore. we are exploring options with the Navy and 

MARAD to purchase used vessels on the open market to recapitalize our organic fleet. The operation 

and maintenance of these vessels, as well as modifications to meet U.S. Coast Guard certification 

requirements, would be accomplished in our U.S. shipyards. Maintaining these companies and their 

capabilities, as well as the experienced workers in the various maritime trades, is essential to fostering a 

competitive environment when soliciting affordable ship management contracts. 

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Chairman Hunter, Ranking Member Garamendi, and all the distinguished members of this 

committee, thank you for your continued support of US TRANS COM and all our men and women in 

uniform. I am grateful for the opportunity to appear before this Committee. and I look forward to your 

questions. Thank you. 
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Subcommittee on Coast Guard and :vIaritime Transportation 

Hearing on Maritime Transportation: The Role ofl1.S. Ships and Mariners 

{"uesdaj. May 21. 2013 

Questions j(,r the Record to General William M. Fraser. III. 

Commander. li.S. Transportation Command 

V1cmber: Congressman Hunter 

Question: # I 

Question: Due to sequestration and the FY 13 Continuing Resolution, MSP is tilcing a shortfall of over 

$20 million. Consequently, carriers vvill receive partial payments in August and no payment in September. If' 

the program is not fully fundcd. then the government will be in det'llIlt of its obligations and thus participants 

will have the ability to leave the program. Should this occur, what impact ""uld this have on sealill? Would it 

also negatively impact readiness" How do you intend to address the tllllding shmifall') What is the plan lor 

20 I 4 should sequestration still be in ef'fect at the beginning of FY I,j" 

Answer: 

Appropriations f(x the Maritime Security Program (MSP) are provided to the Department of Transportation and 

LSTRANSCOM has no budgetary authority over those funds. Any direct actions to address this funding 

shortfall would be taken by the Maritimc Administration (MARAD). Howcvcr. USTRANSCOM continues to 

vvork closely with MARAD to mitigate any potential impacts. 

Commercial companies participating in MSP provide both sustainment and deployment/re-deployment 

capability to the DoD. A degradation in the capability MSP provides would impact our readiness and 

potentially USTRANSCOM's ability to meet sealili requirements. 

Should sequestration cominue in FY 14 vvithout financial relief: MARAD, in conjunction with I,STRANSCOM, 

wi!! take action in accordance with the \1SP Operating Agreement. Per the Operating Agreement. a 

determination of\vhich vessels arc the most militarily useful and commercially viahle \\ill he madc. A number 

of vessels with the least utility and viability, asjointly determined by lJSTRANSCOM and MARA[), vvould be 

removed from the program to meet the required tiscal shortf'1lL which could impact DoD's ability to meet 

future sealin requirements. 
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Subcommittee 011 Coast Ciuard and Maritime Transportation 

Hearing on Maritime Transportation: The Role of U.S. Ships and Mariners 

ruesday. May 2 L 2013 

Questions I()[ the Record to General William M. Fraser. III. 

Commander. lJ.S. Transportation Command 

t'vlemhcr: Congressman Garamcncli 

Question: #2 

Question: General Fraser, it is no secret that budget cuts imposed by scqucstration have rcduced the 

Icvcl of funding lel[ the Maritime Security Program by approximately $22.8 million. As such. MARAD will not 

bc ahle to fu!till the contractual obligation ofS3.1 million to each MSP carrier. Docs TRA~SCOM have any 

flexibility to transfer funds from other accounts to cover the shortlitll in Fiscal Ycar 2013" Does TRANSCOM 

anticipate that any of the MSP carriers will select to drop out oCthe program due to the uncertainty of future 

funding? Have any operators decided to withdrH\\' from the program or rc-flag thcir vessels to another registry? 

What will be the collateral dfcct on DoD's logistical planning ifmore than a handful of operators decide not to 

renew their I O-year contract') 

~: 

Appropriations lor the Maritime Security Program (MSP) arc provided to thc Department of Transportation and 

USTRANSCOM has no budgetary authority over those lunds nl'r do we have any flexibility to move funds 

tt'OI11 other accounts. Any direct actions to address this funding shortfall \vould be taken by the Maritime 

Administration (MARAD). 

As of 14 .!une 2013, all participants have re-signed their MSP operating agreements to stay in the MSP. Any 

vessels re~f1aggcd to other registries have been done in the normal course of fleet recapitalization. Should a 

carrier choose to Icave the program. there are some short term actions that can be taken to mitigate the capacity 

shortfall. sllch as chartering other available vessels. activation of MARi\I)'s Ready Reserve Force or MSCs 

organic scalin vessels. or use of other logistics vehicles slich as the multimodal transportation contract. 
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Subcommittee on Coast Guard and Maritime Transportation 

I-Iearing on Maritime Transportation: The Role of U.S. Ships and Mariners 

Tuesday. May 21. 2013 

Questions for the Record to General William M. Fraser. III. 

Commander, tJ.S. Transportation Command 

Member: Congressman Garamendi 

Question: #3 

Question: General fraser. one of several negative impacts of the Administration's proposal "would be to 

substantially reduce available government cargo for U.S.-flag vessels upon which the U.S. Ciovernment depends 

lelr its national security sealili requirements. MARA!) has estimated that 50% ofthe U.S.-flag tleel engaged in 

foreign trade carries Food for Peace cargoes: one-third of the fleel depends heavily on such carriage. The loss 

or one-third to 50% of the neet could have serious Ct)!1sequences for U.S. sealift capabilities in terms of vessels. 

trained l ;.5. citizen merchant mariners. and the intermodal networks provided by U.S.-flag carriers. I low 

significant is the private U.s.-tlag merchant marine in DoD and national sccurity planning? How important has 

the private U.S.-Ilag merchant marine been to U.S. operations in Iraq and Afghanistan'? What would be the 

replacement cost to the U.S. Government if half of the e).i~ting U.S.-flag f()rcign trading neet \\a-; no longer 

available and the sea lilt capabilit} had to be reconstituted') How quickly could DoD restore or replace this sea 

lin capability" What would be the alket on DoD', ability to deploy quickly and efficiently. and to maintain 

secure and reliable logistic support f(x operations'.) 

Answer: 

The commercial U.S.-flag merchant marine is critical to DoD and national security planning. These U.S.-flag 

vessels. in partnership with DoD. moved close tll 9()% of the !)epartment's sustainment and routine 

dcpjoymcntlre-deployment cargo in Iraq and Afghanistan. Especially during surge deployment or withdrmval 

periods. our partners have shovvtl great tlexibility hy continually modifying routes and bu-;incss rractices to 

support DoD requirements. 

Since the full vailic of the U.S.-flag fleet is unkno\vn. the cost to replace it is also unklw\\\1. However. should 

replacement of50~/o of the L.S.-tlag fleet oecome necessary, severnl options are availaole such as chartering 

other U.S.-flag vessels. purchasing f()feign-built bllt U.S.-owned vessels. or building nc\\ vessels in U.S. 

shipyards. Any commercial vessels made available fiJf future DoD lise through the Maritime Security Program 

would also require a viable and sufficient cargo base providing adequate revenue to maintain long term. 

cOlllmerciall) -viable operations. 

Although the U.S.-flag commercial !lect provides a significant portion orthc required lift capability. DoD's 

ability to deplo) 4uickly and efficiently in response to crisis or contingency scenarios is rrirnarily accomplished 

by the organic fleet nJllov,cd by voluntary participation ofU.S.-tlag commercial partncrs. Lacking U.S.-flag 

commercial capability_ the most cxpcditiuus mcans tp restore scalill capahility is to charter f()reign-flag vessels. 
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GENERAL DYNAMICS 

rJl.9mg) 

BEFORE THE 

UNITED STATES HOUSE OF REPRESENT A TIVES 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION 

ON 

MARITIME TRANSPORTATION: THE ROLE OF U.S. SHIPS AND MARINERS 

May 21, 2013 

Room 2167 of the Rayburn House Office Building 

Testimony of 

Fred Harris 

President 

General Dynamics, NASSCO 

2798 Harbor Drive 

San Diego, CA 92113-3650 

(619) 544-3400 
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Chairn1an Hunter, Ranking Member Garamendi and Members of the Subcommittee, I am Fred 

Harris, President of General Dynamics NASSCO. We build US Navy ships and large, oceangoing commercial ships in San Diego, CA. We repair and maintain Navy ships in San Diego, 

Norfolk, VA and Mayport, FL. I am Vice Chainnan of the Shipbuilders Council of America 

(SCA) which represents shipyards and partners that supply and support US vessel construction 

and repair on all coasts, the Great Lakes, the inland waterways, Alaska and Hawaii. 

It is a pleasure to testify regarding the industry and important federal policies, including the 

Jones Aet and the Title XI loan guarantee program. 

The United States is a maritime nation and draws much of its global power from its maritime 

strength. Our Navy and Coast Guard are without equal anywhere in the world and their strategic 

importance in the deeades since WWII is unquestionable. Of equal impOliance, our unfettered 

access to international maritime trade allows us to buy and sell freely in the global marketplace. 

However, our commercial maritime industry is often overlooked as a vital element of our 

nation's maritime strength. Commercial shipbuilding is a crucial underpilUling of our 

government shipbuilding industrial base. It also ensures skilled mariners and ships are available 

in time of war or emergency to transport materials by sea. In both Gulfwars, over 90-percent of 

all war material was moved by sea. In the first Gulfwar, 78-percent of this sea lifted material 

was carried by US flag vessels, and from 2002 to 2008, US flag vessels carried a staggering 

97 -percent of sca lift materials for the Iraq and Afghanistan conflicts. Of this 97 -percent, 57-

percent was carried in US flagged vessels, primarily ships in the Maritime Security Program 

(MSP). The remaining 40-percent was carried in US government-owned vessels. Roughly half 

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of these were Ready Reserve Force vessels which required our maritime industry to provide 

experienced mariners to crew. In 2011, there were only 192 US flag vessels over 10,000 

deadweight tons. Ninety-three of these are in foreign (non-Jones Act) service and 60 of these are 

in the MSP. These numbers should serve to illustrate the importance of the MSP as well as 

reveal how tenuous this strategic lifeline has become. 

The Jones Act is the cornerstone of America's ability to maintain a strategically significant 

maritime industry that is capable of building the ships the nation requires and of providing 

adequate sealift in times of national emergency. 

Jones Act 

The Merchant Marine Act of 1920, Section 27, also known as the Jones Act, requires that cargo 

transported by water between US ports is moved on ships that are US built, US flagged, crewed 

by Americans, and 75-pcrcent US owned. The Act also ensures that the nation maintains a 

shipbuilding industry that currently supports over 400,000 jobs in the United States. A soon-tobe-released, MARAD-sponsored, shipbuilding and rcpair industry economic impact study 

conducted by Price Waterhouse Cooper tound that the lJS shipbuilding and repair industry 

directly employs over 107,000. 111e multiplier for indirect jobs in support of the industry is 2.7, 

resulting in approximately an additional 300,000 jobs. Overall, that employment accounts for 

$23.9 billion in labor income and $36 billion in GDP. 

There are nearly 40,000 Jones Act vessels in operation in the US. These vessels include 

oceangoing crude and product carriers and containerships, and as well as Offshore Support 

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Vessels (OS V) and all the commercial vessels that move cargo in and around the nation's rivers 

and ports, America's domestic fleet, one ofthc largest in the world, ensures a skilled workforce 

to both service and sail these vessels and provides the nation a strategic sealift capability during 

time of conflict or emergency, 

The Navy and Defense Department strongly support the Jones Act because of its important 

national security benefit. Our military leaders have repeatedly voiced their support for the Jones 

Act. In addition, as recently as March 20]3, the GAO found that the Jones Act plays an 

important role in American national security, is a critical source of seafarers in times of crisis, 

and helps ensure an essential shipyard industrial base, The GAO said that the American fleet's 

contribution to maintaining a shipyard base is particularly important now because of budget 

rcductions for military vessel construction, The GAO also said that if the American maritime 

industry ever disappeared or was substantially reduced, DoD would need to create a much larger 

reserve fleet at substantial cost to taxpayers. 

Jones Act opponents argue that the Aet is a highly protectionist law unique to the US maritime 

industry. In fact, according to the last tally by the US Maritime Administration, more than 50 

countries have similar maritime laws. (And that does not include those nations that have 

"practices," ifnot laws, reserving their domestic transportation to their own countrymen.) [n 

addition, these types of laws are not just confined to the maritime industry. A cabotage law is 

one that affects the transport of people and goods within a particular country, and it can apply to 

other modes of transportation such as rail, trucking, and airlines, All over the world, countries 

have put in place policies and laws for a variety of modes of transportation to ensure domestic 

safety, security, environmental control, and taxes, among other important reasons, Opponents of 

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the Jones Act are often artfully mum about laws similar to the Jones Act that support their own 

interests. 

Jones Act opponents routinely state that no one is building ships in the United States anymore 

because the US-build requirement dramatically increases the cost of shipping in the US. First, 

American shipyards are building more than a thousand vessels every year, including state-of-theart vessels. US shipyards are competitive in some areas and have innovated in several markets, 

including the offshore oil and gas industry, to the point that several companies are building their 

vessels here for export. Additionally, the world's first LNG-powered containerships (and thus 

the greenest ships of this type) are currently being designed and will shortly begin construction 

in an American shipyard. This revolution in the maritime LNG market will be addressed in 

greater detail later in this testimony. Second, US commercial shipbuilding maintains a robust, 

skilled shipbuilding and repair work force and supplier base that supplements and helps reduce 

the cost of government construction. In fact, many of the same yards building for the military 

are also building commercially. For these reasons, the US Navy unequivocally supports the 

Jones Act. 

The Shipbuilding Industry 

Since WWlI, the shipbuilding industry has undergone dramatic change. During WWIl, US 

shipyards set the international benchmark for shipyard efficiency, producing more than 

95-perccnt of the world's tonnage from just 30 yards. By the end ofWWII, the US Navy's fleet 

was the world's largest, comprising 70-percent ofthe world's total tonnage for naval vessels 

greater than 1,000 tons. 

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Since WWII, the US has seen a marked decrease in the number of commercial oceangoing ships 

built domestically. In 1953, the US built 45 commercial ships. Despite an average of25 ships 

delivered per year through the 50s, 60s, and 70s, US shipbuilders lost their competitive edge. 

Throughout this period, the industry was supported by the US Government's Construction 

Differential Subsidy Program (CDS). When the Reagan Administration canceled this subsidy in 

1983, the impact was felt immediately, and the construction of commercial ships in the United 

States nearly ceased. 

Along with the cancellation of the CDS program, a number of other factors have contributed to 

the decline of commercial shipbuilding in the US. The primary factors include the rise of heavily 

state-supported Asian shipyards, a lack of an effective US government maritime policy, and 

industry's failure to adopt more efficient processes and upgrade facilities. 

Since 1953, we've lost over 300 shipyards, commercial and naval alike. We have lost the U.S. 

Naval Shipyards in Boston, Brooklyn and Philadelphia, and the commercial yards in Quincy, 

Massachusetts, Sun Shipbuilding & Dry Dock in Chester, Pennsylvania, and Bethlehem Steel at 

Sparrow's Point, Maryland, their state's largest private seetor employers at the time. And, we are 

soon to lose Louisiana's Avondale shipyard for Navy work. 

The decline of shipbuilding capacity in the US is directly linked with the decline of the US 

commercial fleet. However, the industry anticipates increased orders in the next fcw years for 

several reasons: the Jones Act dry cargo fleet requires recapitalization because of the current 

fleet's age, the introduction of stricter environmental regulations, and the rising cost of fuel. 

Additionally, the recent increase in crude oil production in the contiguous United States is 

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crcating demand for morc Jones Act tankers. Both of these opportunities offer hope for US 

shipbuilding, but a strong and intact Jones Act is a necessity. A healthy Jones Act ensures 

preservation of the industry's supplier base, the design and production workforces, and of course, 

the seafarers. Repealing the Jones Act would wipe out most large US commercial shipyards and 

shipping companies. Furthermore, it would limit oceangoing US Merchant Mariners to 

employment with Military Sealift Command (MSC). 

The vast majority oflarge oceangoing commercial ships are built today in Japan, Korea, and 

China. India, Vietnam, and the Philippines are emerging in the industry as well. All of these 

countries, but particularly China and South Korea, have madc the development of a shipbuilding 

industry a national priority. All of these countries heavily subsidize their shipbuilding industries 

and are able today to build ships more cheaply than the commercial shipyards in the US from a 

combination of subsidy and the resultant volume. Volume and the ensuing ability to pursue 

process improvement have ensured that foreign shipbuilders, particularly the Koreans and the 

Japanese, have become the most efficient in the world. For the last two years, however, there has 

been an enOlIDOUS glut of new ships entering the market, and ship orders are severely depressed 

for all but the most complex ships (drilling rigs, LNG carriers, LNG processing plants, and mega 

containerships (14-18,000 TEU)). As a result, many toreign shipbuilders are struggling, and the 

world is seeing a dramatic reduction in the number of shipyards. As many as 50-percent of the 

shipyards in China, that build simpler ships (tankers, bulkers and small to medium 

containerships) may close (or be repurposed) during this downtum. In an effort to stave off 

closure, shipyards are offering very low prices. If the Jones Act was repealed today, foreignbuilt ships would be brought into the US trade immediately, supporting the heavily subsidized 

foreign shipyards and resulting in the demise of the American shipbuilding industry. 

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Importance to Military Shipbuilding 

The commercial shipyard industrial base is critical to national security. The Navy strongly 

supports the Jones Act, along with every Administration in modem history. In a recent statement 

to Congressman Courtney, John F. Lehman, former Secretary of the Navy, had this to say: 

"The Jones Act is vital to maintaining aU. S. merchant marine, on call in times of conflict and 

crisis, as well as a robust shipbuilding industrial base to construct and repair the most 

sophisticated Navy and Coast Guard fleets on earth." Contracting US national security budgets 

projected through 2017 and beyond underscore the importance that commercial work will have 

in otIsetting military and other government workloads in US shipyards. Commercial shipyards 

build vessels for the US Navy, US Army and the USCG. Without these commercial shipyards, 

the US military would pay more for supply vessels, other service vessels, amphibious ships and 

cutters. As an example, over the life of the Navy's T-AKE (Dry Cargo and Ammunition Ship) 

Program, the Navy saved approximately $80 million in overhead cost because of commercial 

shipbuilding. Commercial shipbuilding supports the base of manufacturers who provide the 

material for construction of naval warships as well as the military's ship repair industrial base. 

The ability to build our own naval vessels in the US is a strategic imperative, and our 

commercial shipbuilding industrial base is an essential underpinning of our naval shipbuilding. 

Without the skill base oftrades people and designers and thc continuous infusion of best 

practices provided from a robust commercial shipbuilding industrial base, the costs of naval 

shipbuilding would simply become too expensive. To appreciate the impact of commercial 

shipbuilding on naval shipbuilding, one need only look at the effect of its collapse in the United 

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Kingdom. British commercial shipbuilding has been in serious decline for over 40 years and all 

but ceased over a decade ago. 

Shipbuilding in the United Kingdom 

At the start ofWWII, the Royal Navy consisted of 377 ships in service, \\lith 98 under 

construction. The commercial fleet of the UK flourished as well, numbering nearly 7,000 

vessels. An example of that strength was seen during the Royal Navy Fleet Review at Spit Head 

for Queen Elizabeth the Second's Coronation in 1953. Hundreds of naval vessels participated in 

the Review, exhibiting what was then the second largest navy in the world. Today, there are only 

79 ships in Her Majesty's fleet, whieh represents an 87 -percent decrease over the past 66 years. 

The Naval Review for Queen Elizabeth's Diamond Jubilee last year was cancelled because the 

size of the fleet was so small and so few ships were available. Instead, the Queen was honored 

with a boat parade on the River Thames. 

As early as the 19605, many UK shipyards were either empty or working on their last orders. 

Over the course of the next 20 years, the governmcnt of the UK attempted to save the industry, 

first through subsidy, then nationalization, and finally privatization. With each instance of 

government intervention, the industry became less efficient and less competitive, losing out first 

to other European yards and more recently to the Japanese and Koreans. 

Today, the UK shipbuilding industry is a shell of its fonner self. By the end of this year, there 

will be only four active shipyards, owned by just two corporations, BAE and Babcock. Last 

November, BAE announced that they may close their Portsmouth yard this year. In 1963, the UK 

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built nearly 20-percent of the world's commercial tOlmage. Since 2004, not a single commercial 

oceangoing vessel has been built in the UK. As might be expected, the size ofthe UK flagged 

merchant fleet has fallen dramatically, from about 2,500 to less than 1,000 vessels today. 

Additionally, the crewing regulations are much less restrictive in the UK. Today, a seaman of 

any nationality may sail aboard a UK-flagged vessel with the exception of three positions: the 

Master, Chief Engineer, and Chief Officer. In the US, the Jones Act requires that the entire crew 

be of US citizenship. This provides further evidence ofthe value of the Jones Act. 

The Royal Navy and the Ministry of Defense (MOD) clearly understand that the shipbuilding 

industrial base has atrophied to the point where it can no longer meet fleet replacement needs. 

The dwindling industrial base has and continues to limit the success of current Royal Navy 

shipbuilding, including the Astute Class submarine and the Queen Elizabeth Class carrier 

programs. I was personally involved in both of these programs. Last year, at the invitation of the 

MOD, I participated with a team in assessing the design and construction progress on the Queen 

Elizabeth carrier program. Design studies for the program werc awarded in 1999, contracts were 

signed for two carriers in 2008, and construction bcgan in 2009. The first of class, the HMS 

Queen Elizabeth, will probably not be operational until 2020 a span of over 20 years from start 

of design to delivery. The construction of HMS Queen Elizabeth and now HMS Prince of Wales 

has been hampered by the fact that the UK no longer possesses the qualified labor force 

necessary to efficiently design and build complex surface combatants. Not only has the UK not 

built a carrier in 30 years, but the yard assembling HMS Queen Elizabeth has not built a warship 

in over 40 years, performing only repair work during that time. Though the first ship is under 

construction, the yard has had to import hundreds of skilled workers from all over the UK at 

great expense. 

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The full effect of the loss of both capability and capacity has reverberated into more recent naval 

programs. Last year, the Royal Navy put its Tide Class Military Afloat Reach and Sustainability 

(MARS) Program of double-hulled replacement tankers out for final bid. Although a number of 

British companies took part in the competition, none submitted a final bid for the detailed design 

and construction contract. Sadly, the few remaining UK shipbuilders were overburdened with 

design and construction efforts on the Queen Elizabeth carriers and could not participate in a 

new program. As a resnlt, the MOO contracted with Oaewoo Shipbuilding and Marine 

Engineering Company (OSME) in South Korea to build four 37,000-ton tankers for 5711 million 

(USO). 

The state of the UK shipbuilding indnstry demonstrates what we have to lose should the Jones 

Act be repealed or otherwise weakened. Not only the loss of thousands of US jobs and the 

associated revenue, but the potentially un-recoverable loss of design and constructions skills 

would be detrimental to the country. We cannot allow the US maritime industry to follow in the 

United Kingdom's footsteps. Maintaining the Jones Act is vital to ensure America preserves its 

commercial shipbuilding industry, and thus, its naval shipbuilding capability. 

While it is true that we cannot effectively compete in price with heavily subsidized shipbuilders 

in South Korea, Japan and China, US shipbuilders arc becoming more competitive and 

innovative. Several shipbuilders are internationally competitive in the Offshore Support Vessel 

marketplace and others arc quickly becoming world leaders in bringing green LNG propUlsion 

technology to the world of commercial shipping. The Jones Act dry cargo Heet needs to be 

largely recapitalized over the next ten years, and the current and projected demand for crude and 

product carriers is significant. The Jones Act ensures this work will be performed in US 

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shipyards. Not only would US commercial shipbuilders be able to maintain their skilled 

workforce of builders and designers, they will also be able to continue developing innovative 

technologies and best practices to the benefit of military shipbuilding. Additionally, the us 

governrnent will have the opportunity to save taxpayer money by sharing overhead costs with 

commercial ship owners. 

Jones Act - GAO Study 

The lones Act is often portrayed as being particularly hannful to the non-contiguous areas ofthe 

United States. At the specific request of the Resident Commissioner of Puerto Rico, the 

Government Accountability Oftice (GAO) recently studied the American container shipping 

service between the US mainland and Puerto Rico. The slndy was one of the most significant 

ever undertaken by an independent, non-partisan source. The GAO disproved charges that the 

lones Act raises prices for consumers in Puerto Rico. The GAO specifically said, "[S]o many 

factors influence freight rates and product prices that the independent effect and associated 

economic costs of the Jones Act cannot be detennined.,,1 As such, the GAO's report confinned 

that previous estimates of the so-called "cost" of the .Tones Act are not verifiable and cannot be 

proven. The GAO also found that Puerto Rico receives regular and reliable servicc and that 

shipping rates had actually dropped between 2006 and 20 10, which is consistent with previous 

federal studies by the US Department of Transportation, both in Puerto Rico and Hawaii. 

Finally, the GAO warned of the potential for negative, unintended consequences for the noncontiguous areas if the Jones Act was repealed or changed. 

I GAO Report to Congressional Requesters, Puerto Rico Characteristics of the Island's Maritime Trade and 

Potential Effects of Modifying the Jones Act. March 2013. p. 29 

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The higher prices of US-built ships are often blamed for higher consumer prices in the noncontiguous markets. I have previously provided data that show this price differential doesn't 

exist. Increased capital costs are not synonymous with increased shipping rates, particularly in an 

intensely competitive trade like Puerto Rico. US tax law (e.g., depreciation of the asset and 

deductibility of mortgage interest) further reduces the immediate impact on shipping rates. In 

addition, US shipbuilding capital costs can be reduced through several channels. Financing 

(amortization of the cost over the life of the vessel) spreads any cost over an extended period. 

Utilization of the Maritime Administration's Title XI Loan Guarantee Program and the Capital 

Construction Fund (CCF) can provide affordable financing to ship owners. Current and 

imminent environmental regulations will require that up to 25 vessels currently serving the noncontiguous trades be recapitalized over the next 10 to 15 years. Therefore, the opportunity for 

series construction to drive down costs is substantially increased. New vessels will also 

contribute to lower operating costs. They would likely be significantly more efficient, reducing 

operating costs (e.g., fuel) and could require smaller crews, reducing manpower costs. 

Additionally, new vessels may not replace old vessels 1:1 (e.g., 2 modem vessels might replace 3 

older vessels), fnrther reducing overall operating costs. 

Comparing US shipbuilding to foreign shipbuilding, especially to shipyards in Asia, is not an 

apples-to-apples comparison. In their report, the GAO dedicated a large discussion of the many 

differences between US and foreign shipbuilding that may contribute to any cost differential. 

These important differences include foreign government support, lack of similar environmental 

and safety standards, and standardized series construction runs. In the end, repealing the Jones 

Act would only send American jobs and countless billions of dollars in investments, labor, and 

taxes overseas. 

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LNG - Liquefied Natural Gas 

Increasing use of LNG in the maritime industry and the US non-contiguous energy markets will 

have an enormous impact on the Jones Act shipping market and, as such, warrants discussion. 

There is no doubt that LNG will play an increasingly important role in our nation's energy 

portfolio. LNG stands to impact the national energy market in ways only comparable to the oil 

boom of the nineteenth and twentieth centuries. The growing acceptance and consumption of 

LNG is driven largely by four factors: the goal of detaching from unstable Middle East crude oil 

suppliers, an ever-increasing drive towards environmental cleanliness, extensive domestic 

availability, and a dramatic price spread against crude products. The US maintains the fifth 

largest known global reserve, with prices at one-eighth the cost of crude oil. 

LNG is becoming particularly significant to the shipbuilding industry. While it has been carried 

as a cargo for decades, LNG has not been widely used as a marine transportation fuel until 

recently. In December of 2012, NASSCO executed a contract to construct two LNG-fueled 

container ships for TOTEM Ocean Trailer Express, or TOTE. Additionally, NASSCO agreed to 

complete technical design work for the conversion oftwo existing TOTE trailer ships. These 

programs represent the first oftheir kind in history and were executed in the United States, 

within the tenns of the Jones Act. 

NASSCO does not stand alone in LNG vessel new construction. Harvey Gulf, an operator of 

offshore vessels for the oil and gas industry, has ordered five LNG-fueled Offshore Support 

Vessels from Trinity Offshore in GulfPort, Mississippi. As of May 3, 2013, Harvey Gulfhas 

added a sixth vessel to that order, aligning them as the largest owner/operator of clean burning 

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LNG OSVs in the world. The Washington State Department of Transportation is considering the 

conversion of six car/passenger ferries in the next several years. VT Halter Marine is also 

pursuing a new build program that includes LNG propulsion. Given the growing use of LNG as 

a maline fuel source, it is also likely that bunkering barges will be required. This is evidenced by 

Shell's recent issuance of a request for infoffilation regarding bunker barge construction in the 

US. As the Jones Act dry cargo fleet is recapitalized over the next decade and as more Jones Act 

product and/or crude carriers are built to accommodate the rapid increase in contiguous US crude 

oil production, much of this new fleet will be LNG powered. 

Hawaii and Puerto Rico are both seriously considering shifting the fuel source for their domestic 

electrical power generation to natural gas. Puerto Rico uses natural gas now, but it is imported 

from Trinidad and Tobago. Both Puerto Rico alld Hawaii desire, for good reason, to take 

advantage of low cost US domestic natural gas. In order to do this, they must bring it in as LNG. 

Jones Act detractors have written many times that there are no LNG carriers available under the 

Jones Aet and US shipbuilders don't build LNG carriers. They argue that foreign-built LNG 

carriers should be waived into the US coastwise trades. 

In fact, there are three US-built LNG carriers that have current US Jones Aet coastwise 

endorsements. They are not currently working in the US Jones Act trades because there are 

currently no US LNG export facilities in operation. However, within six months they could be 

brought off their current charters and reflagged to operate on a Jones Act route, e.g. from Sabine 

Pass, Louisiana, to Puerto Rico or Hawaii. Both Puerto Rico aJ1d Hawaii have plans to convert 

their electrical power generation to LNG and both desire to bring in low cost LNG from the 

contiguous US. Neither location is yct ready to receive more LNG, nor is the US ready to export 

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it. When both ends of this trade are ready to begin operation, the Jones Act qualified LNG 

carricrs will be ready to support it. The existing Jones Act LNG carriers have the capacity to 

support Puerto Rico's projected needs, Additionally, US shipyards are today designing and 

constructing LNG-powered ships and are designing LNG carriers, When the time comes to build 

LNG carriers to support Puerto Rico and Hawaii, American shipbuilders will be ready to do so, 

MARAD and American Marine Highway 

The Maritime Administration (MARAD) is charged with promoting the development and 

maintenance of a strong merchant marine for national defense and development of foreign and 

domestic commerce, MARAD administers financial programs to improve and strengthen the US 

marine transportation system to meet the economic, environmental, and security needs of the 

Nation, It is MARAD's responsibility to maintain equipment, shipyard facilities, and reserve 

fleets of Government-owned ships essential for national defense, The Jones Act is an important 

element in MARAD's mission to promote the maritime industry, That said, in tenns of national 

policy, the maritime industry has been progressively marginalized since the 1980s. 

In 1981, MARAD was integrated into the Department of Transportation (DoT), with a budget of 

$568 million, which constituted 2.39-perccnt ofthe DoT budget, compared to the DoT Federal 

Highway Administration (FHW A) budget of$9, 13 billion (38,3-percent). At that time, the US 

Interstate Highway System was nearly self-sufficient; the Highway Trust Fund (HTF) supported 

-99,S-percent of the US Interstate Highway System funding requirements through fuel tax, user 

fees, and various tolls, Less than I-percent of the required funding came from the General Fund 

receipts, bond issues, and designated property taxes, By 2010, the DoT MARAD budget had 

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been reduced to $346 million, making up only 0.47-percent of the DoT budget, and the FHWA 

budget had increased to $41.85 billion (57. I 3-percent). In March of2010, the HTF balance was 

approximately $7 billion. Through September of FY 1 0, the US HTF distributed $63.1 billion in 

funding to the FHWA, $21.25 billion greater than the FHWA FYI 0 budget request. 

Over the past decade, the US Interstate Highway System funding requirements have grown 

roughly two times faster than US Gross Domestic Product. The System is aging and highway 

expansion is not keeping pace with the increase in vehicle miles travelled (VMT). Congestion is 

rapidly increasing. Between 1982 and 2011, according to the Texas Transportation Institute,lost 

time duc to traffic congestion across the country has increased from 1.1 to 5.5 billion hours. 

New highway infrastructure is cost prohibitive (at roughly $60 million per lane mile in urban 

areas) and room for expansion docs not exist in large metropolitan areas where relief is most 

needed. 

Congress directed DoT to establish the America's Marine Highway Program in the Energy 

Independence and SecUlity Act of2007. The purpose is to expand the use of waterborne 

transportation while relieving landside congestion and reducing carbon emissions. The program 

is designed to focus on the integration of marine highways into the nation's surface transportation 

system, providing seamless transition across all modes by leveraging marine services to 

complement lands ide surface transportation routes. 

America's Marine Highways (AMH) are navigable waterways that have been designated as such 

by the Secretary of Transportation and have demonstrated the ability to provide additional 

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capacity to relieve congested landside routes serving freight and passenger movement. The 

designated Marine Highways consist of over 29,000 nautical miles of navigable waterways, 

including rivers, bays, channels, the Great Lakes, and Saint Lawrence Seaway System and 

coastal routes, The Marine Highway system is an efficient means of moving freight in terms of 

cost per ton-mile and yet, it is the most underutilized of our transportation modes, According to 

the North American Transportation Statistics Database, in 2010, water services carried barely 

6-percent of the nation's ton-miles of domestic fi'eight, down from 30.S-percent in 1990 (not 

including the domestic pipeline network), 

Title XI Loan Guarantee Program 

The Title XI loan guarantee program, administered by MAR AD, is clitically important to the 

overall US shipbuilding industry and, particularly, to the construction of AMH vessels. The 

primary purpose of thc program is to promote the growth and modernization of the US Merchant 

Marine and US shipyards, Title XI provides government guarantees of private sector loans for 

commcrcial ship owners constructing new ships and otTers better terms and lower interest rates, 

Leveraging as much as $11 dollars of private investment for every S 1 dollar of federal guarantee 

funds, the program has provided strong support for the industry, 

Affordable vessel financing is the first step toward building Jones Act vessels. Beyond the 

economic benefits, the use of modem engine technology for these vessels, required under current 

environmental regulations, will provide environmental benefits by requiring less energy and 

reducing greenhouse gas emissions per ton-mile of freight moved, 

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In 2012, the Maritime Transportation System National Advisory Council (MTSNAC), chartered 

by the Secretary of Transportation, established the Shipbuilding Subcommittee with the directive 

to make recommendations to the Secretary on how to ensure the health of the shipbuilding 

industry. The Subcommittee recommended that the Secretary request consistent levels of funding 

for Title Xl transactions in order to promote ship construction. The subcommittee also 

recommended that MARAD and DoT improve the efficiency and quality of the Title XI review 

process. Additionally, it is recommended that the Secretary request an increase in MARAD's 

administrative budget to a level that will ensure that MARAD has an adeqnate number of 

professionals with the appropriate education, eXpeliise, and experience to evaluate and document 

Title XI transactions. 

At present, the US maritime industry considers the Title XI process to be "broken" to the point of 

making the program nearly ineffective. Long delays in the Title XI program's application 

process are a deterrent to potential investors, taking up to two years in some cases. The current 

process for receiving a loan guarantee requires significant reforn1 in order to restore the 

program's effectiveness as a timely source of financing for Jones Act vessels. The DoT Credit 

Council Order should be amended, internal guidelines should be amended or promulgated, and 

existing administrative requirements should be enforced as necessary to improve transparency 

and efficiency. 

Funds have only been appropriated to support this program six times since 2002, sometimes 

from the DoD budget. No funds were appropriated in Fiscal Year 2013 and none are proposed in 

the President's Fiscal Year 2014 budget. Funding for the program should be increased and made 

more consistent to improve the Title XI process and to support the construction of Jones Act 

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vessels. We are grateful for continued efforts in Congress to provide Title XI funding, including 

the efforts of Chairman Hunter and other Members of Congress. 

AMH projects currently lack support from private financing sources duc to the perceived high 

risk involved in such investments, and they can only be implemented through public assistance. 

AMH projects cannot meet the existing Title XI financial tests with respect to debt, equity, and 

working capital since such tests are not consistent with start-up operations. The financial 

requirements in the existing Title XI program must be modified for AMH projects, if the Title XI 

program is selected to be used for these projects. 

Implementing the recommended improvements to the administration of the existing Title XI 

program will restore its ability to serve as a vital financing source for the entire US shipbuilding 

industry. Implementation of the MTSNAC Shipbuilding Subcommittee's recommendations will 

make the Title Xl program effective as a critically needed financing tool to further the 

development of America's Marine Highway as well as the construction of new Jones Act ships. 

The program, as modified, will provide the 10ng-ten11 financing necessary for vessel construction 

with requirements that companies with reasonable business models should be able to meet. In 

addition, clarification that Title XI can be used for vessel re-engining projects, since LNG 

repowering is expected to be a major feature of future economical vessel operation, will rdJect 

the Secretary's support of projects that meet and exceed current environmental requirements. 

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Small Shipyard Grant Program 

Another program creating highly skilled shipbuilding jobs is the Department of Transportation's 

Small Shipyard Grant Program (SSGP). According to a DoT release on May 7, 2013, "It's no 

secret that America's maritime industry is critical to our nation's economy and national security. 

That's why this Administration has provided more than $150 million to help foster efficient and 

competitive shipyard operations through the Small Shipyard Grant Program." The grants provide 

financial assistance to small shipyards for capital improvements and training purposes. 

The Shipbuilders Council of America (SCA) strongly supports continued SSGP funding and 

commends MARAD on their efficient and effective administration ofthc program. These 

competitive grants have been dispersed to over 50 projects in the past several years, improving 

and modernizing equipment to increase the efficiency, competitive operations, and quality 

construction of vessels in US shipyards. Additionally, the program supports impOliant workforce 

development initiatives, a critical issue facing the industry at-large. In 2012 alone, 141 SSGP 

grant applications were submitted by shipyards while only 15 were mvarded, clearly 

demonstrating the demand for this program. Over the past five years, SSGP has created and 

retained thousands of American jobs. 

Conclusion 

The Jones Act has been supported by every president in modem history and enjoys broad, 

bipartisan support in Congress today. The Defense Department and US Navy have declared it 

essential to national security. The American domestic maritime industry is responsible for 

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hundreds of thousands of jobs across our country, and maritime remains the most 

environmentally friendly, safe and cost-efficient mode of transportation. 

The Jones Aet is a critical supporting element of our maritime strength. Without it, the US 

stands to follow the same path as the UK and lose virtually all shipbuilding capabilities, along 

with the valuable design and construction skills associated with it. 

Just as The Jones Act is vital for the US shipbuilding industry, the Maritime Administration's 

Title XI loan guarantee program is essential to the Jones Act trade. Title XI guarantees private 

loans to commercial ship owners for ship construction and modernization. This program 

provides affordable financing to ship owners to build new ships. There are, however, two critical 

elements of this program that need to be addressed to ensure the viability of commercial 

shipbuilding. First, funds must be eonsistently appropriated to support the program. Second, the 

current process for receiving a loan guarantee requires signiticant refonn in order to restore the 

program's effectiveness as a timely source of financing for Jones Act vessels. :vfaintaining thc 

Jones Act and funding and refonning Title XI arc essential to ensure that America preserves its 

commercial shipbuilding industry, and thus, its naval shipbuilding capability. 

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Subcommittee on Coast Guard and Maritime Transportation 

Hearing on Maritime Transportation: The Role of U.S. Ships and Mariners 

Tuesday, May 21, 2013 

Questions for the Record to Mr. Fred Harris, 

President, General Dynamics NASSCO 

Questions from the Honorable John Garamendi (D-CA) 

Substitution of Lost Sealift Capability 

Mr. Harris, in your testimony at the hearing you referenced GAO's assessment of the Jones Act 

which reaffirmed that the coastwise laws provide an important national security benefit. The 

GAO recognizes that the Jones Act ensures that there is a critical source of seafarers in times of 

crisis and an essential shipyard industrial base, something even more important now with 

concurrent reductions in the Navy's shipbuilding proh'fam. GAO also concluded that thc 

maintenance of this maritime capability is, in effect, a fixed cost, and that if the U.S. maritime 

industry ever vanished, that the Pentagon would need to create a much larger reserve fleet at a 

much higher cost to the taxpayer. 

• From your perspective as a shipyard operator. is it even possible to think that the 

Department of Defense could provide the same level of sea liji capability at a lower cost? 

From my perspective, it would not be possible for the govcmment to reconstitute a 

shipbuilding capability that could build a strategic sealift capability less expcnsively than 

it can be done today with the current industrial base. There are two reasons for this. The 

first is that the govemment has not built a ship in fOliy years. The last of the naval 

shipyards were closed or converted to repair-only shipyards in the early 1970's because it 

was more costly to build ships in those yards. The naval shipyards that do remain are 

nuclear repair yards with the high cost structure that goes with nuclear repair. The land 

that the old naval shipyards were on has been repurposed and would be very expensive 

for the government to reacquire. Second, the government has never built a modem, 

commercial-standard sealift ship. The cost to the Navy of reconstituting a shipbuilding 

capability and then building sealift ships would be many times what it would cost for 

today's shipbuilding induslI~al base to build those ships. 

• Should the Us. maritime industry vanish, is it even practical to think that the Department 

of Defense cOlild stand lip the same sea lift capability almost immediatelv? 

From a shipbuilder's perspective, for the reasons stated above, it would be not only very 

costly to reconstitute a govemmcnt shipbuilding capability, but it would be very difficult 

to impossible to acquire the land on which to establish shipyards and to reestablish an 

experienced workforce. The UK is today struggling to build their two aircraft carriers 

because they lack the experienced workforce to do the work. The Royal Navy recently 

ordered four fleet oilers from a Korean shipyard, because they did not have the industrial 
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capacity and the workforce to build these ships. Reestablishing a shipbuilding capability, 

once it has disappeared would an expensive and slow process. 

• If DOD had to reconstitute some sea /iji capability. what options would there be? How 

long ,vallIe! this take and what would it cost? 

From the perspective of a shipbuilder, the Department of Defense could support the 

construction and operation of dual use vessels that could be operated on American 

Marine Highway (AMH) corridors through the provision of grants, operating subsidies, 

and Title XI loan guarantees from the Maritime Administration. These ships could 

replace many of the Ready Reserve Force (RRF) ships, which arc obsolete due to their 

low military utility and obsolete propulsion and auxiliary systems. (Twenty-six ofthesc 

ships are steam powered). As the last remaining steam-powered ships arc phased out of 

the active US flag merchant fleet, it would become difficult to find qualified sea-farers to 

operate these ships in a time of emergency.) In consideration of such support, the 

Department of Defense would have access to such vessel in time of national emergency. 

In the event of default with respect to the guaranteed obligations, the Department of 

Defense would be required to purchase such vessel and assume or repay the outstanding 

guaranteed obligations. Even in this case, these vessels would cost the government less 

than if the government contracted for them directly. 

The economic benefit of building these ships would be tremendous and would reduce the 

cost of naval shipbuilding and repair by spreading the infrastructure costs over a wider 

base. In addition to reducing congestion on US highways these dual use ships could be a 

driver for the entire maritime industry which would include active jobs for US Mariners, 

and the myriad of jobs associated with tcnninal infrastrncture and operation. 

Mr. Harris, as you stated at the hearing, the Title XI Loan Guarantee Program process "requires 

significant reform to restore the program's effectiveness as a timely aid to ship construction 

tinancing." Neither DOT nor MARAD have requested consistent levels of funding; MARAD has 

failed to improve the quality and efficiency of the Title XI review process; and MARAD has not 

increased its administrative budget to ensure that un adequate number of professionals are on 

hand to evaluate, document and oversee Title XI transactions. 

• [s the Title XI Program beyond repair? What recommendations might you offer on holt' 

to best reform the program to meet the present andjitlllre needs of the Us. maritime 

industry? 

First, the Title XI Loan Guarantee Program is not beyond repair. In fact it is crncial to the 

replacement and expansion of our commercial fleet. Every dollar provided as loan 

guarantees provides 11 dollars in shipbuilding activity with the vast majority of those 

dollars going toward skilled jobs in every state throughout the supply chain. I chair the 

Shipbuilding Subcommittee of the Maritime Transportation System National Advisory 
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Council (MTSNAC). 1 presented the following n::(;()mmendations to the Secretary of 

Transportation on 9 September 2013, for the refonn of the Title XI prol,lram. 

1. The Secretary of Transportation should request consistent levels offunding for Title 

XI transactions in order to promote ship construction and to improve the efficiency and 

quality of the Title XI review process by having a consistent volume of transactions to 

process. 

2. The DOT Credit Council Order should be amended, intemal guidelines should be 

amended or promulgated, and existing administrative requirements should be enforced as 

necessary to accomplish the following: 

A. To provide more visibility and accountability, minutes should be taken at the 

Credit Council meeting. The portion of such minutes that relate to an Applicant's 

Title XI application should be madc available to such Applicant. 

B. A draft of the Independent Financial Advisor (IFA) report should be made 

available to the Applicant and the Applicant should be able to meet with the IFA 

(along with MARAD and DOT) to provide feedback on the report bcfore it is 

finalized to ensure factual accuracy, 

C. Recommendations by MARAD, the Credit Council working group or the IF A for 

security to MARAD that is in addition to the standard required secu!ity should be 

discussed wilh the Applicant before the application is presented to the Credit Council. 

D. The foml Title XI documents should be posted on the MARAD website. 

E. A vote should be taken on an application in the meeting in which it is presented 

(which is the way that the Credit Council process worked when it was initially 

established). 

F. The IFA's scope should be limited to those areas in which the IFA has expertise 

(i.e., evaluating economic soundness and not, for example, the market and market 

rates for which industry market specialists are retained nor the tcnns of thc 

transaction documentation which are the purview of MARA D's legal staft). 

O. In order to qualify as an IF A on a Title Xl project, a company should demonstrate 

that it has maritime/ship finance experience and expertise. 

H. MARAD should strictly adhere to its own regulations with respect to the timing of 

review of applications. 

2. The Secretary of Transportation should request an increase in MARAD's 

administrative budget to a level that will ensure that MARAD has an adequate number of 

professionals with the appropriate education, expertise and experience to evaluate and 

document Title XI transactions. 
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Direct Federal Support for Maritime Industry 

Mr. Harris, the Constmction Differential Subsidy (CDS) Program was a program whereby the 

Federal government attempted to offset the higher shipbuilding cost in the U.S. by paying up to 

50% of the difference between the costs of U.S. and non-U.S. constmction. The difference went 

to the U.S. shipyard. The program was canceled in 1982. You noted in your testimony at the 

hearing that the cancellation of this program was felt immediately and the constmetion of 

commercial ships in the U.S. nearly ceased. 

• Are you arguingfor the restoration of policies that advocatefor more direct Federal 

intervention to provide a level plavingfieldfor Us. ship owners and shipyards against 

illternational competitors? 

Direct subsidies are not the answer. The protection they afforded took our eye off of the 

need to become more efficient shipbuilders. I have put considerable effort into studying 

why Japanese, Korean and Chinese commercial shipyards have essentially cornered the 

commercial shipbuilding market in the last thirty years. Today these three countries have 

92 percent of the world's commercial shipbuilding market. While low labor rates (now 

only in the case of China) and subsidies have played a part, the fundamental reason for 

their success that these nations all made their maritime industries a strategic national 

industrial priority as a means to stimulate economic growth. In Japan, Korea and China 

Maritime is a cabinet equivalent level agency. The huge volume of Asian shipbuilding as 

compared to US shipbuilding is the primary reason why Asian commercial ships cost 

significantly less than US built commercial ships. We have lost that focus as a maritime 

nation. Less than .5 percent of the Transportation budget is allocated to the maritime 

industry. Other countries have attempted to diminish the collective Asian market 

position by the use of huge shipbuilding subsidies, but this approach has failed because 

they did not commit at a national/strategic level to support their maritime industry. From 

my perspective, leveling the playing field with the Asian shipbuilders is is not possible 

unless the nation once again embraces its maritime heritage and makes it a national 

priority. In the ncar tenn, what I propose is renewed and unwavering support of the 

Jones Act and other measures that are discussed here, to support American shipbuilding 

as a vital pillar of our national economy and defense. 

• Would the restitution of the CDS program help stimulate domestic shipbuilding and 

investment ill Us. shipyards? 

No, the restoration of the CDS program would be counterproductive. Before the CDS 

was withdrawn in the early 80's it was effectively supporting inefficient practices by US 

shipyards and, in my opinion, contributed to US shipyards falling behind the international 

shipyards and exacerbating the current competitive landscape I described above. 

• Are there other actions the Congress might consider. such as changes and reforms to the 

Title XI Loan Guarantee Program or to the Capital Construction Fund Program? 
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I. I chair the Shipbuilding Subcommittee of the Maritime Transportation System National 

Advisory Council (MTSNAC). I presented the following recommcndations to the 

Secretary of Transportation on 9 September 2013, for the reform of the Title Xl program. 

A. The Secretary of Transportation should request consistent levels of funding for Title 

XI transactions in order to promote ship construction and to improve the efficiency 

and quality of the Title XI review process by having a consistent volume of 

transactions to process. 

B. The Department of Defense could contribute to the program or create a similar 

program to incentivize the eonstmction of Dual Use ships in lieu of maintaining 

obsolete ships as part of our nation's ready reserve. 

C. The DOT Credit Council Order should be amendcd, internal guidelines should be 

amended or promulgated, and existing administrative requirements should be 

enforccd as necessary to accomplish the t()lIowing: 

a To provide more visibility and accountability, minutes should be taken at the 

Credit Council meeting. The portion of such minutes that relate to an Applicant's 

Title XI application should be made available to such Applicant. 

a A draft of the Independent Financial Advisor (lFA) report should be made 

available to the Applicant and the Applicant should be able to meet with the IFA 

(along with MARAD and DOT) to provide feedback on the report before it is 

finalized to ensure factual accuracy. 

a Recommendations by MAR AD, the Credit Council working group or the IF A for 

security to MAR AD that is in addition to the standard required sccurity should be 

discussed with the Applicant before the application is presented to the Credit 

Council. 

a The fon11 Title XI documents should be posted on the MARAD website. 

a A vote should be taken on an application in the meeting in which it is presented 

(which is the way that the Credit Council process worked when it was initially 

established). 

a The IFA's scope should be limited to those areas in which the IFA has expertise 

(i.e., evaluating economic soundness and not, for example, the market and market 

rates for which industry market specialists arc retained nor the ten11S of the 

transaction documentation which are the purview of MARA D's legal staft). 

a In order to qualify as an IFA on a Title XI project, a company should demonstrate 

that it has maritime/ship finance experience and expertise. 

a MARAD should strictly adhere to its own regulations with respect to the timing 

of review of applications. 

D. Congress should approve an increase in MARAD's administrative budget to a level 

that will ensure that MARAD has an adequate number of professionals with the 

appropriate education, expertise and experience to evaluate and document Title Xl 

transactions. 

2. 1 also submitted the following recommendations to facilitate an American Marine Highway 

(AMH). Before the advent of the Interstate Highway system, the U.S. had a vibrant coastal 

transportation system. Seaborne transportation has always been the most cost effective means of 
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moving cargos. Today, U.S. coastal highways (e.g. 1-5, I-10, and 195) arc increasingly 

congested, reducing the capacity for the movement of goods and commercc. Additionally, the 

growing number of trucks is causing progressively more wear on the county's aging highway 

infrastructure. Eventually, the congestion on coastal highways and the degradation of the 

highway infrastructure will force the reestablishment of an American Marine Highway system 

where containers and/or truck trailer beds are moved by sea between US port cities. However, 

without government action to remove barriers now, it will only happen when congestion 

becomes extreme. The government can either act to reestablish an AMH or wait until congestion 

is so bad that there is no alternative. The U.S. maritime industry would benefit by building the 

ships for this type of service. Ships tor this type of servicc would either be container ships or 

trailer ships. The following are barriers that need to be removed or incentives that would help 

facilitate the restoration of the American Marine Highway. 

A. New Title XI Process for American Marine Highway vessels. Enaet legislation to create 

a new Title XI evaluation process for American Marine Highway vessels that would have 

more flexibility and allow DOD supp0l1 for dual use vessels 

B. Amendment of the Tonnage Tax. Support language to amend the Internal Revenue Code 

of 1986 to modify the application of tonnage tax on certain vessels 

Proposal to repeal the 30-day limitation on domestic operations for U.S.-flag vessels 

operating in both domestic and international trade 

Enables U.S.-flagged vessels to use lower tonnage tax for income from international 

operations but still pay the nOlmal 35 percent corporate tax rate on income from 

operations in the domestic opcrations 

C. Amendment of Harbor Maintenance Tax. Support language to exempt certain 

commercial cargo shipping from harbor maintenance tax under IRS tax code 

Tax exemption for commercial cargo loaded at a U.S. mainland port and unloaded at 

a U.S. mainland port; 

Or commercial cargo loaded at a port in Canada located on the Great Lakes Saint 

Lawrence Seaway System and unloaded at a U.S. mainland p011 (or vice versa); 

Or transported solely by coastal river route or river 

D. While not specifically recommended by the subcommittee, an additional method of 

promoting the AMH would be tax benefits, financing support and subsidies for 

investment in ships powered by altcmati ve fuels such as clean Liquefied Natural Gas 

(LNG). These incentives would expedite the adoption of LNG and reduce or eliminate 

our dependence on foreign petroleum products. 

3. The MTSNAC Shipbuilding Subcommittee did not recommend any changes to the CCF 

program because we believe that it is effective as currently structured. The CCF program is 

being used by US flag ship owners to support their current ship construction projects in US 

shipyards and strong Congressional support for the CCF program is needed now to keep it 

from being impaired or eliminated. Loss of the CCF program would have an immediate 

impact on US shipyard commercial construction and US ship owners current new 

construction planning, as well as future ship construction. 

• What about the Small Shipyard Grant Program that was established as part of the 2009 

American Rcsponse and Recovery Act? Should this be reauthorized and enhanced? 
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I support the Small Shipyard Grant Program. There is one area of international 

shipbuilding where US shipyards are competitive with international shipyards and that is 

the building of Inland Trade Vessels, Platfonn Support Vessels (PSVs) and Offshore 

Support Vessels (OSVs) to suppOli the offshore oil industry. Many of these are built in 

the country's smaller shipyards or built in yards that in the past were beneficiaries of the 

Small Shipyard Grant Program. As such, I believe that this program has value to the 

industry and has been very successful. The inland trade and oil and gas industries 

together with coastal and oceanic trade are all vital components of our maritime industry. 

Support for the U.S. Merchant Marinc 

In general, there appears to be a strong consensus that the Congress and the Federal Govemment 

should do more to promote the U.S. merchant marine. More specifically, the government should 

better support efforts by the maritime industry to recapitalize assets and modemizc and expand 

capabilities, should preserve existing cargoes and identify new cargoes for U.S. carriers, both in 

the Jones Act trade and the U.S. foreign trade, and promote opportunities to expand U.S. 

shipbuilding capabilities. 

• Beyond the obvious needfor a sufficient budget and reliable annual appropriations to 

support the Us. merchant marine, what are the three highest priorities that you would 

recommend the Congress consider to address these objectives? 

Answering again from my perspective as a shipbuilder, the Nation needs to embrace the 

maritime industry as a part of our long tenn strategic plan for economic developmcnt and 

national defense. We are a maritime nation and the world's greatest trading nation. We 

should follow the examples of the leading shipbuilding nations, China, Korea, and Japan, 

in tenns of establishing a national priority and strategy. Conversely, we should leam the 

peril of not doing so fi'om the example of Great Britain, a maritime nation that no longer 

has a commercial shipbuilding industry. 

In the near tenn my three highest priorities are the following: 

I. Renew support for the Jones Act. The single most important thing the Congress and 

the Administration together can do to support the maritime industry is to 

unequivocally renew its support of the Jones Act. This helps to maintain the inland 

and coastal components of our industry, creates economic development and 

strengthens our maritime sector as a vital component of our national defense. 

2. Adequate Title Xl funding on an annual basis together with critically needed reforms 

to the program .. The Title XI Loan Guarantee program is the govemment's clearest 

and most impactful method of supporting the American shipping and shipbuilding 

industries. Funding for the Title Xl program has been, at best, irregular and 

inadequate to the need in recent years and the administration of the program has been 

woefully inadequate. A consistent appropriation of funds for Title XI, combined with 

the refonns I address in the next question, is the simplest and most effective method 

available to the Congress to support the industry's efforts to recapitalize and 

modemize. The concept of' a revised Title XI program for American Marine 
84 


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Highway ships, including dual use vessels, should be explored as part of this 

program, 

3. LNG exports should support U.S. maritime industry. Ensure that as the United States 

begins exporting LNG in the near future that the American maritime industry is able 

to participate in the transpOliation of this new export product. A method should be 

found that ensures a certain portion of U.S. LNG exports are conducted in U.S. built 

LNG carricrs, crewed by American merchant mariners. 

• Are there specific programs thai should be reformed to better align with contempormy 

andfutllre needs? 

I. As chair the Shipbuilding Subcommittee of the Maritime Transportation System National 

Advisory Council (MTSNAC). I prcsented the following recommendations to the 

Secretary of Transportation on 9 September 2013, for the reform of the Title XI program. 

A. The Sceretary of Transportation should request consistent levels of funding for Title 

Xl transactions in order to promote ship construction and to improve the efficiency and 

quality of the Title Xl review process by having a consistent volume of transactions to 

process. 

B. The DOT Credit Council Order should be amended, internal guidelines should be 

amended or promulgated, and existing administrative requirements should be enforced as 

necessary to accomplish the following: 

o To provide more visibility and accountability, minutes should be taken at the 

Credit Council meeting. The portion of such minutes that relate to an Applicant's 

Title XI application should be made available to such Applicant. 

o A draft of the Independent Financial Advisor (IF A) report should be made 

available to the Applicant and the Applicant should be able to meet with the IF A 

(along with MARAD and DOT) to provide feedback on the report before it is 

finalized to ensure factual accuracy. 

o Recommendations by MARAD, the Credit Council working group or the IF A for 

security to MARAD that is in addition to the standard required security should be 

discussed with the Applicant before the application is presented to the Crcdit 

CounciL 

o The form Title XI documents should be posted on the MARAD website. 

o A vote should be taken on an application in the meeting in which it is presented 

(which is the way that the Credit Council process worked when it was initially 

established). 

o The IFA's scope should be limited to those areas in which the IFA has expertise 

(i.e., evaluating economic soundness and not, for example, thc market and market 

ratcs for which industry market specialists are retained nor the terms of the 

transaction documentation which arc the purview of MARA D's legal staff). 

o In order to qualify as an IF A on a Title XI project, a company should demonstrate 

that it has maritime/ship finance experience and expertise. 
85 


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o MARAD should strictly adhere to its own regulations with respect to the timing 

of review of applications. 

C. The Secretary of Transportation should request an increase in MARAD's 

administrative budget to a level that will ensure that MARAD has an adequate number of 

professionals with the appropriate education, expertise and experience to evaluate and 

document Title XI transactions. 

2. DoD and MARAD should facilitate a Dual Use Vessel program within the American 

Marine Highway (AMH) to assist in recapitalization of the Ready Reserve Force (RRF). 

The Department of Defense could support the construction and operation of dual use 

vcssels that could be operated on AMH corridors through the provision of grants, 

operating subsidies, and Title XI loan h'uarantees from the Maritime Administration. In 

consideration of such support, the Department of Defense would have access to such 

vessel in time of national emergency. In the event of default with respect to the 

guaranteed obligations, the Department of Defense would be required to purchase such 

vessel and assume or repay the outstanding guaranteed obligations. 

• Are there some existing programs that should be repealed in favor of other alternatives? 

Conversely, are there some programs previously repealed that might be reconstituted? " 

No. 
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Testimony 

of 

Mr. Joseph H. Pyne 

Chairman and Chief Executive Officer, Kirby Corporation 

Representing the American Maritime Partnership 

On the Role of U.S. Ships and Mariners 

Before the Subcommittee on Coast Guard and Maritime Transportation of the 

House Transportation & Infrastructure Committee 

U.S. House of Representatives 

Washington, DC 

May 21, 2013 

Mr. Chairman and Members of the Committee: 

Good morning. My name is Joe Pyne, and I am the Chainnan and Chief Executive Officer of 

Kirby Corporation, the nation's largest inland and coastal tank barge operator. Kirby has 

revenues of approximately $2.5 billion per year and has a market capitalization of approximately 

$4.5 billion. We employ some 4,600 Americans and operate over 1,300 Jones Act vessels. 

Kirby has been in the marine transportation business since 1969. I am pleased to appear before 

you today on behalf of the American Maritime Partnership (AMP) to stress the importance of the 

domestic U.S.-flag fleet and the coastwise laws to our U.S. transportation system and the role 

that they play in meeting the economic, homeland, and national security needs of the United 

States. 

Background on the American Maritime Partnership and Kirby Corporation 

The American Maritime Partnership is the most broad-based coalition ever assembled to 

represent the domestic maritime industry. It serves as the voice of the U.S. domestic maritime 

industry. The organization's 450-plus members span the country and its territories and include 

vessel owners and operators, shipboard and shores ide labor, shipbuilders and repair yards, 

equipment manufacturers and vendors, dredging and marine construction contractors, trade 

associations, other coalitions, pro-defense groups, and companies and organizations in other 

modes of domestic transportation. These diverse but allied interests all recognize that a strong 

domestic maritime industry is critical for America's economic, national and homeland security 

and is best supported by maintaining the coastwise laws as the foundation of America's domestic 

maritime policy. 
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Testimony of Mr. Joseph H. Pyne 

May 21, 2013 

Page 2 

Kirby Corporation serves on the Executive Committee of AMP. Our company transports bulk 

liquid products throughout the Mississippi River System, the Gulf Intracoastal Waterway, 

coastwise along all three United States coasts and in Alaska and Hawaii. We transport 

petrochemicals, refined petroleum products, black oil products and agricultural chemicals by 

inland and coastal tank barge, and own and operate oceangoing tug and barge units transporting 

dry-bulk commodities in United States coastwise trade. The company also provides after-market 

service for medium-speed and high-speed diesel engines and reduction gears used in marine and 

power generation applications; distributes and services high-speed diesel engines, transmissions, 

pumps, and compression products; and manufactures and remanufactures oilfield service 

equipment, including pressure pumping units, for land-based pressure pumping and oilfield 

service markets. 

The Jones Act is Crucial to Sustaining a U.S.-flag Domestic Industry 

I am here today to tell you that because of U.S. coastwise laws-commonly referred to as the 

Jones Act-the domestic U.S.-flag fleet is alive and well, and with the continued support of 

Congress, it has a bright future. 

More than 40,000 American vessels built in American shipyards and crewed by American 

mariners currently ply the coastwise trades. That industry sustains nearly 500,000 jobs, 

generates some $29 billion in labor compensation, and creates more than $100 billion in annual 

economic output, according to a study by PricewaterhouseCoopers for the Transportation 

Institute. 

The coastwise laws of the U.S. are essential to the continued economic viability of the U.S. 

transportation system and to the maintenance of a U.S.-flag fleet to support that system. Those 

laws require vessels operating in the domestic trades-i.e., carrying cargo or passengers from 

one point in the United States to another point in the United States-to be (i) owned and 

operated by American citizens; (ii) built in the United States; and (iii) documented under thc 

laws of the United States (which requires the use of American seafarers to crew the vessels). 

At its essence, the Jones Act requires companies doing business in the domestic commerce of the 

United States to comply with American laws such as taxation, labor and employment, and 

immigration just as any business operating wholly within the United States would be required to 

do. It ensures a level playing field for all participants in the market. Notably, other 

transportation modes such as rail, aviation, and tnIcking have similar laws governing their 

domestic operations. 

Today's domestic U.S.-flag fleet has proven its capabilities to meet the demands of the 

marketplace, and has the flexibility to meet the needs of shippers. This is nowhere more evident 

than in the domestic tanker and tank barge trades, where over the past decade billions have been 

invested in building new ships, barges, towboats, and tngboats for the marketplace. During the 

past five years, Kirby has invested over $2.1 billion in fleet replacement, acquisitions and capital 

improvements to its existing vessels. 
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Testimony of Mr. Joseph H. Pync 

May21,2013 

Page 3 

Likewise, in the non-contiguous container trades, American carriers are investing in ships to 

meet shippers' needs. AMP member TOTE is not only building new state-of-the-art ships 

powered by liquefied natural gas (LNG) for the Puerto Rico trades-expected to be the largest 

ships of any kind in the world powered primarily by LNG-at General Dynamics NASSCO 

shipyard, but is also converting its two existing containerships to use LNG as their primary fuel 

source. TOTE's sister company, Foss Maritime, has also developed and built in Rainier, Oregon 

the world's first hybrid tug, which delivers the same amount of power and maneuverability as 

conventional tugs. These tugs dramatically reduce emissions and fuel consumption, and the 

design was awarded the EPA's Clean Air Excellence Award for Clean Air Technology in 2008. 

And, consider the domestic offshore oil and gas service sector, where American companies 

continue to design and build some of the most sophisticated offshore supply vessels in the world. 

Hornbeck Offshore, an AMP member, last year expanded its DP-2 new generation offshore 

supply vessel (OSV) new build program to 20 ships, with options for 44 more OSV s. While 

these 20 coastwise-qualified vessels are being built at two shipyards in the United States for the 

Gulf of Mexico offshore services sector, Hornbeck expects these coastwise qualified ships to 

also service the deepwater and ultra-deepwater drilling activity in Brazil and Mexico. These 

ships will represent an approximately $900 million investment by Hornbeck. 

Investments like this are occurring in virtually every segment of the domestic U.S.-flag 

industry--dredging and marine construction; tugboats, towboats and barges; passenger vessels; 

and tank and dry cargo vessels. Thousands of workers in American shipyards and related 

businesses build these vessels, helping to sustain the shipbuilding industry base. Thousands of 

American seafarers are employed on the new vessels, providing a pool of seafarers to meet 

military sealift requirements. 

The domestic U.S.-flag maritime industry has demonstrated time and again that it can, and will, 

continue to meet America's transp011ation needs. 

The .Jones Act is a .Jobs Engine 

A few minutes ago, I touched on the issue of jobs created and sustained by the Jones Act. The 

PricewaterhouseCoopers study referenced above finds a half-million U.S. jobs attributable to the 

Jones Act. I can speak from my company's direct experience about those jobs and the 

employment opportunities our industry represents. These arc good paying, career jobs, with 

attractive benefit packages. 

For example, more than half of Kirby's employees-some 2500 Americans-are mariners on 

our vessels. Their average salaries range from almost $45,000 a year for a deckhand in our 

inland fleet to over $130,000 a year for our captains and pilots. Our company provides them 

with a comprehensive package of benefits including health and disability insurance, pension 

plans, 401(k) matching contributions and other benefit programs. 
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Testimony of Mr. Joseph H. Pyne 

May 21, 2013 

Page 4 

Training and career development is a vital component of working at Kirby. Kirby has its own 

training center that includes classrooms, dormitories and dining facilities, as well as training 

vessels and a state-of-the-art vessel simulator. That center provides all the training most vessel 

employees need from the day they are hired until they retire. Kirby can take a high school 

graduate with no experience whatsoever and provide him or her with the paid training and work 

opportunities to climb our career ladder to ajob paying approximately $100,000 a year within a 

span as short as 3-5 years. 

I have heard some Jones Act critics say that the Jones Act exists to protect only a few maritime 

unions. The fact is that the American maritime industry, like many domestic industries, is 

comprised of a union and non-union workforce. In fact, there are both union and non-union jobs 

within Kirby. In truth, while seafarers and shipyard workers who belong to unions playa critical 

role in America's maritime industry, the majority of seafarers and shipyard workers employed in 

the Jones Act segment of America's maritime industry are non-union. So support for the Jones 

Act is about American jobs-both non-union and union jobs-in the companies, in the 

shipyards, and on the ships. All American jobs are important, and all American workers 

employed in the Jones Act segment of America's maritime industry, whether they belong to a 

union or not, contribute to the economic, homeland and military security of the United States. 

The jobs Kirby provides do not end with our own payroll. I know the shipyards will also speak 

today, but building and maintaining Kirby's fleet of i,300-plus American vessels means our 

company alone keeps hundreds of shipyard workers employed. Kirby spends over $50 million 

each year just for vessel maintenance and repair, and provides many additional jobs through our 

newbuild program. A recent example is the construction of two oceangoing tug-barge units that 

Kirby will use to deliver coal to power plants in Florida. That project is now wrapping up, but 

during the height of construction over 800 shipyard workers went to work at a shipyard in 

Orange, Texas each day to build these vessels. 

The Domestic U.S.-Flag Maritime Industry is Key to the United States' Military Strategy 

The domestic U.S.-flag fleet supports U.S. national and homeland security. Rear Admiral Mark 

Buzby, Commander of Military Sealift Command, put it best last year when he said: 

When it comes to backing the Jones Act, from my standpoint, it's a no-brainer. We need 

a strong maritime industry, and part of a strong industry is highly trained merchant 

mariners, so many of whom are employed on Jones Act ships. We need a strong 

shipbuilding industry .... We need the current shipping capacity to move the lifeblood 

of this country where it needs to go, when it needs to go. The Jones Act supports all 

these things. It's vital to our national security. 

The domestic maritime industry has long been recognized as an important element to the nation's 

military strategy, by RepUblicans and Democrats alike, all of whom recognize that defense of a 

nation is far more important than any perceived benefits of allowing foreign ships to operate in 

domestic waters. 
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Testimony of Mr. Joseph H. Pyne 

May 21, 2013 

Page 5 

While some critics argue that the Jones Act no longer provides national security benefits to our 

country, we strongly believe they are wrong. But do not take our word for it. Take it from the 

U.S. Government Accountability Office (GAO), an independent, nonpartisan agency that works 

for Congress, which in a recent report on the Jones Act said "the military strategy of the United 

States relies on the use of commercial U.S.-flag ships and crews and the availability of a 

shipyard industrial base to support national defense needs." 

The U.S.-build and rebuild requirement helps to sustain the nation's shipbuilding, repair and 

maintenance industrial base capabilities to meet commercial and military needs. The crewing 

requirement ensures a pool of American seafarers who are trained and ready at a moment's 

notice to crew vessels in support of military sealift. And the American ownership requirement of 

the law ensures that American citizens control vessels and logistics assets that could be made 

available to the U.S. government in time of war or national emergency. 

In a study on The Contribution of the Jones Act to National Security, Dr. Daniel Goure of the 

Lexington Institute said "the relevance of the Jones Act to national security now and in the future 

must be judged in light of continuing threats America faces overseas and this nation's 

requirements for naval power and sealift." Dr. Goure concluded that "the greatest danger to the 

role and function of the United States as a seafaring nation is the decline of its maritime industry 

and merchant marine." 

Beeause of the Jones Aet, I can tell you that the United States continues to have a dynamic 

shipbuilding industry, a robust U.S.-flag fleet, and a highly skilled American seafaring 

workforce. 

The Coastwise Laws Help to Protect the Homeland 

Another largely overlooked element of the domestic U.S.-flag maritime industry is the role it 

provides in helping to protect the American homeland. In a post-9/11 world, our nation faces a 

host of new threats. That was never more evident than the recent Boston Marathon bombings. 

The Jones Act provides a layer of protection to this nation that many do not recognize and also 

provides capability to assist in times of national emergency. Let me explain. 

Securing our borders is a difficult task under the best of circumstances. Imagine how hard it 

would be to handle that task if foreign vessels were free to roam our domestic commerce every 

day with foreign workers on board those vessels. While foreign cargo and passenger vessels do 

call at U.S. ports every day, they enter the country on a temporary basis and in specific secured 

locations. Allowing foreign vessels with foreign crews to operate permanently in domestic 

commerce - inland waterways, lakes, coastal- would significantly alter the landscape, 

dramatically increasing homeland security risks and creating a more porous U.S. border. 

Also, as we have noted, the coastwise laws at their core ensure compliance with American laws, 

including immigration, employment and other laws that were designed to support U.S. homeland 

security. For example, seafarers serving on American vessels must pass rigorous background 

checks for both their Coast Guard credentials and their Transportation Worker Identification 
91 


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Testimony of Mr. Joseph H. Pyne 

May 21, 2013 

Page 6 

Credentials (TWIC). Foreign seafarers do not have to meet the same requirements, and in fact, 

are not required to get TWIC cards at all. The coastwise laws also help to ensure that the 

ownership of vessels resides with Americans. 

Recognizing the value of the coastwise laws to homeland security, Dr. Goure at the Lexington 

Institute astutely noted: 

The task of securing our U.S. seapOlis and foreign cargoes is daunting by itself. It makes 

no sense to allow foreign-owned ships operated by foreign crews to move freely 

throughout America's inland lakes, rivers, and waterways. Were the Jones Act not in 

existence, DHS would be confronted with the difficult and very costly task of monitoring, 

regulating, and overseeing all foreign-controlled, foreign-crewed vessels in internal U.S. 

waters. 

American mariners in our ports and waterways are eyes and ears for homeland security. Coast 

Guard and law enforcement persOimel can only be in so many places, but security trained and 

vetted American mariners can spot and report potential trouble as they go about their daily tasks. 

We could not expect snch vigilance from foreign crews. And, it is worth emphasizing that the 

commitment of the American mariner goes beyond security. American mariners have a respect 

for and commitment to protecting our environment. Many mariners live near the waters they 

ply, so they feel a personal responsibility to protect their homes and communities and keep them 

clean and viable for the enjoyment of their families and future generations. 

Future Opportunities for the Jones Act Industry 

The domestic maritime industry consistently responds to market demands; after all, companies 

I ike Kirby exist to serve their cllstomers' transportation needs. History shows that where there 

has been a need for vessels, they have been built. Where there is a demand for cargo 

movements, carriers have put vessels in service. Looking forward, AMP sees numerous 

opportunities for the domestic maritime industry. 

In the U.S. non-contiguous trades, American companies are investing hundreds of millions of 

dollars to build new containerships and roll-onlroll-off cargo vessels. I have already noted 

TOTE's new LNG-powered containerships at General Dynamics NASSCO. But Pasha Hawaii 

has a combination container/roll-on-roll-off cargo ship under construction at VT Halter Marine's 

shipyard in Pascagoula, Mississippi that is anticipated to enter the trade in 2014. It has also been 

reported publicly that Crowley Maritime Corp. is planning to build containerships for the Puerto 

Rico trades. The implementation of the Nonh American Emission Control Area, which brings in 

stricter controls on emissions from ships operated in U.S. waters, will create additional needs to 

recapitalize the U.S.-flag neet in the non-contiguous domestic trades. 

AMP also believes that at some point the development of a marine highway system in the United 

States will occur. It is an efficient method of moving cargoes and getting vehicles off roadways. 

Several factors, however, currently affect the development of a marine highway system in the 

ncar term. For example, domestic cargoes are subject to the Harbor Maintenance Tax, which can 
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Testimony of Mr. Joseph H. Pyne 

May 21,2013 

Page 7 

lead to the double taxation of international cargoes transshipped via a marine highway system. 

Additionally, handling charges for cargoes can also increase costs. Nevertheless, with 

congestion on the nation's highways increasing and a transportation infrastructure that is in need 

of major upgrades (during tough budget environments at the federal and state levels), AMP 

believes that the marine highway system eventually will be developed, creating new 

opportunities for the domestic U.S.-flag maritime sector. 

One of the strongest segments seeing increased demand for tonnage is in the energy sector, 

where there has been a significant rise over the past 3-5 years in the development of resources in 

this country. Companies like Kirby, as well as Crowley Maritime, Bouchard Transportation, 

American Petroleum Tankers, Overseas Shipholding Group, and others, are collectively 

committing billions of dollars to acquire U.S.-flag tankers, tank barges and towing vessels for the 

movement of petroleum products and crude oil in the domestic trades, both inland and coastal. 

We see demand for tankers and tank barges increasing as the U.S. continues to ramp up crude 

production, and we believe you will see Jones Act operators continue to make investments in 

new construction to meet that demand. 

The opportunities are not limited to crude oil and refined products. The U.S. has developed 

significant natural gas resources that have the potential to create major new markets for the 

domestic maritime industry. For example, Hawaii Gas is developing a proposal to transform 

Hawaii's economy to one powered by natural gas instead of oil-powered electricity generation. 

Puerto Rico has also expressed a desire to move from oil-powered electricity generation to 

natural gas. It is anticipated that these areas will need U.S.-flag LNG vessels to carry sufficient 

volumes of domestically-produced natural gas. Additionally, the expansion of LNG-powered 

vessels globally is expected to increase the demand for U.S.-flag LNG bunkering vessels on our 

waterways. 

We understand that market dynamics can increase short-term pressure on the transportation 

system to handle increased energy demands, but we do not believe that is unique to maritime. It 

is happening in the rail sector, where the need for tank cars has risen significantly over the past 

two years to meet the demands of refiners and producers looking to move crude stranded in the 

heartland because of the lack of pipeline infrastructure. It is happening in the pipeline sector, 

which is developing and building new capacity to handle increased Bakken, Eagle Ford and 

Permian Basin crude production; reversing pipelines to adjust to the lack of importation of crude; 

and adding capacity to existing lines to increase volumes being transported over existing rightsof-way. Just as is occurring in these other sectors, the U.S.-flag tanker and tank barge markets 

will adjust. 

It should be noted, however, that energy markets are extremely fluid and dynamic, and are 

affected by forces such as the global economy and geopolitical issues. Very few people saw the 

United States on the path to energy independence five years ago, or predicted that shale oil 

production would increase so dramatically in the past three years. In fact, it was not that long 

ago that there was a shortage of natural gas in this country and industries were ramping up to 

import natural gas. 
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Testimony of Mr. Joseph H. Pyne 

May 21, 2013 

Page 8 

I say that to point out that the current pressure on the maritime transportation segment in the 

energy markets is not a justification for Congress to intervene and waive the Jones Act, as a few 

have suggested. On the contrary, to ensure continued investment by American companies to 

meet market demands on an ongoing basis in all domestic maritime sectors, Congress must send 

a clear signal that it will not waive the Jones Act. Without this clear message, uncertainty may 

undermine vessel owners' willingness to make the long-term investments necessary to ensure 

this country's future security. 

Conclusion 

The domestic U.S.-flag maritime industry is one of the most robust, dynamic, and productive in 

the world today, numbering more than 40,000 vessels, employing more than 500,000 workers, 

and contributing more than $100 billion to the U.S. economy. AMP member companies are 

continuing to invest in this country, creating jobs in virtually every sector of the economy. That 

is only possible because of the Jones Act. 

You asked in your invitation letter for AMP's "views on what is necessary to maintain a U.S.-

flag domestic fleet." Our response is twofold: remain steadfast and vocal in your support for the 

Jones Act; and reject overtures by those seeking to change or repeal the law for their own benefit 

and to the detriment of the critical! y important domestic maritime sector. For our industry to 

remain strong and continue to grow, we need certainty that the playing field will not change. 

The people who invest in Kirby and other Jones Act companies need confidence in their 

investments. Uncertainty creates headwinds that make it tougher for our businesses to move 

ahead. It is important to understand that vessels are assets with a 30- to 40-year life span. Those 

of us who have been in the business for a long time can remember times of prosperity and times 

where our vessels were tied up and underutilized. Right now, some segments of the market are 

tighter than others due to unprecedented new opportunities, but the marketplace can and will 

adjust to the demand. I am here to tell you that where the need exists, there are a number of 

American companies who have the financial strength to invest in equipment to meet that need. 

Please help us keep the confidence we need to continue investing in America by telling the world 

America's security is not for sale and the Jones Act will remain the foundation of our U.S. fleet. 

Thank you for the opportunity to present our views on the importance of U.S.-flag ships, 

American mariners, and domestic shipbuilding to the Committee. 

### 
94 


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June 21, 2013 

K&l GATES lLP 

1$01 K STREET N.W 

WASHlNGTON, DC 20006-1SOO 

T 202.778,9000 F 202.778.9100 klgales.com 

The Honorable Duncan Hunter 

Chairman 

Subcommittee on Coast Guard and Marine 

Transportation 

Committee on Transportation and 

Infrastructure 

Washington, DC 20515 

DARRELL CONNER 

GOVERNMENT AFfAIRS CotJl';SELOR 

DIRECT DIAL (202) 661.0220 

The Honorable John Garamendi 

Ranking Member 

Subcommittee on Coast Guard and Marine 

Transportation 

Committee on Transportation and 

Infrastructure 

Washington, DC 20515 

Dear Chairman Hunter and Ranking Member Garamendi: 

Please find attached the responses by Mr. Joe Pyne, Chairman and CEO, Kirby Corp., on 

behalf of the American Maritime Partnership (AMP), our client, to Ranking Member 

Garamendi's questions for the record for the hearing before the Subcommittee on Coast Guard 

and Maritime Transportation regarding the role ofFS.-flag ships and U.s. mariners to our 

economy and national security. (Attachment A) 

In addition to the questions for the record, AMP would like to take this opportunity to 

respond to comments made during the hearing by the Honorable John Porcari, Deputy Secretary, 

U.S. Department of Transportation, regarding administrative waivers of the Jones Act. Mr. 

Porcari suggests that during the drawdown ofthe Strategic Petroleum Reserve (SPR), the 

Administration did not issue blanket waivers of the Jones Act. The Administration did in fact 

propose a blanket waiver of the Jones Act on June 23, 201 L In a memorandum from the 

Secretary of Energy to President Barack Obama recommending the SPR drawdown, thenSecretary of Energy Steven Chu recommended that the President issue the following as part of a 

finding authorizing the drawdown: 

I further direct the Secretary of Homeland Security to waive compliance with the 

coastwise laws, including the Jones Act, generally for the transportation of 

petroleum withdrawn from the SPR during the drawdown, including the 

transportation of petroleum that may be delivered to or withdrawn from the SPR 

during this period under contractual arrangements other than ones entered into 

pursuant to this Finding. 

It was only after the American domestic maritime industry learned of this directive, and 

strenuously objected to it, did the Administration adopt a different approach. (Attachment B is a 
95 


Insert offset folio 66 here 81148.066

copy of the June 23,2011, Memorandum for the President.) It is reasonable to assume that had 

the industry not learned of the proposed blanket waiver, it would have in fact been issued. 

Nevertheleas, even after rescinding the proposed blanket waiver and offering to 

review Jones Act waivers on a case-by-case basis, a de facto blanket waiver was 

implemented by the Department of Energy by establishing an unwritten requirement for 

minimum delivery lot sizes at 500,000 barrels, a requirement that exceeded the minimum 

requirements in the Notice of Sale and a level that exceeded the size of any U.S.-flagged 

vessels. 

As a result of the approach taken by the Administration, in total, more than 50 waivers of 

the Jones Act were issued to foreign flag vessels. Notably, the Administration's mishandling of 

the SPR waivers triggered a response by Congress, which enacted several provisions designed to 

improve the waiver process by requiring more transparency by the Administration and more 

coordination between with the maritime seetor. 

AMP appreciates the Subcommittee working with the industry to address concems with 

unnecessary administrative waivers of the Jones Act that are detrimental to the American 

domestic maritime industry, and urges you to continue your oversight of such waivers. 

Again, AMP would like to extend thanks for the opportunity to testify before the 

committee on the Jones Act. The Jones Act provides a critical foundation to our nation's 

maritime policy, helping to ensure the nation's ability to maintain a U.S.-flag fleet, a 

shipbuilding and ship maintenance and repair industrial base, and a pool of qualifies seafarers fur 

time of war or national emergencies. It is critical that Congress continue its long-standing 

support for this law. 

AMP asks that you consider this letter a supplemental submission for the record, and as 

such, include it in the record for the hearing. 

Sincerely, 

~nnLer~---------

Attachments 

2-
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Insert offset folio 67 here 81148.067

ATTACHMENT A 

Subcommittee on Coast Guard and Maritime Transportation 

Hearing on Maritime Transportation: The Role of U.S. Ships and Mariners 

Tuesday, May 21, 2613 

Questions for the Record to Mr. Joseph H. Pyne, 

Chairman and Chief Executive Officer, Kirby Corporation 

* A'ESPONSES AA'E lJENOTE'£) IN gO£lJgELOfF THE (){/£ST/ONSUgMITT£.£) * 

Questions from the Honorable John Garamendi (D-CA) 

Jones Act 

Mr. Pyne, the Jones Act has been the foundation of U.S. maritime policy since 1920, reserving 

point to point carriage of cargo and passengers from two points in the U.S. exclusively to vessels 

that are built, owned and crewed by Americans and fly under the U.S. flag. The coastwise laws 

have ensured our maritime industry and maritime related jobs are not outsourced to foreign 

shipyards or given to foreign seafarers. 

The Jones Act has worked. Compared with the U.S. flag foreign trade fleet which has declined 

significantly since 1993, today the Jones Act fleet numbers approximately 40,000 vessels of all 

types providing reliable and cost-effective maritime tranaportation. Nonetheless, the Jones Act 

continues to come under attack, usually under charges that it stifles competition, increases 

transportation costs, and restricts international trade. 

• Opponents of the Jones Act frequently talk about how the Jones Act would lower freight 

rates and prices to consumers as a reason to waive or repeal the Jones Act. Do you 

think that would be the case if the Jones Act were repealed? 

Allegations that a waiver or repeal of the Jones Act to permit foreign ships to 

operate in the domestic trades would translate into lower rates and lower consumer 

costs are misplaced. In fact, the U.S. Government Accountability Office (GAO) 

recently looked at a similar allegation for the Puerto Rico trades (GAo-13-260) and 

found that many factors affect the prices of goods and it is impossible to determine 

how or if the Jones Act Impacts shipping rates or the price of goods. GAO also 

noted, "We reported in 1998 (in GAOIRCED-98-96R), and continue to find that 

arriving at an accurate estimate of the costs to foreign carriers of complying with 

U.S. laws would be very difficnlt." Because it is not possible to calculate the costs to 

foreign carriers of complying with U.S. laws - and there will be a cost to complying 

with U.S. laws, Including Immigration, wage and honr, taxation, etc. - the 

independent effect and associated economic costs of the Jones Act simply cannot be 

calculated. Nor can it be assumed that any transportation cost savings would flow to 

consumers. Analysis of recent occasions when foreign vessels have been allowed to 

make domestic moves under waivers snggests any transportation cost savings were 

pocketed by the shippers and not passed on to consumers. 
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Insert offset folio 68 here 81148.068

A TT ACHMENT A 

The GAO noted that allowing foreign ships into the trades could have adverse 

unintended consequences such as reductions in levels of service provided to 

customers, loss of mariner jobs needed to crew the U.S. military reserve and other 

deep-sea vessels in times of national emergency, and reductions in future orders for 

U.S. shipyards (which could adversely affect the defense industrial base). So, any 

discussion of whatever savings might be generated by outsonrcing our domestic 

merchant marine to foreign interests should also consider the costs. What would be 

the cost to maintain a merchant marine reserve force of vessels and crews to meet 

the nation's wartime manning needs if the domestic fleet and its mariners were not 

available? Would shipyard subsidies be required to maintain the capacity to build 

warships and transport ships for our Navy? How would our economy be impacted 

by the loss of jobs represented hy the domestic merchant marine? 

• What would you say ro opponents of the Jones Act who argue that because of the 

tightness of supply of American vessels in the cntde and petroleum markets today, we 

should he waiving the Jones Act to allowforeign vessels into our coastvvise trades? 

Crude and petroleum markets are very dynamic, and every day transportation 

providers such as Jones Act operators respond to shippers needs, both in the short 

term and over the long term. For example, we are already seeing the markets 

adjust, with orders placed on May 31,2013 by American Petroleum Tankers for 

four 50,000 deadweight ton LNf'rconversion-ready product carriers with a 330,000 

barrel cargo capacity, with options to build four additional ships. The project will 

employ approximately 800 workers at General Dynamics' NASSCO shipyard 

dnring construction and more than 165 seagoing jobs after completion. 

But investors in these markets, including American shipping companies, need 

legislative and regulatory certainty in order to respond to market changes. Just 

because there may be a temporary supply and demand imbalance in the 

marketplace does not justify Congressional or Administration action to waive the 

Jones Act to permit foreign vessels to operate in tbe domestic trades. With 

certainty, the market can adjust and it is adjusting. 'Vaivers undermine current 

investors in the domestic markets, devalue American companies in tbose trades, and 

inhibit future investment in responding to market needs. In addition, changing the 

rules in the middle of the game by waiving tbe Jones Act bas a harmful and perverse 

impact far beyond the sbipping industry. 

It wasn't that long ago that rates were relatively low and tanker and tank vessel 

availability was relatively high, and there were ample opportunities to engage in 

long-term charters to assure access to waterborne transportation at very attractive 

rates. Many companies signed long-term charters dnring that time; others either 

misjudged the market or made educated decisions to take the risk. American 

shipping companies should not be penalized with waivers of the Jones Act because 

certain companies made the wrong bets. The reality that tbose who make last 

minute transportation plans often pay the higbest rates, sometimes substantially 

higher than those who planned ahead, is not exclusive to the maritime industry. 
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Insert offset folio 69 here 81148.069

There are no problems in the domestic marine transportation marketplace that the 

market cannot solve. 

• Your testimony at the hearing discussed thc homeland seeurity benefits of the Jones Act. 

Can you elaborate on that more? 

As noted in the testimony, the U.S.-flag maritime sector serves as eyes and ears on 

the water for our nation's homeland security agencies. They are part of the 

solution, whereas foreign vessels doing the same jobs would be part of the problem. 

As was noted by Dr. Daniel Goure in his report "The Contribution of the Jones Act 

to National Security," a key element to the multi-layered approach to protect the 

U.S. is timely intelligence and visibility into the movement of goods and people in 

the U.S. This information is critical to the preventing attacks on the homeland. The 

U.S. vessels of the domestic fleet ply the nation's waterways every day and the 

highly trained and vetted American workers in the domestic maritime industry 

perform the vital task of helping to alert appropriate authorities of suspicious or 

illegal activities. Our company has a sophisticated program to ensure that when 

someone aboard our vessels sees something that doesn't seem right, that is promptly 

reported to the proper authorities. The domestic merchant marine helps our 

homeland security apparatus do its job better. If it was replaced with foreign 

vessels, this would turn the vessels that watch our waterways into vessels we would 

have to pay somebody to watch. 

If the Jones Act was repealed, and foreign seafarers were free to operate wholly 

within our domestic waterways, the security risk would undoubtedly increase, 

especially if changes were not made to other laws that have been implemented for 

the purpose of protecting tbe nation, such as immigration and seafarer 

credentialing. Recognizing the euormity of the task of securing our nation's border, 

Dr. Goure pllt it best in his report when he noted, "One could readily assert that 

were there no Jones Act, Congress would have to invent one." 

Title XI Loan Guarantee Program 

Mr. Pyne, the Title XI Loan Guarantee Program has been a helpful tool to provide financial 

assistance to ship owners and ship yard ovmers to construct, reconstruct or recondition the U.S. 

flag vessels and to modernize U.S. shipyards to keep them competitive. Regrettably, funding for 

this program has heen inconsistent and declining over the past decade, and in fact, no new 

guaranteed obligations were approved in 2012. 

• Should the Title Xl program be expanded? Are new emerging markets for LNG powered 

vessels or to provide capacity for trade along Marine Highways legitimate investmeflts 

that the Federal Government should help finance.? 

AMP's sole mission is to support the .Jones Act, and therefore, it does not have 

position on the Title Xl program. 
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In general, there appears to be a strong consensus that the Congress and the Federal Govemment 

should do more to promote the U.S. merchant manne. More specifically, the govemment should 

better support efforts by the maritime industry to recapitalize assets and modemize and expand 

capabilities, should preserve existing cargoes and identify new cargoes for U.S. carriers, both in 

the Jones Act trade and the U.S. foreign trade, and promote opportunities to expand U.S. 

shipbuilding capabilities. 

• Beyond the obvious need for a sufficient budget and reliable annual appropriations to 

support the U.S. merchant marine, what are the three highest priorities that you would 

recommend the Congress consider to address these objectives? 

A critical benefit of the Jones Act is that it does not reqnire federal funding, The 

Jones Act provides a level playing field for all U.S.-flag operators. Therefore, AMP 

believes that the three highest priorities for Congress on the Jones Act are: 

• Continued public support for tbe law, sending a signal to tbe markets that 

investment in tbe domestic U.S.-flag fleet will be supported; 

• Rejection of legislative efforts to repeal or waive the law; and 

Keeping pressure on the Executive Branch to support and enforce the law 

and not to administratively waive the law. 

These actions will provide adequate certainty to the markets to permit continued 

investment in the domestic U.S.-flag fleet, to allow industry to continue building 

ships in American shipyards, and to create American jobs on the ships and in tbe 

sbipyards. I cannot emphasize enough the importance of certainty to our long-term 

business planning, 

• Are there specific programs that should be reformed to better align with contemporary 

and future needs? 

AMP does not believe that any cbanges to the Jones Act or related coastwise laws 

are needed, except perhaps to those provisions in 46 USC § 501 relating to 

administrative waivers of the law (e.g., to strengthen tbose requirements). 

• Are there some existing programs that should be repealed in favor of other alternatives? 

ConverseZv. are there some programs previously repealed that might be reconstituted?" 

AMP's sole mission is to snpport tbe domestic maritime industry through ensuring 

that the historical policy of the nation tbat vessels in the domestic trades be U,S. 

bnilt, U.S. owned, U.S. crewed and U.S. operated remains the law of the land and 

therefore, it does not have position on other programs tbat are part of the maritime 

policy of the U.S. 

### 
100 


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The Secretary of Energy 

Washington, DC 20585 

June 23, 2011 

ATTACHMENT B 

MEMORANDUM FOR THE PRESIDEN~I , . 

FROM: STEVEN CHU lJ/IltYl 

SUBJECT: Authorization to Draw Dovm Petroleum from the Strategic 

Petrolemn Reserve as Required by U.S. Obligations under the 

International Energy Program Implemented by the International 

Energy Agency 

To request your decision concerning the drawdO\I!T1 and sale of petroleum from the 

Strategic Petroleum Reserve (SPR). 

Rackl!round and Oi~cussion 

In mid-February, armed contlic! disrupted essentially all oil exports from Libya. Prior to 

the conflict, Libya was exporting approximately 1.5 million barrels per day of light sweet 

crude oil, representing about 2 percent of the world's crude oil supply. Through May 

2011, the Libyan unrest has prevented roughly 145 million barrels of mostly light sweet 

crude from reaching world markets. Oil exports are still disrupted and are not expected to 

resume for at least severa! months. The disruption has caused a substantial increase in oil 

prices worldwide that is slowing U.S. economic growth at this critical point in OUf 

economic recovery. The President's Council of Economic Advisors estimates that the 

increase in oil prices from the beginning of the year reduced the annualized grov.1h rate 

of first quarter 2011 real Gross Domestic Product (ODP) by roughJy 0.5 percentage 

points. This drag on GOP growth is expected to persist throughout 20 II if oil prices 

remain at elevated levels. 

Because Libyan oil is low in sulfur content and becalL~e refinery demand for crude oil 

worldwide is expected to increase during the summer months, the impacts associated 

with the Libyan disruption could increase over the coming months as retlneries that Can 

only use low-sulfur crude oil increase production (0 meet market demand. 

Pursuant to section 16\(d) of the Energy Policy and Conservati0n Act (42 USC 6241(d», 

the Secretary of Energy may order a drawdown or sale of petroleum from the SPR if 

doing so is required by obligations of the United States under the International Energy 

Program implemented by the International Energy Agency (lEA). On June 23, 2011, the 

lEA took action calling for member states to release petroleum reserves in response to 

elevated oil prices resulting from the ongoing disruption. For this reason, the drawdown 
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ATT ACHMENT.B 

and sale of petroleum from the SPR is authorized by the requirements of the Agreement 

on an International Energy Program. 

A draft Finding has been prepared for your signature. TIle draft Finding also directs the 

Secretary of Homeland Security to waive compliance with the coastwise laws, including 

the Jones Act, generally for the transportation of oil distributed from the SPR during the 

drawdo,",TI. 

If you make the necessary finding, the Department of Energy will release the withdrawn 

petroleum into the market by public sale to the highest qualified bidder. 

2 

The President authorized a drawdown and sale of petroleum from the SPR on two other 

occasions - in 1991, to address a potential national energy supply shortage resulting from 

the Persian Gulf War, and in 2005, to respond to disruptions in the transportation of oil 

due to Hurricane Katrina. 

Recommendation 

! recommend that you (i) find that a drawdown and sale ofcrude oil from the SPR is 

required by U.S. participation in the International Energy Program implemented by the 

lEA, and (ii) authorize and direct a drawdown and sale of petroleum from the SPR. 
102 


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MEMORANDUM FOR THE SECRETARY OF ENERGY 

SUBJECT: 

THE SECRETARY OF HOMELAND SECURITY 

Finding that a drawdown and sale of petroleum from the Strategic 

Petroleum Reserve is required by U.S. obligations under the 

International Energy Program implemented by the International Energy 

Agency 

In mid-February, armed conflict disrupted essentially all oil exports from Libya. 1be supply 

disruption continues and oil exports are not expected to resume for at least several months. 

Coupled with the spread of political unrest throughout the Middle East, the disruption has 

resulted in energy supply shortages of significant scope and duration and has already caused a 

substantial increase in oil prices worldwide that are slowing U.S. economic growth at this critical 

point in our economic recovery. 

Based on the advice of the Secretary of Energy and on other information, I find that a drawdown 

and sale of petroleum from the Strategic Petroleum Reserve (SPR) is required by U.S. 

obligations under the International Energy Program implemented by the International Energy 

Agency (lEA) and created by the Agreement on an International Energy Program in the Cbarter 

of the lEA signed by the United States on November 18, 1974. 

For these reasons, the Secretary of Energy is authorized and directed to draw down and sell 

petrolelUn from the SPR pursuant to section 161 (d) of the Energy Policy and Conservation Act 

(42 USC 624 I (d») at a rale the Secretary of Energy may determine and in accordance with the 

SPR competitive sales procedures in 10 CFR Part 625. The drawdown and sale authorized and 

directed by this Finding will allow the United States to meet its obligations under the Agreement 

on an International Energy Program. If the Secretary of Energy determines the circumstances 

leading to this Finding no longer support initiation or continuation of a drawdown and sale of 

petroleum from the SPR, he is authorized to cancel in whole or in part any offer to sell petroleum 

as a part of any drawdown and sale pursuant to this Finding. 

I further direct the Secretary of Homeland Security to waive compliance with the coastwise laws, 

including the Jones Act, generally for the transportation of petroleum withdrawn from the SPR 

during the drawdown, including the transportation of petroleum that may be delivered to or 

withdrawn from the SPR during tbis period under contractual arrangements other than ones 

entered into pursuant to this Finding. 

Bamek Obama 
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Statement submitted by the 

American Maritirne Officers, 

International Organization of Masters, Mates & Pilots, 

and 

Marine Engineers' Beneficial Association 

to the 

Subcommittee on Coast Guard and Maritime Transportation 

of the 

Committee on Transportation and Infrastructure 

on 

"Maritime Transportation: The Role of U.S. Ships and Mariners" 

May 21, 2013 
104 


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Mr. Chairman and Members of the Subcommittee: 

This statement is submitted on behalf of the American Maritime Officers (AMO), the 

International Organization of Masters, Mates & Pilots (MM&P), and my union, the Marine 

Engineers' Beneficial Association (MEBA). We appreciate the opportunity to present our views 

on "Maritime Transportation: The Role of U.S. Ships and Mariners." 

Our maritime labor organizations represent primarily ships' Masters, Licensed Deck Officers and 

Licensed Engineers working aboard U.S.-flag commercial vessels operating in our nation's 

foreign commerce and domestic trades. The federal programs and policies that support tllis fleet 

and increase its ability to compete for a larger share of America's foreign trade are extremely 

important to the jobs of the men and women our labor organizations represent as well as our 

country's national security. The jobs that American merchant mariners do, and the ships that they 

man, are in tum vital to U.S. national security and defense, and to sealift support of the U.S. 

Anned Forces. 

History has repeatedly proven, and policymakers have recognized, that it is in the best interest of 

the United States to maintain and support a strong, active, competitive and militmily-useful 

privately-owned U.S.-flag merchant marine in order to protect, strengthen and enhance our 

nation's economic and military security. In times of war or other international emergency, U.S.-

flag commercial vessels and their United States citizen crews have steadfastly responded to our 

nation's call, providing the commercial sealift capability and civilian maritime manpower 

necessary to transport and support American forces overseas. Without a strong U.S.-flag 

shipping capability, the United States may find itself at great risk as we become even more 

dependent on foreign flag shipping operations for the carriage of our domestic and international 

trade. 

It is important that our nation has the United States-flag commercial vessels and the trained and 

loyal United States citizen crews needed to support our troops, to protect and enhance America's 

economic interests at home and abroad, and to strengthen United States defense operations 

around the world. Section 101 of the Merchant Marine Act of 1936 states: 

It is necessary for the national defense and development of its foreign and 

domestic commerce that the United States shall have a merchant marine (a) 

sufficient to carry its domestic water-borne commerce and a substantial portion of 

the water-born export and import foreign commerce ... 

Today, U.S.-flag commercial vessels and their American merchant mariners are responsible for 

transporting only two percent of our country's foreign commerce. Mr. Chairman, that is hardly a 

"substantial portion." We believe that the best way to achieve these goals is for Congress and the 

Administration to (I) support and fund the existing programs, and (2) promote forward-thinking 

policies and laws that encourage new tonnage to operate under the U.S.-flag. 

The Carriage orD.S. Government Generated Cargo 

2 
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U.S. cargo preference statutes are among the cornerstones of American maritime policy. The 

laws require the utilization of U.S.-flagged vessels for the transportation of U.S. military cargoes 

and a percentage of certain government-impelled and generated cargoes, thereby providing 

essential assurance that active U.S. merchant mariners and U.S.-flagged vessels are ready and 

available to support military sealift missions, and that government defense reserve vessels can be 

manned rapidly and effectively in times of war, conflict and crisis. Cargo preference statutes 

provide U.S.-flag vessels with a critical base of cargo. They give U.S.-flag vessels the 

opportunity to stay active while they compete against lower-cost and often subsidized foreign 

flag vessels for the carriage of commercial cargoes to and from the U.S. 

The commercial viability ofthe U. S. -flag fleet ensures that the U. S. -flag vessels and their 

American crews remain available to the Department of Defense in time of war or other 

international or domestic emergency. In May 2011, General Duncan McNabb, Commander of 

the United States Transportation Command, stated that "To date, over 90 percent of all cargo to 

Afghanistan and Iraq has been moved by sea on U.S.-flag vessels." He went on to note that U.S. 

cargo preference laws have helped in "ensuring the continued viability of both the U.S.-flag fleet 

and the pool of citizen mariners who man those vessels." 

We are deeply troubled by the Administration's recent proposal to replace the existing Food for 

Peace program with the "Emergency Food Security Program" - a program that simply provides 

U.S. taxpayer dollars to other nations to be used to pnrchase foreign agricultural commodities 

and foreign shipping services. As presently implemented, the Food for Peace Program provides 

U.S. agricultural cornmodities to needy nations and requires that a percentage ofthese 

commodities be transported on U.S.-flag vessels. While serving U.S. humanitarian and foreign 

aid objectives the Food for Peace program also provides a significant return to the American 

taxpayer by creating and maintaining American jobs, and by generating income for American 

ports and the domestic agricultural and transportation industries. 

Most importantly, the Food for Peace program is integral in supporting the U.S. vessels and 

highly trained U.S. mariners that stand ready to serve the U.S. military wherever and whenever 

needed. The same mariner that is employed in peacetime in the safe transport of U.S. food aid is 

available in wartime to deliver the bullets and blankets to our troops overseas. Without the cargo 

preference statutes, and more specifically the continuation of in-kind food aid, our nation's 

ability to project and maintain force abroad will be diminished. 

In 2004, the Deputy Undersecretary of Defense for Logistics and Material Readiness stated that, 

"The Department of Defense supports a strong and viable United States merchant marine which 

provides DOD with needed U.S.-flag vessels and mariners during war. Any change in cargo 

preference that would adversely impact the U.S. merchant marine will have a similar negative 

impact on DOD's mobilization capabilitics." 

American taxpayers and the Federal government should be proud that the Food for Peace not 

only demonstrates the willingness and generosity of the American people to help the world's 

neediest people, but at the same time results in significant economic and strategic benefits for our 

country. 

3 
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The Administration's 2014 budget proposal regarding Food for Peace comes on the heels of the 

passage ofthe "Moving Ahead for Progress in the 21't Century Act" (MAP-21) in July 2012, in 

which the Food for Peace cargo preference suffered an unprecedented setback. Without 

committee review or Floor consideration, Congress reduced the 75% U.S.-flag shipping 

requirement to 50%. The results of this change were the nearly immediate loss of U.S.-flagged 

commercial vessels from the merchant fleet and the loss of hundreds of American jobs. We thank 

Congressman Don Young, Congressman John Garamendi, and Chairman Nick Rahall for their 

support and urge the other Members of the Subcommittee to support H.R. 1678, introduced by 

Congressman Elijah E. Cummings and Congressman Scott Rigell, which would reverse the cuts 

made to cargo preference. 

It is equally important that all other federally funded cargoes are in fact transported in 

compliance with the existing cargo preference laws. Unfortunately, both the letter and the spirit 

of the law have been neglected. There should be no question that, in order to grow and maintain 

the U.S. merchant marine, U.S.-flagged vessels should be used to the greatest extent possible 

when shipping govemment-impelled cargoes. 

For instance, we support the goal of doubling exports by 2015. Govemment agencies and the 

private sector should view the U.S. merchant marine as a partner. When U.S. taxpayer dollars are 

used to ship cargoes, whether governmental or pri vate sector through the utilization of grants, 

loans and loan guarantees, the cargo should be shipped on U.S.-flag vessels. Using foreign 

flagged vessels in order to save a nominal amount of money disregards the spirit of the cargo 

preference laws and neglects the importance of the U.S.-flag merchant marine. 

We note that the Duncan Hunter National Defense Authorization Act of 2009 (Public Law 110-

417) encourages greater adherence to the cargo preference laws. We would ask this 

Subcommittee to do whatever it can to ensure full compliance with the both the spirit and letter 

of cargo preference laws by all Federal departments and agencies. 

Maritime Security Program 

One of the cornerstones of American maritime policy is the Maritime Security Program (MSP). 

The MSP fleet was originally established by the Maritime Security Act of 1996 and has since 

expanded to include 60 U.S.-flagged, privately owned, militarily useful vessels. These vessels 

and the global intermodal cargo systems established and maintained by the private-sector 

operators are made available to the Department of Defense through the Maritime Security 

Program for sealift missions, and provide a crucial, effective and highly efficient supply and 

delivery network for the U.S. Armed Forces. 

The Department of Defense testified that it would need more than $10 billion in capital costs and 

$1 billion in annual operations costs to replicate the commercial sealift capability and worldwide 

logistics network that the MSP and the commercial maritime industry provide to the Department 

of Defense at a fraction of the cost: authorized at $186 million in FY'!3. This equates to an 

annual per vessel payment $3.1 million in order to help offset the enormous tax, regulatory, and 

other economic incentives given to foreign flag vessels and foreign crews by foreign 

governments. 

4 
107 


Insert offset folio 78 here 81148.078

In order to ensure the continued availability and operation of the fleet, the Department of 

Defense requested, and the Congress reauthorized the Maritime Security Program for an 

additional ten-year period through fiscal year 2025. This extension gives the Department of 

Defense the opportunity to undertake long-term planning so that it can count on the ships, 

civilian maritime manpower, and logistical resources that MSP provides. 

We would point out that ExpectMore.gov, a web site developed by the Office of Management 

and Budget (OMB), contains the results of an assessment of every Federal program, including 

the Maritime Security Program. "Effective" is the highest rating a program can achieve and a 

rating of "effective" means that a program has "set ambitious goals, achieves results, [is 1 wellmanaged and improves efficiency." It is especially important to note that ExpectMore.gov has 

rated the Maritime Security Program as "Effective". Only 193 programs out ofa total of 1,015 

programs assessed by ExpectMore.gov reeeived a rating of "effective". 

Unfortunately, the MSP has been affected by the Sequester. Due to the across-the-board cuts 

associated with Sequestration, the program has realized a reduction of approximately $22.8 

million. This means that, one way or another, the Maritime Administration will not be able to 

fulfill their contractual obligation to the MSP carriers. Should the trend of financial uncertainly 

continue in the Program and govemment generated cargoes continue to decrease, U.S. shipping 

companies will be forced to decide whether keeping vessels under the U.S.-flag is economically 

feasible. A loss of ships would immediately trigger a decrease in American jobs and military 

sealift capability. It is essential that Congress approve full funding for this program at the 

Congressionally-authorized level of $186 million. 

The Jones Act 

The U.S.-flag domestic shipping industry is paramount to the unimpeded flow of domestic cargo. 

In order to maintain this capacity, we must uphold the body of law commonly referred to as the 

Jones Act and the requirement that vessels operating between American ports must be built in 

the United States, owned by United States citizens, crewed by American mariners, and operated 

in accordance with all U.S. rules, regulations and tax obligations. 

The construction of vessels in the United States and the operation ofthese vessels by American 

citizens for the domestic trades ensures that maritime and maritime related jobs will not be 

outsourced to foreign shipyards and seafaring workers. The full enforcement of the Jones Act 

helps guarantee that our nation will have the domestic shipyard mobilization base and the 

American merchant mariners available to support Department of Defense requirements. Equally 

important, the full implementation and enforcement of the Jones Act means that the waterborne 

transportation of America's domestic commerce will not fall under the control of foreign 

shipping interests but will instead remain under the control of American companies and 

American erews who, unlike foreign mariners, are subject to U.S.-govemment imposed 

background and security checks. 

As noted by the Govemment Accountability Office (GAO) in a report released in March 2013, 

the Jones Act ensures orders for commercial shipbuilding projeets at American shipyards. A loss 

5 
108 


Insert offset folio 79 here 81148.079

or even a reduction in commercial shipbuilding orders will compromise U.S. shipyards, which 

are in turn essential for U.S. military shipbuilding projects. The GAO, in its report, pointed out: 

"Although the Department of Defense does not administer or enforce the Jones Act, the military 

strategy of the United States relies on the use of commercial U.S.-flag ships and crews and the 

availability of a shipyard industrial base to support national defense needs." 

Bolstering the U.S. Merchant Marine by Leveling the International Plaving Field 

Congress and the Administration should explore a number of proposals that can help increase the 

competitiveness of U.S.-flag shipping in the foreign trades, and thereby increase American jobs 

and national security. 

Maritime Tax Reform 

As Congress considers a broad overhaul of U.S. tax policies, we believe that the competitiveness 

of the U.S. merchant fleet and U.S. mariners should be a top priority. We agree wholeheartedly 

that America's tax laws and policies should encourage, and not discourage, investment in the 

United States and the employment of American workers. 

To this end, we believe that there are changes that should be made in our tax laws that can foster 

the growth of the United States maritime industry, preserve and create jobs for American 

maritime workers, and help reduce the disparity in tax treatment that gives foreign flag vessels 

and foreign mariners a significant economic advantage over the United States-flag merchant 

marine as they compete for the carriage of commercial cargoes. 

We would note at the outset that we greatly appreciate the support the Members of this 

Subcommittee gave for the enactment in 2004 of tonnage tax legislation for U.S.-flag vessels. 

Enacted as part of the American Jobs Creation Act of2004, the tonnage tax alternative to the 

normal corporate income tax system was made available to U.S.-flag vessels operating 

exclusively in the U.S. foreign trades or in the domestic trades for less than 30-days in each year. 

The tonnage tax is intended to help American vessels compete on a more equal footing in the 

international shipping arena. A significant number of foreign flag and foreign crewed vessels 

had already enjoyed the advantages of a tonnage tax and many other foreign flag and foreign 

crewed vessels operated in what is essentially a tax-free environment, enabling them to capture 

approximately 95 percent of all the commercial cargo entering and leaving our country. In 

response, Congress wisely enacted the tonnage tax, eliminating one of the tax-related 

disincentives to operating vessels under the U.S.-flag with U.S. citizen crews. 

Nevertheless, as important as the applicability of the tonnage tax is, it is equally important that 

Congress build on this provision and explore other tax-related provisions that encourage the 

operation of vessels under the United States-flag and the employment of American mariners. 

For example, the limitation that precludes vessels that operate in the domestic trades for more 

than 30 days from using the tonnage tax for their U.S.-flag operations in the foreign trade should 

be eliminated. We ask that you support this initiative and work with us for its enactment. 

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The existing 30-day limitation precludes United States shipping companies, which operate 

vessels in both the foreign and domestic trades, from benefiting from the tonnage tax when it 

competes against foreign flag vessels in the intemational trades. We are convinced that unless 

the 30-day limitation is removed, domestic shipping companies, including those with an 

experienced record of operating vessels under the U.S.-flag with American crews, will be 

effectively precluded from successfully expanding their operations into the U.S. foreign trades 

and recapturing a share of America's trade for American ships. Removing the 30-day limitation 

will help achieve the primary ohjective of the tonnage tax: retaining, attracting and expanding 

U.S.-flag vessel operations. 

Any maritime tax reform proposal should include the extension of the foreign source income 

exclusion contained in section 911 of the Intemal Revenue Code to American merchant mariners 

working aboard commercial vessels engaged in the foreign trades. Section 911 of the Internal 

Revenue Code was originally enacted in 1926 in order to place American citizens working or 

seeking to work outside the United States "in an equal position with citizens of other 

countries ... who are not taxed by their own countries" (Senate Report No. 781, 82nd Congress, 

1951). The Internal Revenue Code allows American citizens employed outside the United States 

to exclude from their gross income for Federal income tax purposes a portion of their foreignearned income. At present, the Internal Revenue Service does not permit United States citizen 

merchant mariners working on commercial vessels in United States-foreign commerce or in 

international commerce to exclude income under section 911. The Internal Revenue Service has 

taken the position that an individual is working outside the United States for purposes of section 

911 (the foreign earned income exclusion) only when he is working in a foreign country as 

defined in IRS regulations. The current tax liability for wages earned by American mariners is an 

indirect cost borne by United States vessel owners but not by their foreign competitors who 

benefit from the tax exclusion granted by their home countries for their citizen-crew wages. In 

fact, every open and traditional shipping registry nation except the United States, China and 

Japan have adopted some form of seafarer's tax and manning incentives. For example, British 

seafarers working on a U.K.-flag vessel in the foreign trades are generally entitled to a 100 

percent foreign earnings deduction on their U.K. income tax, and no taxes are imposed on 

mariners working aboard vessels flying the flag of Panama, Liberia, the Bahamas, Cyprus, 

Malta, Hong Kong, or the Marshall Islands. 

A change in section 911 of the tax code would put U.S. mariners on equal economic footing as 

their foreign counterparts. This would allow U.S. companies and mariners to compete in new 

fields. Given a fair playing field, we know that U.S. mariners will succeed. 

Domestic ShippIng 

There are a number of things that we believe Congress can and should do in order to strengthen 

the domestic maritime industry. 

First, Congress should enact policies that promote a vibrant Short Sea Shipping industry. 

America's coasts and inland rivers are underutilized as a means of cargo transportation. Water 

transportation is the most fuel efficient and enviromnentally beneficial way to ship goods. As a 

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complement to our highways and railroads, which are garuering drastically more traffic, moving 

goods by vessels along our coasts offers an opportunity to complement our national 

transportation system. To that end, we ask that the Transportation and Infrastructure Committee, 

through its formation of the panel on "2151 Century Freight Transportation", include maritime 

and Short Sea Shipping as a top priority as they move forward. 

Second, Congress should support the Title XI ship construction loan guarantee program and 

appropriate the funds necessary for this program. Even as Congress reviews all accounts 

carefully, this program deserves full support. It guarantees commercial loans for privately 

financed ship construction and shipyard modernization - all in the United States. And, since it is 

a guarantee, no funds are actually spent unless there is a default. Funding and implementation of 

the Title XI program will help grow the economy, create and maintain shipbuilding and 

shipboard jobs, and protect national security by ensuring a U.S. capacity to move domestic 

cargoes. 

The Title XI ship construction loan guarantee program fosters the continuation of commercial 

shipbuilding orders at American shipyards - orders that help ensure the U.S. shipbuilding 

industrial base remains active and able to provide effective production and service for U.S. 

military shipbuilding projects. 

We further believe the Maritime Administration should consider an expedited Title XI 

application review process for ship construction projects in which the applicant is seeking to 

replace a vessel with a newer vessel on a route it has served. We believe this will help American 

shipping companies upgrade and modernize their fleets, creating even greater economic and 

environmental benefits for the United States. 

Finally, we would ask that Congress enact legislation that would eliminate another anomaly in 

the tax law that impedes the ability of American companies to repair their vessels in United 

States shipyards. Under existing law (Title VI of the Merchant Marine Act of 1936), American 

companies are able to establish a tax deferred Capital Construction Fund (CCF) in order to 

accumulate the capital necessary to build vessels in the United States. Unfortunately, the statute 

does not allow a company to withdraw its funds without penalty from a CCF to be used for the 

maintenance and repair of its vessels in an American shipyard. Expanding the permissible use of 

CCF funds to include maintenance and repair will help reduce the outsourcing of business and 

jobs from the domestic ship repair industry to the benefit of the foreign ship repair industry. 

New Opportunities for the U.S. Merchant Marine 

The export of Liquefied Natural Gas (LNG) and the growth of the cruise ship industry represent 

very large and potentially booming industries for the U.S. merchant marine. Both the potential 

export of LNG and the current operation of cruise ships into and out of U.S. ports rely on 

America's natural and financial resources. These industries require mariners, very few are 

Americans. 

Our unions variously have supplied and currently supply licensed LNG deck and engineering 

officers to crew and operate numerous LNG ships. U.S. merchant marine officers are now 

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working aboard LNG carriers operating in the international f1eet. The benefit plans ofthe unions 

operate their own training facilities, at which we train both current and future LNG officers for 

shipboard employment. Through these training facilities, U.S. merchant mariner officers have 

access to U.S. Coast Guard certified LNG training and certification programs, as well as 

simulation training specific to LNG tankers and carriers. One of these training facilities provides 

training for U.S. merchant marine officers certified to the standards of the Society of 

International Gas Tanker and Terminal Operators and has trained U.S. Coast Guard Marine 

Inspectors in this field. Another training course provides comprehensive lectures and computerbased cargo handling simulator training which includes: LNG science, engineering systems, 

cargo systems, ship/shore interfaces, rules and regulations, and safety. This class complies with 

the IMO and USCG requirements for a liquefied gases PIC (Person In Charge). 

The cruise industry continues to be a potential area of growth for U.S. merchant mariners. Ten 

million passengers boarded cruise ships in the United States in 2012 and there are about 300 

cruise ships in operation around the world. While we are among the highest trained and most 

rigorously certified, U.S. mariners are notably absent in the operation of cruise ships 

internationally. 

In China, the cruise industry is booming and the Chinese govemment has invested billions to 

further that success. Although we understand that the current fiscal environment prevents 

Congress from making such an investment here in the United States, we encourage Congress and 

the Administration to do whatever possible to encourage the employment of U.S. merchant 

mariners. It is only logical that a business that relies so heavily on the United States should be 

encouraged to employ Americans. 

Conclusion 

President Ronald Reagan once said that "The maritime industry has been a key contributor to our 

economic strength and security since OUf Nation was founded. Its continued growth and 

prosperity is necessary for the economic renewal we all seek." 

We agree. 

In order to best serve the economic and military interests of the United States by promoting a 

competitive U.S.-flag shipping industry, Congress and the Administration must take a number of 

important and innovative steps. We have raised what we consider to be many of the most 

important, immediate steps that should be considered, and we look forward to working with you 

Mr. Chairman and your Subcommittee on these and other essential maritime initiatives. 

9 
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MARINE ENGINEERS' BENEFICIAL ASSOCIATION (AFL-CIO) 

-1++ NORTH CAPITOl S meET. NW. Sl'ITlc kOO WASIII""TO'. DC ?()OO I PH: (2(2) 638-5355 FAX: (202) 638-5369 

MIKE JEWELl. 

PRESIDE:\T 

The Honorable Duncan Hunter 

Chairman 

November 25, 2013 

Subcommittee on Coast Guard and Maritime Transportation 

House Transportation and Infrastructure Committee 

Chairman Hunter, 

BILL VAN Lao 

SECRETARY-TREASI'RER 

Thank you again for holding the hearing titled "Maritime Transportation: The Role of U.S. Ships and 

Mariners" on May 21, 2013. Your interest in and support for the U.S. maritime industry is greatly 

appreciated. Below are my responses to your questions for the record. 

Holl' important is the A·f.'P Program to the economic l'iabilitl' (,(Ihe US.f{Jreigntrade carriers? flo1\' 

imporlant is the AiS!' as a source ojjohsjiJl' US. scajill'ers:) 

One of the most critical issues facing America's commercial sealift capability and our country's ability to 

provide assured support to American troops overseas is the potential shortfall in funding for the Maritime 

Security Program (MSP) in Fiscal Year 20]4. Unless the full Congressionally authorized amount of 

$186 million for the MSP is available, United States-Ilag ships will be forced out of this Program, 

weakening our nation's commercial sealift capability, sending American maritime jobs overseas, and 

costing the taxpayer significantly more as the Federal Government must step in to support American 

troops by providing this commercial sealift capability itself. 

While the fleet must be commercially viable, the MSP program helps to offset the inherent costs of 

operating under the U.S. /lag. Without the MSP, many ocean going vessels would not be able to compete 

internationally thus removing the base of employment for the U.S. merchant mariners who are critically 

important to the nation's sealift capability. 

lial't' Ihe S22.8l11illion in elliS imposed hyseqlleslration afleered AtSP carriers alldjah opporluniliesfor 

US. mariners? 

Fortunately, the sequestration cuts implemented in 2013 have not affected the make-up of the MSP fleet. 

Although the cuts have been economically damaging and signal inconsistency in the program, the variolls 

shipping companies and merchant mariners operating under the MSP have been able to absorb the 

shortfall. This trend cannot continue though. Without tilll funding, MSP ship operators are forced to 

decide whether or not to remain under the U.S. /lag without the certainty promised under the program, 

There is no doubt that, should sequestration cuts continue, the MSP /leet will be affected and America's 

readiness will suffer as a result. 

Marine higllll'llvS appear 10 offer great pOlentialto increase Ihe efficiency and capacity afoul' ji'eight 

transporlation system and alleviate congestion Wholpolin' options should the Congress consider 10 

enhance short sea shipping and the use of marine hig/nravs? 
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Congress should do everything within their power to encourage marine highways. In addition to creating 

good middle class jobs, an investment in America's marine highways would create jobs in the trucking 

industry, relieve traffic congestion at our ports of entry, and reduce greenhouse emissions. 

Specifically, Congress should pass legislation that would exempt from the Harbor Maintenance Tax nonbulk commercial cargo that is loaded at a port in the United States mainland and unloaded at another port 

in the United States mainland after transport solely by costal or river route or unloaded at a port in Canada 

located in the Great Lakes/SI. Lawrence Seaway System. In addition the exemption should apply to 

commercial cargo that is loaded at a port in Canada located in the Great Lakes Seaway System and 

unloaded at a port in the United States mainland. 

Currently, if a cargo owner chooses to utilize America's marine highway, their cargo wil! be taxed each 

time it enters a port creating a double taxation situation. This low-cost change would remove a large 

impediment imposed on those looking to the water to alleviate lands ide congestion and reduce emissions. 

!fo\\' imporlant is the Title Xl loan gllaranlee program inlllailllaining Ihe US. mercham,lleet and US. 

shipbuilding capaci(l':' HOll" does this program bell~fitlllaritime lahor? What options might Ihe Congress 

consider to improve and enhance the Tille Xl program? 

The Title XI Shipbuilding Program is vital to the U.S. merchant marine and warrants support even as 

Congress understandably reviews all accounts carefully. The program guarantees commercial loans for 

privately financed commercial ship construction and shipyard modernization - all in the United States. 

Billions of dollars in new investment in the American maritime industry is needed, in part to respond to 

explosive growth in the domestic energy industry, renew domestic liner shipping fleets, and for other 

purposes. We therefore recommend not less than S70 million per year, consistent with the FY 2013 level 

reported by the Senate Appropriations Committee in 2012. Funding and implementation of the Title XI 

program will help grow the U.S. economy and create and maintain American jobs in the domestic 

shipbuilding and related service and supply industries, as well as aboard United States-flag commercial 

vessels. 

Full funding will help maintain the nation's defense shipbuilding base and an active U.S,-Hag merchant 

marine, which is essential to U,S. defense sealift requirements. The program has created and maintained 

tens of thousands of well-paying seagoing and shoreside jobs, and helped to ensure that an adequate pool 

of vessels and mariners and a shipyard industrial base, including associated supply industries, is available 

to meet U.S. economic, homeland and national scaliti needs. Maintaining commercial vessel construction 

in U.S. shipyards can also help reduce overhead charges assessed to DOD on military shipbuilding 

contracts, as some overhead could be assessed to commercial work. Moreover, newly constructed vessels 

arc equipped with improved environmental control systems. 

Beyond the Oh"iolls needfor a slifticient budget and reliable anllual appropriations 10 support the US 

merchant marine, "what are the three highesl priorities fhal you "would recommend the Congress consider 

to address these ohjeclires? Are there specific programs that should he r~formed to heller align with 

contemporm)' andfuture needs? Are there SOllie existing programs Ihat should be repealed infavor of 

other a/rematires? ConVf!rsely, are there some programs pro'iously repealed Ihar might be 

recol1stil1lted? ,. 

While Congress has repeatedly recognized the value of the U,S, Merchant Marine, one issue that persists 

is a lack of support for and compliance with the longstanding cargo preference laws. 
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The number of vessels in the U.S. flag and the percentage of U.S. cargoes carried on American vessels 

have continued to fall in recent decades. Currently, there are fewer than 100 U.S.-flagged vessels in the 

foreign trade, and these vessels carry less than two percent of U.S. cargoes. 

In order to maintain a vibrant U.S. flagged fleet, Congress has implemented a number of cargo preference 

laws that reserve a percentage of cargoes shipped or financed by the U.S. government for U.S. flagged 

vessels. In order to maintain the vital sealift capacity provided by the commercial vessels and U.S. 

mariners. Congress must maintain the government's commitment to cargo preference. 

In Section 100124 of MAP-21, the amount of U.S. food aid required to be carried on U.S. flagged ships 

was rcduced fl'om 75% to 50%. This change was made in the dead of the night in order to pay for the 

overall bill without regard to how it would affect the U.S. maritime industry. As the amount of military 

cargo decreases, Congress must return the food aid cargo preference requirement to 75%. 

FU!iher, there are a number of government agencies that ship cargoes without regard for existing cargo 

preference laws. While Congress explicitly gave the Maritime Administration (MARAD) the authority to 

enforce the law in 2008. MARAD has yet to promulgate a rule. Congress should continue to pressure 

MARAD enforce the existing cargo preference laws. 

Finally, Congress should support the current system of international load aid assistance. While Congress 

rightfully rejected an Administration proposal to shin to monetal)' donations from the current proven 

svstem of in kind food donations. the attacks continue. Presentlv, in the Senate version of the Farm Bill, 

there exist a number of proposals that would shift funding away from purchasing U.S. commodities 

toward administrative activities as well as Local and Regional Purchase. Congress should reject those 

proposals and continue to deliver U.S. grown, processed, and shipped commodities that bear the 

American flag. Otherwise, it is no longer U.S. food aid. 

Michael Jewell 

President, Marine Engineers' Beneficial Association 
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TESTIMONY OF AUGUSTIN TELLEZ 

EXECUTIVE VICE PRESIDENT 

SEAFARERS INTERNATIONAL UNION 

HOUSE TRANSPORT A TION AND INFRASTRUCTURE COMMITTEE 

COAST GUARD AND MARITIME TRANSPORT ATON SUBCOMMITTEE 

HEARING ON MARITIME TRANSPORTATION: THE ROLE OF U.S. SHIPS AND 

MARINERS 

MAY 21, 2013 

Good morning, Chainnan Hunter, Ranking Member Garamendi and members of the 

subcommittee. 

On behalf of the Seafarers International Union thank you for conducting this hearing and 

on allowing me the opportunity to testify. I would also like to thank Chairman Hunter 

specifically for his excellent piece in the Washington Times addressing the importance of 

the Maritime Security Program and our merchant marine to America. 

Tomorrow is National Maritime Day. Each year, on the anniversary of the first 

transatlantic voyage by steamship, we commemorate the importance of the American 

merchant marine to our national life. It is altogether tltting that we are here on the eve of 

National Maritime Day to discuss the role of U.S. ships and U.S. mariners to America's 

maritime transportation system. 

Sincc our founding in 1938, the Seafarers International Union has represented mariners 

engaged in waterborne transportation in the United States. Over the last 75 years, we 

have continually expanded, and today we crew ships in every aspect of the domestic and 

international trades both here in the United States and in Canada. You can find SIU 

members in the domestic Jones Act f1eet, the deep-sea international f1eet, on the inland 

waterways and on the Great Lakes. We crew government owned vessels in MARAD's 

Ready Reserve Fleet, on vessels belonging to the Military Sealift Command, and on 

NOAA's oceanographic tleet. Our members see the impact of the merchant marine on 

America each and every day. Unfortunately, not every American can say the same. 

Like many industries in the United States today, the maritime industry is faced with 

global competition. Yet unlike many industries, the competition between American 

companies and foreign companies never happens on a level playing tield. Foreign ship 

operators are not subject to the same safety standards American operators are subject to, 
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ollr mariners do not benefit from the highly favorable tax regimes and nationalized health 

care of many of our largest competitors, and our companies do not rcceive the generous 

tax breaks and special treatment many of their competitors enjoy. 

[n similar circllmstances, other industries that have faced unfair competition have simply 

faded away. But unlike those industries, the American maritime industry is a critical 

component of our defense capability. Because of that fact, the United States simply 

cannot allow the merchant marine to fade away. Without a U.S.-Flag merchant marineboth ships and mariners - our nation would cease to be a superpower, would not be able 

to project power around the globe, and we could not meet our many foreign 

commitments. The last ten years have proven that fact, with over 95% of the war 

materiel and hardware for our troops in Afghanistan and Iraq traveling on commercial 

U.S.-Flag ships. Without those ships - and more importantly without the mariners who 

crew them the United States would have been faced with the daunting task of trying to 

move millions of tons of supplies into a war zone and not having the ability to do so. 

Congress has recognized this fact, and that's why it has been the policy of the United 

States Government for almost a century to support the American Merchant Marine. 

Over the years, Congress has created a number of programs designed to support the U.S. 

Merchant Marine. In the 1880s Congress passed the Passenger Vessel Services Act, and 

followed it up in the 1920s with the Jones Act. Both laws are designed to reserve 

domestic shipment of cargo and passengers to American built and American flagged 

ships with American crews owned by American citizen companies. In 1904, Congress 

passed the first Cargo Preference Act, which reserved all military cargoes for American 

ships. In 1954, Congress expanded the Cargo Preference Act to include foreign food aid 

and other civilian cargoes. In 1996, Congress created the Maritime Security Program. 

MSP created a t1eet of militarily useful commercial ships that would be provided a 

stipend to help offset the costs of remaining under the U.S.-t1ag in the international 

trades. In return, the Defense Department has access to those ships when needed in time 

of war or national emergency, and DOD only pays for that portion of the vessel it needs, 

ensuring every tax dollar spent is spent wisely. The program worked so well it was 

expanded in 2003. And in 2004, Congress created the tounage tax, which allowed 

American ship operators to elect a tax regime that was fur closer to the tax systems of 

their foreign competitors and helped level the playing field for them internationally. 

These programs all have a lot in common they arc all designed to ensure that the U.S. 

Merchant Marine continues to exist. They are all interconnected - the entire system is 

designed to work together, with each piece functioning alongside the others to make the 

entire system work. And the other thing they all have in common is that each piece has 

been targeted for reform or repeal in the last few years. Since 2010, we have seen an 

unprecedented number of attacks on each of these fundamental programs, and 

uniortunately some of these attacks have been successful. 

Enough is enough. We cannot allow the continued death-by-a-thousand-cuts 

dismantlement of the foundational programs that make the American merchant marine 

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possible. 

If the United States is going to maintain a merchant marine capable of carrying our 

waterborne commerce and capable of serving as part of our defense sealift in times of 

crisis, we must stop this destructive trend. The constant attacks on the merchant marine 

must end and we must start using our energies to expand our maritime industry, not 

shrink it. 

On the Jones Act, we've seen a unprecedented level of attacks over the last year. Most 

recently the Jones Act was blamed for a spike in gas prices in the Northeast following 

Super Stonn Sandy. Later, as gas prices rose nationally, the Jones Act was again blamed 

for those increases. As is usually the case with these kinds of nonsensical attacks on the 

Jones Act, these claims were completely unfounded and were easily refuted. Industry 

analysts in both the transportation and energy sectors confinued that the rising cost of 

crude oil was to blame for the increase in gas prices, and that transportation costs played 

a minimal role. In a recent study commissioned by the Transportation Institute, the cost 

of waterborne transportation was proven to have a negligible impact on the cost of fuel at 

the pump. 

In addition to attacks from those ideologically opposed to the Jones Act, we've also had 

to focus our attention on the large number of Jones Act waivers - many we considered 

unnecessary - that have occurred within the last two years. We supported legislative 

language sponsored by members of this committee that would require greater 

transparency in the waiver process so the industry can be sure that we only waive the 

Jones Act when critically necessary. 

On Cargo Preference, we have seen two major attacks, including one that was successful. 

The first came last year on the MAP-21 transportation law. In that law, Congress cut by 

a third the percentage of foreign food aid cargo reserved for American-flag ships, 

ostensibly to offset the costs of the overall law. Since 1985, American ships have carried 

75% of all PL-480 Food For Peace program cargoes. That percentage is now 50%. 

What's worse is that the cost savings for reducing the percentage were incorrectly 

estimated by the Congressional Budget Office, a fact which has since been acknowledged 

by CBO. Our industry lost a third of our cargo with little beneHt to anyone, including the 

American taxpayer. 

At the same time, overall funding for PL-480 itself has seen drastic cuts over the last few 

years. As recently as 2008, the program had funding levels of over $2 billion a year. 

Today, funding levels have fallen to $1.4 billion in 2013, even as worldwide food prices 

have increased significantly. Between the cargo preference cut in MAP-21, the 

significant cuts in appropriations, and the rising cost of food, the program is significantly 

smaller than it has been in the past, despite the fact that its importance to the Merchant 

Marine is steadily increasing. 

As the wars in Iraq and Afghanistan continue to wind down, the industry is seeing a 

major reduction in defense cargoes. That reduction has placed renewed emphasis on non3 
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defense preference cargo, such as food aid and Export-Import Bank financed cargoes. 

Unfortunately, despite needing that cargo now more than ever, we are faced with the 

stark reality of losing the PL-480 program entirely. 

Earlier this year, the Administration proposed a radical reform ofPL-480 - a "reform" 

that would effectively result in the complete dismantling of that program. Despite being 

America's flagship foreign aid program - one that has endured and thrived for almost 60 

years -the Administration is seeking to make major modifications that would be 

disastrous for the U.S.-Flag neet. Instead of the current in-kind aid program where 

American agricultural commodities are purchased and shipped on American ships 

overseas, the Administration is proposing to instead move to a system based on buying 

food abroad, providing food vouchers and even cash transfers. 

This "reform" threatens the long-term viability of the program. When originally enacted, 

PL-480 was designed \\<1th multiple goals in mind - as a diplomatic tool, as a 

humanitarian assistance tool, as a way to support American farmers and advertise the 

quality of our commodities, and as a way to support the merchant marine. The 

Administration's proposal would wipe out all of the domestic benefits of this program. 

We are very concerned that in the current budget environment, ending the domestic 

beneiits of Food Aid would quickly put the program on a path to extinction. That is why 

we have worked hard to educate Congress on the need to maintain PLA80 in its current 

form. 

Budget battles have also struck the Maritime Security Program. Despite being one of the 

most effective public-private partnerships in government, as scored by the Office of 

Management and Budget and others. MSP was subject to cuts totaling over $17 million 

through sequestration. We remain very concerned that the sequestration cuts to MSP may 

cause disruption in the program and we remain committed to working with Congress to 

avert those cuts. 

All that being said, thanks to concerned members of Congress, we have seen some 

positive legislative action, and I am confident that we stand poised to expand on that 

action. 

Earlier this year, Congress reauthorized the Maritime Security Program for an additional 

ten years, keeping the program running through 2025. This was critical as it allows for 

the stability and long-term contracts that make the MSP so successful. The additional ten 

years will continue the recapitalization of the fleet, which has been one of the key goals 

of the program since its inception. It also provides reassurance to thousands of mariners 

that even as the wars in Iraq and Afghanistan wind down, their jobs will still be there for 

another decade. 

We also saw the release of a Government Accountability Office study of the Jones Act 

and its impact on Puerto Rico. The GAO study confirmed what we in maritime have 

been saying for a long time - the Jones Act ensures that Puerto Rico has efficient and 

reliable maritime transportation service and that the Jones Act is a critical part of our 

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national security. The GAO report also confirmed that past studies and claims that the 

Jones Act drastically increased costs in Puerto Rico were indefensible. 

In terms of our existing programs, we continue to push for full funding of the Maritime 

Security Program each year. The benefits MSP provides to DOD are immense, and the 

cost of replicating those benefits is almost incalculable. The ships and intermodal 

connections alone would cost billions, and the manpower pool in terms of both time 

and money - is a priceless resource. We must not let sequestration put the Maritime 

Security Program at risk. 

On the cargo preference front, we are actively working with Congress to restore the cuts 

made in MAP-21. Congressman Elijah Cummings, a former Chairman of this 

subcommittee, and Congressman Scott Rigell of Virginia have co-sponsored legislation 

in this Congress that would restore those cuts. We hope Congress acts swiftly on this 

legislation. Restoring these cuts will help maintain our competitiveness and keep the 

U.S.-Flag fleet moving. 

We are also monitoring the Water Resources Development Act legislation that has passed 

the Senate and is still in the drafting stages here in the House. The Senate-passed 

legislation includes the RAMP Act, legislation designed to ensure that the money 

collected into the Harbor Maintenance Trust Fund is used for the purpose for which it 

was intended. Adequate dredging and maintenance of our inland waterways and ports is 

critical to keeping commerce Howing freely, will have a positive impact on jobs and will 

help us prepare for the opening of the Panama Canal next year - an opening that has the 

potential to see significant increases in cargo flow through our ports. 

On the Jones Act front, we continue to support an expansion of America's Marine 

Highway initiative begun by the Maritime Administration. Increasing the How of 

domestic cargo by ship would provide a variety of benefits, including easing trafflc 

congestion, reducing fuel consumption and air pollution, enhancing opportunities for 

domestic shipbuilding all while creating thousands of good jobs here at home. MARAD 

should continue to work with operators to define routes, and Congress should adequately 

fund the Title XI shipbuilding program to ensure that short-sea Jones Act qualified 

vessels can be built in an economically viable way. 

As we look to the future, our future must be one in which America's merchant marine is 

expanding, not shrinking. We cannot afford to simply protect and defend our current 

programs, because as long as we remain on defense we can't move forward. That is why 

the SIU and the rest of the maritime industry are actively working together to promote an 

expanded merchant marine and an expanded industry. We stand on the cusp of some 

exciting new developments and we want to ensure we are ready to take advantage of 

those developments. American mariners and American ships can play an expanding role 

in our maritime transportation system if we seize those opportunities and U.S. citizen 

mariners should playa part in these opportunities. 

There are a number of areas in which we see the potential for growth for the industry, and 

5 
120 


Insert offset folio 91 here 81148.091

we are actively working to take advantage of them. One major area for growth we see is 

in the energy sector. Given the abundant natural gas resources in the United States and 

the significant international demand for natural gas, we expect to see a number of new 

liquefied natural gas export terminals built across the United States in the next ten years. 

The American merchant marine has ample experience in the safe and efJective shipping 

of LNG, and given the need for trained and professional crews to carry this hazardous 

cargo, we are encouraged by the potential opportunities in this expanding sector of the 

industry. Just this month, Crowley Maritime, one of the largest Jones Act operators, 

announced they will be entering the LNG export trade, and we look forward to working 

with them to make those efforts successfuL 

LNG isn't just a eommodity for ships to carry, it's also a fueL Given that LNG is one of 

the cheapest, most abundant and cleanest fuels available today, using LNG to fuel ships is 

viewed as the future of our industry. And that future is happening now, as we have seen 

two contracts with American shipyards to build LNG powered ships for the Jones Act 

trades. America is leading the push for LNG as vessel fuel, and the two container ships 

being built at NASSCO for TOTE, Inc. will be the largest LNG powered container ships 

in the world. As has historically been true, the United States is continuing our solid 

track record of innovation and environmental stewardship when it comes to maritime 

transportation. 

We are also encouraged by the push for increased use of wind power. Wind farms off the 

east and west coasts have the potential to create thousands of good maritime jobs both in 

the construction of wind farm fields as well as in the on-going maintenance of those 

fields. As America continues to explore the potential benefits of alternative energy, we 

must be ready to take advantage of any opportunities in both the domestic and 

international trades for an expansion of our Merchant Marine. 

Providing incentives, in the form of preferences or tax credits for companies willing to 

use U.S.-Flag ships and mariners in the energy sector could spur job creation and lead 

existing companies to take advantage of this expanding trade. 

One traditional area of the maritime industry that has a potential for growth is in the 

cruise ship arena. As this committee is well aware, the cruise industry has almost 

completely left the U.S.-Flag. Right now, of the major cruise lines in the world, only 

Norwegian Cruise Lines operates a U.S.-Flag vesseL The recent serious incidents at sea 

on cruise ships have highlighted the need for well-trained crews, solid maintenance 

procedures, and etJective ship inspections - areas in which the American maritime 

industry has long excelled. We hope that these recent incidents will cause the foreign 

flag cruise industry to rethink their unwillingness to hire American mariners, thus 

opening a potential area for growth. 

As we continue to look to the future, one thing will never change: the U.S. merchant 

marine is critical to the economic, national and homeland security of our country. It is 

high time that we, as a nation, rededicate ourselves to the principles that have kept our 

maritime industry afloat since the founding of the Republic. 

6 
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In conclusion. as we continue to move !i)[v.;ard. I strongly believe that American ships 

and American jobs are going to be at the center of our maritime transportation system for 

many. many years to C0111e. 

:Vfr. Chairman. again I thank you for this opportunity and I look forward to working with 

you and the rest of the subcommittee in the future. 

### 
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Subcommittee on Coast Guard and Maritime Transportation 

Hearing on Maritime Transportatiou: Thc Role of U.S. Ships and Marincrs 

Tuesday, May 21, 2013 

Questions for the Record to Mr. Augustin Tellez, 

Executive Vice President, Seafarers International Union 

Qnestions from the Honorable Duncan Hunter (R-CA): 

I. In his testimony. General Frazier stated there was a pool of 15.000 mariners available to 

the Department of Defense if needed. Do YOl! believe this number is accurate? If not. 

what do you believe is the accurate number of available mariners for defense sealift needs 

today?" 

Plellse see the attllched mllflpower stlU{I'. which lIflswers this lJuestioflfu/~V. 

Questions from the Honorable John Garamendi (J)-CA) 

P.L. 480 Food for Peace Rc~!ructuring 

Mr. Tellez.. as you stated at the hearing. Congress has passed numerous laws and created several 

programs to support the U.S. tlag merchant marine because it is a critical component of our 

national defense capability. The Jones Act and Passenger Vessel Services Act; the Cargo 

Preference Acts of 1904 and 1954; the Maritime Security Program; and the passage of the 

tonnage tax in 2004 havc each helped maintain a viable U.S. tlag merchant marine. Yet these 

laws and programs continue to come under attack. most recently last year with the provision 

included in MAP-21 which cut the cargo preference requirement lor t()od aid shipments from 75 

percent to 25 percent. 

• What has heen the eflect olthis change in policy:' 

Since the MAP-21 law was passed reducing tile percentage resen'edfor U.S.-Flag 

vessels. we have seen at lea,vt one major shipping compufly ret/uce tile size (iftheirfleet 

by jilllr vessels. Aflother reduced their fleet by tWIl. We hllve also seellll flumber (if 

other compaflies begin discussions both iflternlll~v ami external(1' about the cOlltifllled 

viability (!fthe U.S.-Flag operations. 

• How has this reversal in policv affectedjob opportunitiesjhr US. seo!clrers 7 

By reducing the percentage (!f Food Aid cargo reserved jor U.S.-Flag vessels, the 

resultillg loss ships will result in Ille loss (if U.S. sel({aringjobs. While it is hurd to put 

a specific number 0/1 the lost jobs, each vessel lost represents between 2()-2S hillets lIud 

each hillet represents 2.3 sel!/tlring johs. One lost ship (VpiClll(1' represents somewhere 
123 


Insert offset folio 94 here 81148.094

between 50 to 60 mariner job.v, as well as the downstream loss l!fjobs that would be 

needed to service those vessels. 

Any instability in olle l!f the maior maritime programs fills an impact (Ill the full array 

(if Federal programs designed to support the maritime indu.vtry. The attack on Food 

Aid and ClIrgo preference hlls resulted ill the widespread belief that the maritime 

industry's future viabili(l' is in question. That is havillg a sigllificant impact on job 

opportunities for u.s. mariners, as the instability (!ffects our employen. 

• Have any I'essels flagged out of the U.S. ji!rl'ign trade fleet because of this reduclion in 

the amount ofavailahlefiJod aid C({/KO~ 

While our cOlltracting companies tend to cite multiple reasons for flagging vessels out 

l!f the U.S.-Flag, it is clear that at least two l!f our companies that relied Oil Food for 

Peace cargoes fUlve scrapped or flagged out ships. We have lost a total of sil: ships 

since MAP-21 was passed, and we believe that the MAP-21 change L'lJllpled with the 

Administratioll's proposal to radically change how the PL-480 Food for Peace 

program is administered played heavily in Ollr contracted companies' decivion to flag 

ships Ollt. 

Jones Act Wajycrs 

Mr. Tellez. over the past couple years there has been greater concern raised about waivers of the 

Jones Act. especially the administration's decision in 2011 to grant 46 waivers to allow foreign 

tankers to transport within the UniteJ States oil released for sale from the Strategic Petroleum 

Reserve. Congress respondeJ last year by including a provision in the Coast Guard and 

Maritime Transportation Act of 2012 requiring MARAD to implement a more transparent and 

open notice process for any proposal to waive the coast wise laws. 

Have VOlt 1l1Onilorcd MARA!)'s implementation olthal prI)\'ision:) fl' lvlARAD providing 

heller notice and in/iJrlll{llion concerning potcntfal \I'afpcrs:) 

Yes, we have been monitoring AfARAD '.I' implementation (!f the /lew transparency 

requirements allllhave been Ilctive(r working with our contracted companies and the 

American Maritime Partnership to monitor all waivers l!f tile Jones Act. Overall, we 

believe tllat i"'fARAD is comp(ring with the spirit l!f tile provision all(/ flas been more 

tramparent ill their Jones Act waiver process. 

Tllat being said, since tfle passage (!ltflat provisioll, tflere has not been a major test 

ca.ve, like a release I!l oil frolll the Strate"ic Petroleum Reserve, that would "il'e 

ilIARAD the opportunity to demonstrate clear compliance with the new transparen(F 

requirements. 

We strong(v believe that tramparellc}" coupled with the .Iparing use (!f tile Jone,I' Act 

waiver authority, is key to ensuring the Jones Act remains strong {Illd stable. We have 

urged the administration to adopt a ve~v nllrrow view I!l the "national {Iefense" 
124 


Insert offset folio 95 here 81148.095

definition in the President's waiver authority. There are few areas, we believe, where 

the U.S.:t7t1g domestic .fleet is not capable of responding effectively, even in (Ifl 

emergency. 

• Is there anything else the Congress can do to improve {he notice and revinl' requirements 

jor any 1wiver of the Jones Ace 

Right now, JOlles Act waivers tire published in the Federal Register lind little 

in/iJrmation beyond the lIt1me of the vessel and the requested use is provided. /laving 

tllat injiJrmation in one locatiofl- on the MARAD website,for example - would make 

it easier to ensure that notfling is mined. As the s(~ril1g goes, sllnlight i~ the best 

disiJ1fectant, alltl by providing us with both the injiJrmation anti the time to ensure the 

Administmtiofl litis heard from stakeholders in tlte industry, we mn ensure that only 

the most meritorious waivers are approved, anti the Jones Act continues to function as 

it W(f,,' intended to function. 

Support fix the U.S. Merchant Marine 

In general. there appears to be a strong consensus that the Congress and the Federal Government 

should do more to promote the U.S. merchant marine. More specifically. the government should 

better support e110rts by the maritime industry to recapitalize assets and modernize and expand 

capabilities. should preserve existing cargoes and identify new cargoes for U.S. carriers. both in 

the Jones Act trade and the U.S. foreign traue. and promote opportunities to expand U.S. 

shipbuilding capabilities. 

• Beyond liIe obt'iolls need/or a sufficient bl/(~i!;cl (lnd reliable annual appropriations to 

sllpportlhe U.S. merchant //Iarine. ",hat are tile three highest priorities that you wOllld 

recoll1mend the Congress consider to address these ohjeclivcs:' 

The top three prioritiesjiJr the industry in dude the /iJ/lowing (i11110 particular order): 

1) Enactment ofa Comprehensive National Maritime Policy It has been decades 

since the last time Congress passed a comprehensive ilierc/lilllt }Varine Act that 

reviewed cllrrent maritime policy 011 a national level. Since the Mere/lIl1lt il1arine and 

Fisheries Committee'sjurisdiction was split am(Jllgsl Ii variety ofHolise COlllmittees, it 

has been difficult to pas,v a comprehensive Merchant Marine Act given the multiple 

cross jurisdictions. Now, however, given the changes in the industry we \'e seen over 

the last twenty years, both domestical(v and illfernatiollally, it's time we addre,,'sed our 

maritime policy ill a comprehensil'e way. This would inelude both the domestic and 

international side of the industry, port anti waterways infrastructure, lax rejiJrm, short 

sea shipping (Americi/'s 114arine Highways ant! other relatet! program.,) ant! a review 

I?lthe At!ministrath'e agencies tasked with both regulating ant! promoting the 

Merchant Marine. A comprehensive approach would also allow plr Congress and the 

Administration to work together to CI"l!jt a single policy that has support from all 

aspects (!fgovemment industry. Final(v, a comprehensive policT could also be llsed as 
125 


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a vellicle 10 demonstrme tile critical role the merc/ulIlt marine plays in flatiollal 

defense. Sillce each program touches military readilless. a Comprehensive National 

Maritime Policy would nece:mlri(v allow jiJr greater public awarelless o{'tlte role 

maritime plays ill AmeriCII 's lIutiOllll1 ,\'ecuri~v. 

2) Repeal the FO(lli/or Pellce Program Chllnges from MAP-2/lImllllcrease Cargo 

Preference Requirements/rom 5(}% 10 1()(J% - The repeal oftlte oceanfreiKltt 

differentia/lind tile reduction of tile percentllKe of Food/iJr Pellce C(//1:O sub;ect to 

cargo preference/rom 7.5% to .5(J% WI/I' a mlljor hit the industry. Wefeel it is both cost 

effective (lml good policy to restore the ocellnji'eiKht differential/rom MAP-21 to 

ensure that the difference ill cost between U.S.-Flag ve,~sels undforeigll.flag ve,~,\'els 

does not redllce tile funds IImilabie to purchase American agricultural commodities. 

Further, we strongly/eel that instead (lfsiIllP~1' restoriflK the 25% tltat was cut/rom 

cargo preference, we should instead require tltat 1 ()()% (!f all Food for Peace cargoes 

pure/llI.\'ed with American taxpayer dollar.\' be carried by American ships. This would 

reduce the administrative burden 011 USAID lind USDA ill complying witlt tlte cargo 

pref'erence laws, amI would help the U.S.-Flag fleet remain viable liS tlte amount (if 

defense cargo (already subject to a f{}()% requirement) contil/ue,~ to drop (IS we 

disellgage/i'om overseas continKell(l' operations around tlte world. 

3) Develop New Export Related Programs to Boost Employment - As we continue to 

focus Of! increllse exports (!fAmericall resources - especially energy resources -alld 

products oversell,I', there is the potential to develop /lew programs that could provide 

incentivesfor shippers to utilize U.S.-Flag vessels to ship their cargoes overseas. 

Reserving (f portio/l (if LNG export,l shipments,fiJl' example,fiJr U.S.-Flag ships as that 

illdustry comes OIl lille in tlte next/ew years could boost employment. These incentives 

could come in fhe fiJrm (if flU: credits or tiL>: breaks fiJr companies whll choose to lise 

U.S.-Flag vessels to carry their exports or cargo preference laws could be el1hallced to 

incluile pmvisions reserving ,Ipeci{ic rype.\' l!f exports to U.S.-Flag ships. Wllile care 

would need to be taken to ensure these laws do not rUII a/oul (!f any trade prol1isions, 

we are cOJ!fltlent t"at II ,\ys'tem could be developed tllat would b()o.~1 employment 

opportunities without a direct cost to the American tlL'cpayer. 

Arc there specific prograllls Ihal should be rejiJrmed 10 hetler align wilh contemporal'v 

andfuture need,,? 

For the most part, the I'lIriolls lIlaritime programs at/ministered by tile govCmml'111 lire 

workillg well and liS intended. Where repJrm is mosl nece,~,Wlry is not on 'lte 

programmatic side, but Oil tlte po/iL)' side. Programs like tile Maritime Seeul'i(v 

Program are working weiland we till IIl1t see a pressing need .for maior 1'4111'111.5 t!tere. 

Where we do see tlte need jiJ/' re/i)rm lire ill I/I'ea,~ like tax poli(y lInti environmental 

regulatilln, where the issues do not revolve arolil/I! specific pl'(lgram,~. 

• Are there some exisling programs that should be repealed in/avor (~r()Iher alternatives:' 

Conversely, are therc some prograll/s previous/v repealed thai might be reconslitlller/:' 
126 


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Agllin, for the most Pllrt, our progmms lire working well and we would not jilVor repeal 

of any (!f them lit t"i.~ time. We would support {/ comprehensive review I!f all maritime 

poli(p, inclllding ollr programs, to ensllre tllilt they continue to work as {/ collesiJ!e 

who/e. 
127 


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Background 

During testimony by DOD in May 2013 before the House Transportation 

and Infrastructure Committee, it was reported that there was a pool of 

more than 15,000 mariners available for the crewing of the RRF and MSC 

Surge Fleets. The presidents of the unions representing the deep-sea 

mariners decided a manpower study was needed to quantify the actual 

number of actively sailing seafarers available. 

This analysis was conducted by unions representing U.S. deep-sea 

mariners to provide the most accurate determination of their collective 

ability to man the reserve and surge fleets during a crisis, both now and 

five years into the future. 

Insert offset folio 100 here 81148.100

Deep-Sea Union Officers 

AMO 

MEBA 

MM&P 

Total 

Deep-Sea Unlicensed Ratings 

Deck Department 

Engine Department 

Steward Department 

Entry Ratings 

Total 

2344 

900 (Estimated) 900 (Estimated) 

4,144 

3,936 (MARAD JUL 2013 Data) 

Delta 208 5% 

2,851 

1,571 

868 

1,881 

7,171 * 

The total number of available officers and unlicensed ratings is approximately 11,315** 

*This total reflects the available seafarers including the private commercial deep sea and Gre

sectors, MSC CO-CON, and MARAD RRF vessels. Based on a 2 tol seafarer to billet requireme

total reflects a shortage of 443 unlicensed seafarers. Also, this figure is constantly subject to 

due to the transient nature of the industry. It does not include the number of mariners who 

eligible to sail but for various reasons are not captured by the studies. 

** Finally, when compared to MARAD's June 2013 availability study, which identified the num

available mariners as 15,000, the Delta was -3,685. As of August 2013 the MARAD study has 

updated and revised and now reflects a mariner pool of 11,506, now with a Delta of -191. 
130 


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Conclusions 

2013 - The deep-sea unions can man full activation of all RRF and MSC Surge vesse

this time. Shortages in individual unions can be made up through what are known 

through agreements, which allow for sharing manpower to fill vacancies regardless 

union affiliation. 

2013 - The deep-sea unions can support a one-year sustainment of a full break out 

time. 

2018 - With the current number of RRF and MSC Surge vessels and the projected ne

of at least 10 vessels the officers unions would not be able to man all the vessels in 

activation scenario. 

2018 - With the current number of RRF and MSC Surge vessels and the projected ne

of at least 10 vessels the officers unions would not be able to support a one-year 

sustainment operation. 2018 - With the current number of RRF and MSC Surge vessels and the projected ne

of at least 10 vessels the unlicensed unions would be able to man all vessels in a ful

activation scenario. 

Insert offset folio 103 here 81148.103

Conclusions - Continued 

2018 - With the current number of RRF and MSC Surge vessels and the projected n

of at least 10 vessels* the unlicensed unions would not be able to man all vessels 

one-year sustainment operation. 

2018 - Within the one-year period the unlicensed unions can take various steps, (i

accelerate upgrading classes at the Paul Hall Maritime Center, increase recruitmen

mitigate shortages in the individual shipboard departments. 

2018 - The mean age of Masters and Chief Engineers at this time is 52. Based on c

average retirement rates and no change to advancement rates the unions can exp

shortage of Senior Officers beginning in 2014-2015 and becoming chronic in 2018. 

takes 10-12 years to produce a Master or a Chief Engineer. 

* The projected number of lost vessels is far greater when considering estimated 

the Food for Peace (PL-480), Maritime Security Program (MSP) and organic fleets. 

Insert offset folio 104 here 81148.104

Observations 

In the 5-year period 2008-2013 according to MARAD there has been a net loss of 1,

commercial mariner billets (approx. 2,250 mariners) and a net increase of 477 CIVM

billets. This trend is eliminating the labor pool that would fill billets in the RRF and 

Surge fleets in a full activation scenario. 

This decline has dramatically affected the SIU skilled labor pool. We cannot create 

qualified, skilled Deck and Engine ratings with a decline in seafaring jobs. Sea time is 

gateway to the skilled positions. While serving in lesser capacities, mariners obtain t

base knowledge to motivate them in attending school to qualify themselves to mov

the more-skilled positions. 

We believe once it becomes apparent to officers that the U.S.-flag fleet is on a term

trajectory, a tipping point will be reached in a matter of months precipitated by a m

exodus of officers. This will quickly erode and possibly cripple our capacity to crew 

left of the commercial and government fleets. 

We believe that that the loss of commercial vessels, due to the impending impacts f

fiscal pressures bearing down on the full funding of Maritime Security Program, the for Peace Program (PL480) and the sequester-driven cuts in the privately manned M

vessels and the RRF fleet will seriously threaten our ability to support our forces as 

have always done in the past, and most recently in the conflicts in Iraq and Afghanis

Insert offset folio 105 here 81148.105

Observations - Continued 

Although the population of mariners is relatively small compared to other indust

the value they provide to our national and economic security completely outweigthe size. The logistic capability provided in support of hundreds of thousands of o

armed forces is categorized by DOD as the best return on a relatively small invest

To replicate this capability would cost the government billions of taxpayer dollars

We believe that all necessary steps must be taken to restore the programs that 

support the US fleet to the programs' optimum levels, and furthermore that a na

maritime policy should be developed with the objective of expanding opportunit

both domestically and internationally, for US-flag ships and US mariners. 
135 


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136 


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Insert offset folio 108 here 81148.108

Report Run 

Marit.me Admjlljstmtlon 

Mariner SUDDlv (Oceans) 

As of Jun 30, 2013) 

Mariner Outreach System 

1 of 
Æ 


Insert offset folio 109 here 81148.109

SIU/MARAD Mariner Availability Comparison 

The current delta between the SIU Manpower Pool's ability to man every vessel und

contract, inclusive of Commercial Sector, MSC, Great Lakes Sector and MARAD Read

Reserve Fleet and MARAD's Availability study is 5.9%. 

SIU/MARAD Mariner Availability Comparison