U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

58–492 PDF 2010

CONTINUING EXAMINATION OF 

U.S.-FLAGGED VESSELS IN U.S. 

FOREIGN TRADE 

(111–139) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COAST GUARD AND MARITIME TRANSPORTATION 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

September 29, 2010 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ARCURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SOLOMON P. ORTIZ, Texas 

PHIL HARE, Illinois 

JOHN A. BOCCIERI, Ohio 

MARK H. SCHAUER, Michigan 

BETSY MARKEY, Colorado 

MICHAEL E. MCMAHON, New York 

THOMAS S. P. PERRIELLO, Virginia 

DINA TITUS, Nevada 

HARRY TEAGUE, New Mexico 

JOHN GARAMENDI, California 

HANK JOHNSON, Georgia 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

VERNON J. EHLERS, Michigan 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

CONNIE MACK, Florida 

LYNN A WESTMORELAND, Georgia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BRETT GUTHRIE, Kentucky 

ANH ‘‘JOSEPH’’ CAO, Louisiana 

AARON SCHOCK, Illinois 

PETE OLSON, Texas 

TOM GRAVES, Georgia 

(II) 

SUBCOMMITTEE ON COAST GUARD AND MARITIME TRANSPORTATION 

ELIJAH E. CUMMINGS, Maryland, Chairman 

CORRINE BROWN, Florida 

RICK LARSEN, Washington 

GENE TAYLOR, Mississippi 

BRIAN BAIRD, Washington 

TIMOTHY H. BISHOP, New York 

STEVE KAGEN, Wisconsin 

MICHAEL E. MCMAHON, New York, Vice 

Chair 

LAURA A. RICHARDSON, California 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

FRANK A. LOBIONDO, New Jersey 

DON YOUNG, Alaska 

HOWARD COBLE, North Carolina 

VERNON J. EHLERS, Michigan 

TODD RUSSELL PLATTS, Pennsylvania 

PETE OLSON, Texas 

(III) 

(V) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... vi 

TESTIMONY 

Matsuda, Hon. David, Administrator, U.S. Maritime Administration ................ 5 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Matsuda, Hon. David .............................................................................................. 22 

vi 


Insert offset folio 1 here 58492.001
vii 


Insert offset folio 2 here 58492.002
viii 


Insert offset folio 3 here 58492.003
ix 


Insert offset folio 4 here 58492.004
x 


Insert offset folio 5 here 58492.005
xi 


Insert offset folio 6 here 58492.006
xii 


Insert offset folio 7 here 58492.007
xiii 


Insert offset folio 8 here 58492.008
xiv 


Insert offset folio 9 here 58492.009
xv 


Insert offset folio 10 here 58492.010
(1) 

HEARING ON CONTINUING EXAMINATION OF 

U.S.-FLAGGED VESSELS IN U.S. FOREIGN 

TRADE 

Wednesday, September 29, 2010 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COAST GUARD AND MARITIME

TRANSPORTATION, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 4:13 p.m. in room 

2167, Rayburn House Office Building, the Honorable Elijah E. 

Cummings [Chairman of the Subcommittee] presiding. 

Mr. CUMMINGS. The Subcommittee will come to order. 

We are sorry. Things out of our control. Somebody just said to 

me on the elevator that these votes get in the way. I reminded him 

that is why we are here. 

In March, the Subcommittee convened to examine the availability of shipping services to carry U.S. exports. In July, the Subcommittee convened to examine specifically the state of U.S.-flag 

vessels in foreign trade. 

I believe that the Subcommittee has gained through these hearings a good overview of the state of the U.S. merchant marine and 

of the carrier services available to shippers. According to data provided by MARAD and compiled in part by contractors engaged by 

MARAD to assess the U.S. maritime transportation system, the 

U.S.-flag fleet, which was comprised of 94 vessels as of March of 

this year, is carrying less than 2 percent of United States foreign 

trade. 

During our last hearing, witnesses from the shipping lines that 

operate under the U.S. flag, as well as from U.S. maritime labor, 

presented specific details regarding the challenges they face operating under our flag, particularly the economic challenges that 

make such operations more costly than operations under so-called 

flags of convenience. 

We also heard how critical the Maritime Security Program and 

cargo preference requirements to making operation under the U.S. 

flag viable. For example, Mr. Phil Shapiro, President of Liberty 

Maritime Corporation, testified that, ‘‘Without the cargo preference 

programs, cargoes being added to that $2.9 million, there is no way 

that anyone can sail a ship and make any money’’ under the 

United States flag. 

Critically, we also examined the fact that the decline in the U.S.- 

flag fleet in the foreign trade has occurred over the course of decVerDate Aug 31 2005 15:39 Mar 21, 2011 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 P:\DOCS\58492.TXT JEAN
2 

ades. As I mentioned in my opening statement during the July 

hearing, a study issued in 1981 by the Comptroller General documented the fact that the total percentage of U.S. commercial cargo 

carried in U.S.-flag vessels had declined from 10 percent in 1959 

to just 4 percent 20 years later. From 1979 to the present, the total 

percentage of U.S. cargoes carried on U.S. vessels has only continued, sadly, to fall. 

And as we detailed in our March hearing, it is our Nation’s level 

of imports, rather than our level of exports, that determines the 

overall level of ocean freight services available to U.S. shippers. 

I frankly have no doubt that our inability to carry even a small 

portion of our U.S. foreign trade commercial cargoes on U.S.-flag 

vessels represents an economic and even a security risk to our Nation. 

And this is where MARAD comes into the picture. The U.S. Maritime Administration, MARAD, is the sole Federal agency charged 

with improving and strengthening the United States maritime 

transportation system to meet economic, environmental and security needs of the Nation. 

Mr. David Matsuda, the Administrator of the Maritime Administration, appeared before the Subcommittee during our July hearing. However, there were, to be frank, a number of questions that 

Mr. Matsuda appeared totally unprepared to answer at that time, 

and we trust that he is prepared today, although I must admit 

when I read your testimony, I am not convinced of that. So hopefully that gap will be filled between now and the time you answer 

the questions here today. 

At that time, I promised that I and Ranking Member LoBiondo 

would send a letter to the Administrator outlining the specific 

issues we wanted to explore further, and that we would reconvene 

the Subcommittee to hear Administrator Matsuda’s answers to 

these questions. As promised, Ranking Member LoBiondo and I 

sent out a letter to the Administrator, Mr. Matsuda, in July. We 

received the Administrator’s response only yesterday. 

I want to thank Mr. LoBiondo for his cooperation and the bipartisan spirit in which we both joined to make that happen. 

Today, we are convening the Subcommittee to hear further from 

Mr. Matsuda. One of the most important issues that we are looking 

to address is whether the cargo preference laws apply to cargoes 

financed with loan guarantees created by the Energy Policy Act 

and administered by the Department of Energy. It makes zero 

sense for U.S. loan guarantees to support purchases from foreign 

countries that would then be carried on foreign-flag ships. That is 

not a scenario that would stimulate our economy in any way, and 

it certainly does not provide for U.S. jobs. 

For that reason, the DOT must take strong and decisive steps to 

ensure that the cargo preference requirements set forth in the Title 

46 of the U.S. Code are vigorously enforced, and I would hope that 

Mr. Matsuda would tell us how they are being vigorously enforced 

now. 

In our view, Congress was quite clear when we passed the National Defense Authorization Act of 2009 that the DOT is to be the 

sole decider, to use President Bush’s words, on questions relating 

3 

to the application of cargo preference laws. We are concerned that 

the DOT not relinquish that authority to any other entity. 

I am also anxious to hear how MARAD defines the causes and 

consequences of the challenges facing our U.S.-flag fleet, as well as 

the policies that MARAD believes should be pursued to maintain 

and grow that fleet. Again, we did not get decent answers the last 

time. 

For example, proposals have been raised to extend the foreign 

earned income tax credit to U.S. mariners, repeal the duty on foreign ship repairs, and extend eligibility for the tonnage tax. We are 

eager to know if MARAD believes that any such measures would 

be effective mechanisms to support the growth of the United 

States-flag fleet. 

Our U.S.-flag fleet is facing significant challenges and it is 

MARAD’s job as the entity charged with promoting the development of our flag fleet and our maritime transportation network to 

lead the response to these challenges. 

Now, in just a moment, I am going to recognize our Ranking 

Member, but I ask his patience for just a few minutes as there are 

two other issues I want to briefly discuss. 

Those of you who were watching the Floor last night saw that 

the Coast Guard Authorization Act passed the House. This bill is 

a product of four years of diligent work and I commend Chairman 

Oberstar, Ranking Member Mica, and of course our Subcommittee 

Ranking Member, Mr. LoBiondo, for all of their work on this legislation. I also commend Chairman Thompson and Ranking Member 

King on the Homeland Security Committee and our counterparts in 

the Senate for their commitment to getting this bill done. Development of this legislation has truly been a bipartisan team effort. 

The legislation authorizes more than $10 billion for the Coast 

Guard in fiscal year 2011 and increases the authorized end 

strength of the service by 1,500 members, to 47,000 personnel. 

Further, the legislation strengthens the service’s acquisition 

management processes, something that has been a critical concern 

to me and to the Subcommittee. It also recognizes the service’s senior leadership and strengthens the Marine Safety Program and the 

service’s homeland security missions. 

Further, the bill will help save the lives of those working in our 

most dangerous industry, commercial fishing, by establishing safety, equipment and construction standards for fishing vessels that 

work in the most dangerous fisheries. 

This authorization is long, long overdue, and the safety reforms 

in the bill are long over due. And I hope that the Senate will pass 

it before leaving for recess. 

Now, ladies and gentlemen, if you were watching the Floor last 

night, you also heard that our Subcommittee’s Staff Director, John 

Cullather is retiring. And it was with many mixed emotions that 

I heard this news. On the other hand, I am so excited that John 

has a chance to do new things and pursue new directions. 

On the other hand, John is one of the true professionals on the 

Hill and he will be sorely missed. His knowledge of maritime issues 

and of the history and missions of the Coast Guard is truly unparalleled, as is his knowledge of House procedures and his passion of 

4 

service to those who work, travel and recreate on our Nation’s waterways. 

John is also an exceptional man, a profoundly generous and caring individual who has the respect of every single person on the 

Transportation Committee and of everyone throughout our maritime industry. Everywhere I go, everyone I talk to tells me how 

much they love working with John and how dedicated he is to the 

success of this industry. 

And John, on behalf of the entire Subcommittee, I express our 

deepest appreciation for your 30 years of service to the Congress 

of the United States of America. I also say to you that I know that 

there have been many times when you worked late at night, weekend; when you, in the words of the great theologian Zwingli, said, 

‘‘When you are unnoticed, unapplauded, unappreciated and unseen,’’ but yet still you gave your very, very best to make this industry the best that it could be. 

And so we take a moment on behalf of a very, very grateful Congress and a very, very grateful people of these great United States 

of America to thank you for all that you have done. May God bless 

you and may he bless your journey. 

Ladies and gentlemen, now I yield to the distinguished Ranking 

Member of our Committee, Mr. LoBiondo. 

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

I would like to join in with you in thanking John for his years 

of service and dedication to this Committee and wish you all the 

best of luck, John. Thank you for all that you have done. 

Mr. Chairman, I want to thank you for holding the hearing 

today. As you had indicated, this is a follow up to a hearing earlier 

in the month of July on the state of the U.S.-flag merchant fleet. 

At that hearing, we had several important questions that were unanswered, so we asked the Administrator to come back today. I appreciate the Chairman’s dedication on this important issue. 

The United States has a long and proud maritime history. However, since World War II, the number of ocean-going vessels operating under American flag has suffered a long, slow and very 

steady decline. According to the Maritime Administration, there 

were 94 U.S.-flag vessels operated in the foreign trade at the beginning of this year, less than 1 percent of the world fleet. Nearly all 

maritime commerce at U.S. ports arrives or departs on board a foreign-flag vessel. 

Restoring the U.S.-flag fleet is critical to our economic and national security. We need a robust U.S. fleet to ensure we can move 

troops and supplies overseas, provide opportunities for U.S. merchant mariners, and preserve our critical shipyard industrial base. 

I am very concerned with the continued contraction of this vital 

national resource, and I hope the Administrator can recommend 

some concrete steps that we can take to help revitalize the American-flag fleet. 

I look forward to working with you, Mr. Chairman and Administrator, on these important issues, and I want to apologize for probably not being able to stay. When we got pushed back, I got another meeting that I can’t miss. 

Thank you. 

Mr. CUMMINGS. Thank you very much. 

5 

Mr. Matsuda? 

TESTIMONY OF DAVID MATSUDA, ADMINISTRATOR, U.S. 

MARITIME ADMINISTRATION 

Mr. MATSUDA. Good afternoon, Mr. Chairman, Ranking Member 

LoBiondo. With the permission of the Chairman, I would like to 

offer my complete statement for the record. 

Mr. CUMMINGS. So ordered. 

Mr. MATSUDA. And also with the permission of the Chairman, I 

would like to offer our congratulations to Mr. Cullather as well. I 

have had the opportunity to work with him over the years and we 

wish him the best. 

Mr. CUMMINGS. Thank you. 

Mr. MATSUDA. Thank you for the opportunity to testify before 

you again on the state of the U.S. merchant fleet in foreign commerce. On July 20, we met to discuss the challenges of U.S.-registry ships operating internationally. Today, I will elaborate on 

these challenges of operating under the U.S. flag, ways we are 

helping to level the playing field, and goals we have set for the 

Maritime Administration. 

We know it costs more to operate a U.S.-flag ship versus registering it under a foreign flag, including so-called open registries. 

This difference can be almost three times as much, depending on 

the trade, the type of ship, and the company. These higher costs 

are due to a number of factors, including wage costs, vessel maintenance and repair costs, and insurance costs. 

Historical and anecdotal data show wage costs are one of the biggest differences, being much lower in many other countries. In 

America, companies hiring U.S. mariners pay the costs of medical, 

pension and other benefits, as well as costs for training and professional certification. 

Foreign countries often provide government-subsidized health 

care and other benefits. Some countries also exempt mariner wages 

from taxes, while the U.S. does not. 

Addressing differences such as these and others named by the 

Chairman can help level the playing field for U.S.-flag companies. 

We at the Maritime Administration realize the importance of 

having the correct and accurate cost information. In our discussions with the Subcommittee, we felt it critically important to do 

a comprehensive evaluation of the differential between operating 

under the U.S. flag versus foreign flag. Using available resources, 

we are engaging an independent consulting firm to update operating cost data for major cost categories. This first step will serve 

as the foundation for working to level the playing field going forward. 

Turning to ways in which our agency helps close the cost gap between U.S. and foreign-flag operations, we use every tool at our 

disposal. This includes the Maritime Security Program. As we discussed in the July hearing, our Maritime Security Program provides the military with assured access to 60 commercial U.S.-flag 

ships and related global intermodal transportation systems, in addition to a pool of trained U.S. mariners. 

This is all in exchange for an annual cost of around $3 million 

per ship. To participate in this program, each ship must operate for 

6 

at least 180 days in the international trade of the United States. 

We support reauthorization of this important program, which is 

currently set to expire in the year 2015. The Maritime Administration has already made significant progress this year in working 

with stakeholders and our Federal partners to develop a proposal. 

Another way that we attract U.S.-flag vessels is through the Government’s Cargo Preference Program. Through this program, U.S.- 

flag carriers are provided with premium opportunities to compete 

for designated cargo financed by the Federal Government. The 

Maritime Administration takes it role very seriously in constantly 

identifying cargo that would otherwise have been lost to foreign 

carriers. 

One example cited in my written statement details how we 

worked with the Defense Department in issuing a $380,000 penalty. This was issued against a construction company in Guam that 

improperly used a foreign-flag service for a Federal contract. 

In sum, these programs help to retain and, even in tough economic times, attract ships to the U.S. registry. Without these programs, U.S.-flag ships in international trade would potentially 

scrap, sell or re-flag their ships to foreign registries. 

As we near the close of my first 100 days since being sworn in 

as Administrator, I can tell you that we have already accomplished 

a lot, and the Obama Administration’s goals for this agency and 

this industry’s future are ambitious. We must strengthen the merchant marine. We must expand it through programs such as America’s Marine Highway, and we must help prepare the maritime industry for the future with an expanded Panama Canal, stronger 

global environmental standards, and a new generation of mariners 

produced by the U.S. Merchant Marine Academy in Kings Point, 

New York and other institutions. 

Our authority and resources provided by Congress drive our efforts to support the U.S.-flag fleet. 

At this time, I am pleased to answer any questions the Subcommittee may have. 

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

I want to follow up on an issue we discussed in the hearing back 

in July. At the time of that hearing, you said that MARAD was examining whether cargo preference laws apply to cargoes financed 

with loan guarantees created by the Energy Policy Act and administered by the Department of Energy. You indicated back then that 

DOT’s General Counsel was also examining this issue. 

What is the status of this examination? And do cargo preference 

laws apply to cargo financed with loan guarantees created by the 

Energy Policy Act or not? 

Mr. MATSUDA. Well, sir, you did ask that question. I recall answering as you said. We are working with the Secretary’s General 

Counsel at his request, and also with the Department of Energy to 

formulate the Administration’s position on this. This is something 

that is of high priority. We have progressed to the point where the 

Department of Energy has since changed their position and has 

noted on their website even that this issue is unsettled. And we are 

hoping to achieve a consistent application of the law. 

7 

This is a new area, a non-traditional application for the cargo 

preference laws. And so it is something that is taking a bit of an 

education and we know that we will get there. 

Mr. CUMMINGS. Well, let me make sure I understand this. This 

is very frustrating to me because I think that a first year law student ought to be able to figure this one out, to be frank with you. 

And let me tell you why I say that. 

It just sort of upsets me that I feel like either we have some people who are incompetent or we need to get somebody else to answer 

these questions. And let me just tell you why I say that. 

According to 46 U.S.C. 55305, and I am sure you are familiar 

with this: ‘‘When the United States Government procures, contracts 

for, or otherwise obtains for its own account any equipment, materials, or provides financing in any way with Federal funds for the 

account of any persons, unless otherwise exempted, within or without the United States, the appropriate agency shall take steps necessary and practicable to ensure that at least 50 percent of the 

gross tonnage of the equipment and materials which may be transported on ocean vessels is transported on privately owned commercial vessels of the United States to the extent those vessels are 

available at fair and reasonable rates for commercial vessels of the 

United States, in a manner that will ensure a fair and reasonable 

participation of commercial vessels of the United States in those 

cargoes by geographic areas.’’ 

Further, 46 U.S.C. 55305(d) states that ‘‘each department or 

agency that has responsibility for a program under this section 

shall administer that program under regulations and guidance 

issued by the Secretary of Transportation which shall have the 

sole, sole, sole responsibility for determining if a program is subject 

to the requirements of 46 U.S.C. 55305.’’ 

Now, given this clear statutory language placing with the Department of Transportation the final authority to make determinations regarding cargo preference, why hasn’t DOT determined 

whether cargoes financed by the loan guarantees administered by 

the Department of Energy and authorized by the Energy Policy Act 

are subject to the cargo preference requirements laid out under 46 

U.S.C. 55305? Further, when will the Department make its determination? 

I have to tell you, this doesn’t sound like super, super rocket scientist stuff. Go ahead. 

Mr. MATSUDA. Sir, I wish I could tell you a date. This is something that the Administration is working on to develop its position. 

I can assure you it is getting high levels of attention within the Administration and we hope to have a resolution soon. 

I can tell you that last year, there was litigation involving the 

application of the cargo preference laws. The Administration did 

come together with a number of agencies and formulated a single 

position. 

Mr. CUMMINGS. Was it a priority back there on July 20th? 

Mr. MATSUDA. Absolutely. 

Mr. CUMMINGS. And it remains a priority. So where are we now? 

August and now September, and going into October, and we cannot 

get an answer. 

8 

You know what? We could be here three years from now going 

through this still ring around the rosy and not have a decision on 

this. Can you imagine that? 

Mr. MATSUDA. No, sir, I cannot. I believe there will be a position. 

I think there are a number of factors that will lead to that. One 

I think is specifically your interest, the Congress’ interest in having 

this settled. I know the industry wants this settled. We certainly 

want this settled. We believe a clear application of these laws 

needs to be achieved and we are confident we will get there. 

Mr. CUMMINGS. Who do we need to go to to get an answer as to 

when they will resolve these issues? Obviously, you don’t have the 

answer, so who can we go to? Who do we need to go to? 

Mr. MATSUDA. At the end of the day, we do not speak for the Administration. If it is coming to a legal position as to how we interpret the law, only the Department of Justice can do that. We hope 

to not have to involve them, but we are working directly with the 

Energy Department to try and nail this down. 

Mr. CUMMINGS. So you are telling me that the Justice Department has to make that decision? Is that what you just said? 

Mr. MATSUDA. At the end of the day they would have the final 

say on how that would work. 

Mr. CUMMINGS. Are you working with the Justice Department on 

this? 

Mr. MATSUDA. No. No. We don’t want to. We want to make sure 

that we arrive at a position that applies the law as intended and 

as it should work, but there is also the pressure that there are so 

many stakeholders involved here that the threat of litigation would 

mean there has to be a Federal position in court. 

Mr. CUMMINGS. Is there doubt within the Department of Transportation, which again has sole authority, to determine when the 

cargo preference requirements of 46 U.S.C. 55305 apply to a cargo, 

that these requirements apply to cargoes financed with loan guarantees authorized by the Energy Policy Act? 

Mr. MATSUDA. I can tell you there is no doubt within the Maritime Administration. 

Mr. CUMMINGS. And what is the Maritime Administration’s opinion? 

Mr. MATSUDA. We believe it does apply. 

Mr. CUMMINGS. And have you stated that to the powers that be, 

to the deciders? 

Mr. MATSUDA. Absolutely. And we are working with, like I said, 

the Energy Department to make sure that they understand our position and that we can use that to develop a singular Administration position on this. 

Mr. CUMMINGS. Is there a document that you have presented to 

them to assist them in their efforts? You have an opinion. Have 

you had occasion to lay out since July 20th or even before then specifically why you believe in what you just stated? 

Mr. MATSUDA. If there is, I can get you any copies of any documents that you would like. 

Mr. CUMMINGS. We would appreciate you doing that. OK? 

And by the way, is there someone else? We want to be effective 

and efficient, so is there anybody else that you think I might want 

to call here so that they might be able to give me a better answer? 

9 

I am not trying to be smart. I am just curious. I am trying to get 

to the bottom line because you have an opinion, but you just told 

me basically your opinion apparently is not—— 

Mr. MATSUDA. Well, it is a team effort and we are working with 

our colleagues to make sure we get this. I can assure you it has 

very high levels of attention both at our Department and the Department of Energy. 

Mr. CUMMINGS. And how soon? Can you give me any idea? Do 

you think it will be this year, next year? 

Mr. MATSUDA. I would hope this year we arrive at a position. 

Mr. CUMMINGS. Before the end of the year? 

Mr. MATSUDA. That is my hope. 

Mr. CUMMINGS. Well, what I am going to do is, I know we are 

going to have a lame duck session. We will bring you back and 

maybe you can answer that question then. OK? 

If there is anything that you need us to do to get to folks and 

urge an answer to the question, we would like to do that. And I 

guess the reason why I am raising this issue, and I am on top of 

this is because it just goes to the very essence of my opening statement. 

You have a lot of people who are just hanging on and they are 

hanging on by their fingernails. And they are trying to employ people. They are trying to make decisions and it is almost impossible 

for them to make decisions. And then they look to you and they expect an answer one way or another. I mean, even if you said, look, 

you know, no way, at least there is an answer. But you have already told me that you have an answer and that answer is that it 

does apply and that there are efforts to try to resolve the matter. 

And so I take you at your word and we will be bringing you back 

so you can answer that question and probably a few others of these 

if we can’t get answers today. 

If there is doubt, for what reasons do you think there is doubt, 

by the way? In these negotiations that you are working on, what 

is the doubt? 

Mr. MATSUDA. My sense is that it is strictly unfamiliarity with 

the recent changes to the law and the program. 

Mr. CUMMINGS. Mr. Matsuda, you indicated in your testimony 

that MARAD is undertaking a study to survey a sample group of 

carriers and strengthen our analytical assessment of the U.S.-flag 

fleet. I am surprised that MARAD does not diligently maintain 

such data, but I am glad to hear that a study is being undertaken. 

Will this study provide comprehensive data on the cost differential of operating under the U.S. flag compared to operating under 

a flag of convenience? And will it quantify the impact that different 

regulatory structures have on the cost differentials? And further, 

when will the study be done? And please give me a specific date. 

You said I think something about six months from the time that 

the study was commissioned. Has it been commissioned yet? 

Mr. MATSUDA. If not today, then tomorrow, yes, it will be. 

Mr. CUMMINGS. OK. Let’s put a pin in that right there. What 

does it take to commission it? What do you have to do? 

Mr. MATSUDA. Well, sir, as you know, the Maritime Administration has not ever been provided funds to do a study like this. This 

is something we found within our budget the ability to do. I think 

10 

I share your surprise at the fact that there were no studies on 

record. Maritime Administration has never done one of these before. So we are, working with you and your staff, pleased to undertake this effort. 

To get it commissioned, we are simply hiring an outside consultant. It is something that we had heard would be effective in getting 

this information quickly. The task would be for a six month report 

back to us, and we hope that they can do that. And we are finalizing the details on that contract right now. 

Mr. CUMMINGS. So when you answered me a moment ago and 

said either today or tomorrow, you meant that literally. Is that 

right? 

Mr. MATSUDA. Literally, I am signing on the dotted line. 

Mr. CUMMINGS. Was it your hope initially that you would be able 

to walk in here and say, Mr. Chairman, we have already got it 

commissioned, and it just didn’t fall? I mean, you still had some negotiations to do? Is that an accurate statement? 

Mr. MATSUDA. Oh, yes. I would have loved to have gotten this 

thing going yesterday, but we want to make sure that this study 

addresses the needs that this Subcommittee is interested in and 

that is getting the detailed information that is out there. 

Mr. CUMMINGS. So you feel comfortable that when I call you tomorrow at 5:00 o’clock, you will be able to tell me, Congressman, 

we have commissioned a study. Is that right? 

Mr. MATSUDA. Yes. 

Mr. CUMMINGS. OK. I am going to call you at 5:00 o’clock. 

Mr. MATSUDA. I appreciate that. I will tell my staff. 

Mr. CUMMINGS. If you want me to do it earlier, I mean, if you 

need me to, I will wait until Friday, but no, I am serious. I am 

going to hold you to your word. What do you think? Five o’clock tomorrow? 

Mr. MATSUDA. I think 5:00 o’clock tomorrow it will be done. 

Mr. CUMMINGS. I see your staff behind you shaking their head 

yes. So all right, thank you very much. 

Mr. MATSUDA. You bet. 

Mr. CUMMINGS. Mr. Matsuda, I just want to clarify something 

here. MARAD indicated in March that there were 94 flag vessels 

in the foreign trade, and you have indicated in your testimony that 

there were 115 such vessels. Has the total number increased since 

March? And if so, why? Or what accounts for the different figures? 

Mr. MATSUDA. I believe the 115 figure includes vessels that are 

not full-time or even half-time participating in the foreign trade, 

but they may be largely participating in the domestic trade and 

then once or twice a year they operate internationally. And these 

vessels, they come and go. Some years they take an international 

trip, some years they don’t. I believe that is the difference between 

the two figures. 

Mr. CUMMINGS. And would you tell us what trends do you project 

regarding the size of the U.S.-flag fleet in the foreign trade over the 

next five years? Have you thought about that? 

Mr. MATSUDA. I have. And I have to tell you, I think it is dependent on the trade. If there is ability to participate in, for instance, 

transportation of wind energy components and projects, that might 

help bolster those movements. I know that for the carriage of deVerDate Aug 31 2005 15:39 Mar 21, 2011 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 P:\DOCS\58492.TXT JEAN
11 

fense cargoes, the draw-down in Iraq certainly will lead to a downturn in the amount of cargo there, and that has been keeping our 

fleets busy for a while. 

The Food Aid transportation, I think that is also something that 

we are keeping a close watch on. It also depends largely on the resources made available to USAID and the Department of Agriculture for those programs. 

But we are taking a look. That is part of the Maritime Administration’s job is to understand these trends, how they will impact 

the fleet, and ultimately our ability to deliver what is needed to the 

military or for defense or humanitarian relief purposes. 

Mr. CUMMINGS. As we discussed at the last hearing, we are eager 

to know the specific objectives MARAD is working to achieve. Can 

you please list MARAD’s specific performance objectives and indicate the quantitative and qualitative metrics in place to track 

progress towards the achievement of those objectives? 

Mr. MATSUDA. Yes, sir. I believe in the letter you spoke of, we 

responded and wrote back about both the number of ships currently engaged in the Maritime Security Program, and that is 

something we track. Also, the amount of cargo space and tonnage 

available to carry cargo for the military is part of those programs. 

That is something we track. We are continuing to make improvements to the fleet. The way the program works is that there are 

age limitations on the vessels. So just by the fact that they are constantly bringing in newer and newer tonnage, it is more efficient. 

It provides more cargo without actually having to add new ships 

to the program. So that is one of the primary ways we measure our 

ability to deliver performance to the military. 

The other one is the Cargo Preference Program, and we continue 

to track how the agencies that ship are meeting the law. That is 

something that we report on an annual basis. 

Mr. CUMMINGS. Now, to put it simply, since World War II, the 

size of the United States-flag fleet engaged in international trade 

has been in a constant decline. The Subcommittee is particularly 

interested in knowing if MARAD has any objectives pertaining to 

increasing the size of the U.S.-flag fleet or increasing the percentage of U.S. export and import trade carried on U.S.-flag vessels. 

Mr. MATSUDA. Sir, I believe it is fair to say that the cost differential between the U.S.-flag and foreign-flag ships means that we 

have to have an economic incentive to bring ships under the U.S. 

flag. And without that, ships are going to go elsewhere. They are 

going to go to these open registries. Any kind of incentive we can 

offer them, right now, the biggest incentives are these two programs that we feature, and that is, again, Maritime Security and 

Cargo Preference. 

If we can offer them cargo financed by the Federal Government, 

for example, then that is one way we can make sure that they have 

the ability to compete and stay under the U.S. flag. 

Mr. CUMMINGS. That is why we need to get these questions answered, right? 

Mr. MATSUDA. Absolutely. 

Mr. CUMMINGS. Based on what you just said, it seems to me that 

that goes to the essence of what you are doing, I mean, your job. 

Mr. MATSUDA. Yes. 

12 

Mr. CUMMINGS. And it seems to me that as long as that question 

is not answered, is not addressed, it is kind of hard for us to—let’s 

put it this way. You have an opinion and until that opinion is 

adopted by the powers that be, it seems that it would be very difficult for us to even achieve all the things you are talking about. 

Is that right? 

Mr. MATSUDA. I agree. This is one component. 

Mr. CUMMINGS. But it is a major part. 

Mr. MATSUDA. The Cargo Preference Program is very important 

in terms of bringing, attracting folks to the U.S. flag. 

Mr. CUMMINGS. I know you left the hearing before we had the 

shippers come up the last time, but they talked about how many 

of them would be almost out of business if it were not for these 

preferences. And I know that the President is very anxious to make 

sure that we get every possible job opportunity and every possible 

contract opportunity that we can to American-flag folks. And it just 

seems to me that, to borrow the President’s own words, I am really 

questioning whether we have the urgency of now. And I am a big 

fan of the President’s, but I am just wondering, if you Department 

moving with the urgency of now? 

Mr. MATSUDA. I believe so, and I did review the testimony from 

the second panel, and watched the video of your questions and answers. And I can tell you, that was a small sampling of folks from 

the industry, but that represents largely the views that we have 

heard from the entire maritime industry, that these programs are 

important and they mean a lot. Without that economic incentive, 

these folks will take their ships and flag elsewhere and all the jobs 

that go along with them. 

Mr. CUMMINGS. The Maritime Security Act of 2003 authorized an 

increase in funding for the Maritime Security Program from the 

present $174 million to $186 million in fiscal year 2012, and until 

the current program ends in 2015. What amount of funding is the 

Department of Transportation requesting for fiscal year 2012? Do 

you know? 

Mr. MATSUDA. I can tell you the President will announce that 

probably in February as part of his budget. 

Mr. CUMMINGS. And have you made a recommendation for an increase? Do they ask you your opinion? 

Mr. MATSUDA. They do, and it is all part of the consultative process to develop the President’s budget. 

Mr. CUMMINGS. I know much of this is inside information and 

all. I got that. But I just want to know, and I am not going to ask 

you how much, but did you ask for an increase? 

Mr. MATSUDA. Sir, we are working to develop that budget recommendation, but we certainly understand the importance of the 

question of whether it is funded at the fully authorized level or not. 

We understand that these things can impact the decisions of the 

shipping companies, the carriers, to know are they going to be able 

to make the investments in the fleets they need to serve under the 

U.S. flag in the long haul. These are really long-term questions 

that they need to know that the United States is committed to the 

economic incentives that we currently provide. 

Mr. CUMMINGS. You indicated in your testimony that there are 

12 MSP-eligible vessels that are documented in the U.S., but that 

13 

are not receiving payments because the MSP program is fully subscribed. Do you believe that the MSP program should be expanded? 

If it isn’t expanded, what might be done to encourage more operators to come under the U.S. flag? 

Mr. MATSUDA. Well, that is a tricky question, and we are currently discussing that as part of the reauthorization proposal. As 

we mentioned, one requirement of the MSP program is that you 

have to operate 180 days in the foreign trade. If there is not 

enough cargo to go around, I don’t know if it makes it worthwhile 

to add ships to the program. 

However, at the end of the day, this program helps serve the 

military and we want to make sure we are meeting their needs to 

be able to carry the Nation’s military cargo. 

Mr. CUMMINGS. One of the witnesses who testified in our earlier 

hearing stated that all but 11 MSP agreements are effectively controlled by foreign citizens. Is that the case? And if so, dose it pose 

any kind of a security risk to the United States do you think? 

Mr. MATSUDA. No. In fact I think it helps in some cases, and that 

is because part of the MSP program and the VISA program obligates these companies, these parent companies to provide access to 

their worldwide global infrastructure. To get cargo right now into 

Afghanistan to fight the war there, we are using routes through 

countries that there is no way the military could go through if we 

had to do it ourselves. The bottom line is we rely on these international companies and their infrastructure worldwide to get cargo 

where we need it to go. 

Mr. CUMMINGS. In your testimony, you wrote that ‘‘there are ongoing discussions among government agencies and the carrier community about how greater efficiencies might be achieved in the delivery of U.S. Food Aid.’’ You continue and you say, ‘‘Among the improvements that should be considered is the modernization of ocean 

transportation.’’ 

Are you familiar? 

Mr. MATSUDA. Yes. 

Mr. CUMMINGS. What exactly does that mean? And do you believe that U.S. Food Aid should continue to be shipped on U.S.-flag 

vessels? And what are the modernizations that are under consideration? 

Mr. MATSUDA. Obviously, I do believe U.S. Food Aid should be 

shipped on U.S.-flag vessels, and that to the extent we can, we utilize these U.S.-flag ships. What is being talked about in the testimony was modernizing U.S.-flag ships, the more modern ships we 

have in the fleet, the more efficient they are to operate, and that 

could help brings costs down. 

The problem is that to get folks to commit and make the investments in new vessels, there needs to be a long-term incentive. 

Mr. CUMMINGS. Mr. Taylor, did you have some questions? 

Mr. TAYLOR. If you don’t mind, Mr. Chairman, and I apologize 

for some conflicts. 

Mr. Matsuda, I gave you some information. Soft pitch, I told you 

I was going to ask you about Title XI, what your agency is doing 

to get some ships built in America using the Title XI program. Previous Administrations started a credit council who in my opinion’s 

14 

sole purpose was to keep any ship from ever being funded under 

Title XI. 

I know you have not been on the job that long, but what steps 

are you taking to make use of the Title XI Loan Guarantee Program and get some ships built in this Country? 

Mr. MATSUDA. Let me start with the Credit Council. I understand that really came about as a result of Inspector General investigations after a number of loan defaults over the years. And they 

believed that stronger mechanisms were necessary to make sure 

that these applications were being scrubbed and the outstanding 

loans were being monitored. 

I can tell you that over the last couple of years, the average time 

to get from application to an answer has been about 289 days per 

application. 

Mr. TAYLOR. I think my letter was over 400 days is what information that we had gathered. And Mr. Matsuda, that is a heck of 

a long time for anyone to wait, and quite frankly, in this business 

environment. The Title XI Program, when interest rates are low 

and credit is flowing easily, people don’t need it. Right now is when 

people need it. And quite frankly, I think that you, given your 

background, have enough common sense to look through and say 

that has an opportunity to work; that will never work. 

Just by way of refresher, the Title XI Program was working really well until Cruise America, I believe, was going to build the two 

cruise ships down my way for the Hawaiian trade. My memory is 

a guy by the name of Zell owned that company and in the immediate aftermath of 9/11, when people were afraid to fly, when people were afraid to get on a cruise ship, if truth be known, I think 

he pulled the plug on that project way too soon. 

But then the Bush Administration followed up by instead of finishing the ships and making them available for things like Hurricane Katrina to put people up in, or things like the refugee crisis 

down in Guantanamo, again, to put our troops in, sold those ships 

for pennies on a dollar at a time when scrap prices were ridiculously low, and quite frankly it was the worst of all worlds. 

But that was a one-time event based on 9/11 with an Administration that never wanted that program to work. I would hope that 

you would be very aggressive in trying to find a way to make this 

program work. The shipyards need the work. People need the jobs 

and we need those ships as auxiliaries for our fleet should we ever 

have a major contingency. 

The second thing is, and we have spoken about this before, is an 

amendment to the CLEAR Act. The Chairman was good enough to 

insert language that said for those rigs operating in our exclusive 

economic zone, everybody forgets that the first E of EEZ is exclusive, that those oil rigs ought to be built in America. With the 

Deepwater Horizon, we got the wrong end of the stick every time. 

The rig was built in Korea. It was licensed in the Marshall Islands 

and the profits went to Switzerland. 

I am for drilling, but I want to see to it that the benefits of that 

drilling go to the American people. And so we passed language in 

the CLEAR Act that said those rigs would be built in America. 

There was some pushback from this Administration saying we 

don’t have the technical expertise to build them. And quite honVerDate Aug 31 2005 15:39 Mar 21, 2011 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 P:\DOCS\58492.TXT JEAN
15 

estly, that is a bunch of bunk. We build nuclear-powered aircraft 

carriers that have sequentially timed electromagnets to launch and 

retrieve. We build the world’s best submarines. We build the 

world’s best warships. We can build an oil rig. 

I would hope that in your capacity in the time that you have in 

this job, that you would be an advocate for made in America, built 

in America, and operated by Americans. 

So with that, Mr. Chairman, I thank you very much. 

If you would like to respond? 

Mr. MATSUDA. Yes. 

Mr. TAYLOR. Particularly if you like to respond favorably, I would 

love to hear it. 

Mr. MATSUDA. Absolutely. I am concerned about the status of 

America’s shipbuilding industry. It seems that from the Title XI 

Program that it is one of the only places right now to get long-term 

debt financing. And that is a real challenge. 

The other issue with Title XI is it doesn’t necessarily cover every 

part of the shipbuilding industry. There are a number of medium 

and small size shipyards that do construction work that still aren’t 

able to invest the time and money into the Title XI process that 

the large shipyards currently are. 

But overall, I agree with you. We are trying to find a way to get 

this money out the door, and we continue to work with applicants 

as they come in. The one application you mentioned that was 400 

days, we do have a record of one in the last two years that was 

that long. Each one is different. They are going to have different 

risks to the government. We have to make sure that we evaluate 

these. We bring in an external, independent evaluator to look at 

the application and where the risks are to the taxpayer, and make 

sure that at the end of the day, it is a good deal for the government. 

But it is tough when you build one of these long-term assets, you 

don’t know what the market is going to be like in five, 10, 15 years. 

Shipping rates just are pretty volatile. 

Mr. TAYLOR. Mr. Chairman, if you don’t mind? 

Mr. Matsuda, some of the smartest people I know in that industry are countercyclical, I that they want to build their ships when 

the price of steel is down, when the price of aluminum is down, and 

when labor is readily available and therefore less expensive. That 

is where we are right now. 

What the problem for those folks is is financing, and I really do 

think it may not create 10,000 jobs. It may not create 5,000 jobs. 

But if it creates 500 to 1,000 jobs, then it is a worthwhile thing for 

a company that is investing in their future and investing in our 

Nation’s future. 

And again, all I can do is ask you to be as aggressive as you can 

using your good business sense. And I also want to make myself 

available, if you see something in, and I forgot what President 

Clinton ended up calling it, but the bill we passed in 2003 that refinanced, got Title XI going again. If you see something in it that 

isn’t working, I am offering my staff, my help to try to tweak those 

things because we really need to get this going again. 

Thank you very, very much, Mr. Chairman. 

Mr. CUMMINGS. OK. Thank you. 

16 

Mr. Matsuda, President Obama has announced a goal of doubling 

U.S. exports over the next five years, and has created an Export 

Cabinet to guide government efforts to achieve this goal. The Department of Transportation was not designated to be a member of 

the Export Cabinet. However, a report released by the Export Cabinet on September 16 entitled Export Promotion Cabinet’s Plan For 

Doubling U.S. Exports In Five Years, suggests that this oversight 

has been erected and the report states that addressing regulatory 

and infrastructure issues can have a major impact on U.S. exports. 

In fact, the Subcommittee held a hearing in March in which we 

heard from very frustrated American shippers who could not move 

their goods because they could not get shipping containers in certain areas of the Country. So it is encouraging to us that the Administration has recognized our infrastructure problems. 

The report also states that the Departments of Commerce and 

Transportation have entered into a memorandum of understanding 

to work together with stakeholders to develop and implement comprehensive competitiveness to focus national freight policy. 

What is being done to include U.S.-flag shipping as part of the 

Administration’s export initiative? And how do we make sure U.S.- 

flag ships are in a position to carry at least a portion of these increased exports? 

Mr. MATSUDA. Thank you. Sir, as far as the Export Council goes, 

Secretary LaHood is a member of the Export Council. He was 

added fairly recently, but that oversight has been corrected. I can 

verify that. 

The President has made a major announcement in terms of our 

Nation’s infrastructure in proposing a six-year reauthorization of 

our Federal Surface Transportation Programs, and a front-loaded 

$50 billion investment in the first year. So I know that our focus 

has been on infrastructure and how that can help facilitate exports 

as well. 

As far as the shipping services go, maritime services are an export. Anytime you use the U.S. flag, a good chunk of that revenue, 

profits, and income comes back to the U.S. as opposed to when you 

use a foreign-flag ship. And so to the extent we can continue to encourage shipping on U.S. flag, given what we are currently doing 

and things that we can do within our resources, we are absolutely 

pursuing that. 

Mr. CUMMINGS. You just mentioned that the President has called 

for a six-year authorization of Surface Transportation Programs 

aimed at infrastructure improvement and developing a world class 

transportation system in the U.S. However, the Administration 

failed to mention maritime projects. 

What are DOT and the Maritime Administration doing to get the 

critical needs of our maritime transportation system on the Administration’s agenda? 

Mr. MATSUDA. Sir, I can tell you that as more details come out, 

we will find exactly how maritime infrastructure is intended to be 

linked through this new effort. I can tell you that this Administration has focused on ports and maritime more than many others. 

Just recently, the Secretary held the first ever National Port Summit where he got together port directors from all over the Country, 

17 

the first time this has ever been done, to hear their concerns and 

talk about what our future needs are. 

Mr. CUMMINGS. Do you see the harbor maintenance tax as one 

of those regulatory issues that the Export Cabinet will talk about? 

And does DOT and MARAD support ending the double taxation of 

domestic waterborne cargo under the HMT? And if not, why? 

Mr. MATSUDA. Sir, I can tell you that that is an issue under discussion within the Administration. This is something that we hear 

consistently as being a major impediment to moving on things like 

our Nation’s marine highway. If we can get rid of this double taxation from application of the harbor maintenance tax, we could see 

more cargo moving on the water. 

It is a terrible impediment when you have to pay this tax twice, 

especially for containerized goods which usually are more expensive 

or higher value than bulk commodities. So it really works against 

moving containers on the water in the way that we would like to 

see in terms of a true marine highway system nationwide. 

Mr. CUMMINGS. What is being done to promote MARAD’s Marine 

Highways Program within the Administration as a solution to infrastructure issues? 

Mr. MATSUDA. Well, we have launched the program this summer. 

I know that it remains a priority for the Administration, the first 

time ever we have provided Federal funds for projects around the 

Country to help buy equipment, to help get the shoreside and waterside services together, and ready to move these goods. 

There are already several operators around the Country who are 

trying to do this, and making a very tough go at it, given the factors working against them. The problem is that there is competition from trucks, but it comes at an environmental cost and it 

comes at a cost for congestion on our roads when we really could 

be moving these goods on the water. 

So we are getting the money out the door. Secretary LaHood in 

August named a number of corridors around the Country where 

this could work. I will note that one of the projects that we received 

actually designates as number of East Coast stops, including the 

City of Baltimore. 

I think there is great excitement around the Country when I go 

out to the ports and meet with the Directors and other port interests seeing a true marine highway system come about. 

Mr. CUMMINGS. Many seafaring nations do not tax the personal 

income earned by their mariners when employed aboard ship. In 

order to help strengthen the U.S.-flag fleet by helping to lower the 

cost of labor, some propose extending the income exclusion provided 

in Section 911 of the Internal Revenue Code to U.S. mariners 

working aboard commercial vessels engaged in foreign trades. 

Under Section 911, American citizens working abroad can exclude up to $80,000 of their foreign-earned income from their gross 

income for Federal income tax purpose. 

Should Section 911 be expanded to include seafarers? 

Mr. MATSUDA. I can tell you the Administration doesn’t have a 

position on that question exactly, but anything we can do to reduce 

that difference and create more of an economic incentive for folks 

to remain under the U.S. flag will be helpful, and will help retain 

and grow the U.S.-flag fleet. 

18 

Mr. CUMMINGS. Are the U.S. shipyard and ship repair industries 

adequate to meet an emergency mobilization requiring extensive 

shipping capacity? 

Mr. MATSUDA. Well, that is something that we work with the Department of Defense on to have a good understanding of what our 

industrial capacity needs are. I can tell you that one of the big concerns I would have right now in the shipbuilding industry is the 

loss of one of the two sole Jones Act vessel builders. And I think 

that would have an impact on the market for Jones Act ships. 

Mr. CUMMINGS. Data provided by MARAD to the Subcommittee 

compares the cost of crewing a 20 year old bulk ship under U.S. 

flag and under an open registry in the year 2005. MARAD indicated that the costs of the U.S. crew under this scenario was about 

$3 million per year, whereas the cost of a crew under an open registry was less than $700,000. 

How do crew costs compare for other types of vessels such as a 

container ship? And how would they compare for a ship that carried a high value cargo such as LNG? 

Mr. MATSUDA. Sir, as you know, there are no U.S.-flag LNG carriers, and that is something that is of concern to us. We are 

leveraging our ability to ensure that U.S. crews can get on to foreign-flag LNG ships so they can get the training and still be able 

to work in that industry. 

As far as the costs go, I think that is consistent with what we 

have been seeing. But sir, I really want to make sure that we get 

this study to you so at least we can give you some better, more detailed information about the costs of the various types of trades. 

Mr. Taylor did you have any other questions? 

Mr. TAYLOR. No, sir. 

Mr. CUMMINGS. Rear Admiral Philip Greene was recently appointed Superintendent of the U.S. Merchant Marine Academy. 

Can you tell us why Admiral Greene is the right person for the job? 

And what plans he will implement to strengthen the Merchant Marine Academy? 

Mr. MATSUDA. Absolutely, sir. First, let me offer you a meeting 

with Admiral Greene. I understand we are working with your staff 

to try and make that happen soon. 

We spent a long time in a very deliberate effort to go out and 

find the very best candidates for the job of Superintendent of the 

U.S. Merchant Marine Academy. We had more than 50 well-qualified applicants. We used an executive search firm to really go out 

and get the best candidates. We did a lot of outreach to folks within the Academy community to make sure we got the right person 

for the job. 

And we invited folks from the Academy itself, the midshipmen, 

the faculty and staff and others in the greater Academy community, and Admiral Greene came out as our selectee. We think he 

is the right person for the job and we have high expectations for 

him. 

Mr. CUMMINGS. How many staff vacancies are there at the Merchant Marine Academy? 

Mr. MATSUDA. I believe there are, actually I can tell you exactly 

here. 

Mr. CUMMINGS. And tell me out of how many people. 

19 

Mr. MATSUDA. Merchant Marine Academy I believe has approximately 230 staff, and I would say give or take 20 positions that we 

are currently hiring. We are also dealing with a number of faculty 

positions that we are trying to make sure they are on board before 

the start of the new trimester. 

Mr. CUMMINGS. And that is 20 out of 240, you said? 

Mr. MATSUDA. Roughly, yes. 

Mr. CUMMINGS. And what measures have been implemented to 

ensure that the proper management of the Academy finances? 

Mr. MATSUDA. The GAO had done a report last year detailing 47 

recommendations to improve the financial fiscal controls at the 

Academy. I can tell you that as of today, we have completed 42 of 

those, and my goal was to have all 47 completed by the end of the 

fiscal year. So staff will be working hard over the next 24 hours 

to get the remainder of them on my desk. 

I can tell you that we take very seriously making sure that we 

have these controls in place and that we promote a culture of responsible fiscal management at the Academy. We know that working with Admiral Greene as the new Superintendent, we will have 

that support and he will have the ability to make sure that these 

practices remain in place. 

Mr. CUMMINGS. The GAO released a report in August, 2009 that 

identified numerous instances of improper and questionable 

sources and uses of funds by the Academy and its affiliated organizations. A MARAD audit authorized by then-Deputy Secretary Barrett in 2007 found that barriers between appropriated and non-appropriated fund instrumentalities at the Academy had broken 

down. This resulted in transactions at the Academy that were 

‘‘most probably illegal.’’ 

We note that the other service academies have some authority in 

the case of mixed-funded athletic and recreational extracurricular 

activities to treat appropriated funds as non-appropriated funds. In 

addition, the Coast Guard Academy has a NAFI manual that states 

‘‘policy governing the use of appropriated funds and non-appropriated funds to support the Coast Guard’s non-appropriated fund 

programs is based upon several sources, including Federal statutes, 

Comptroller General discussions, the financial resource management manual, and the policies and procedures followed by the 

other military services for the use of the APF in NAFI operations.’’ 

With that, would you please explain why the Merchant Marine 

Academy seemingly does not have the authority the other service 

academies have? 

Mr. MATSUDA. Sir, there is a major difference between the U.S. 

Merchant Marine Academy and the other Federal services academies. And it is that the midshipmen who attend there are not employees of the Federal Government. They are students. They don’t 

have the same types of morale, welfare and recreation funds and 

accounts that these other branches do. 

Having said that, the NAFIs that were at the Academy, as you 

noted, the fiscal controls broke down over the years and it didn’t 

seem that there was a very good situation up there. Earlier this 

year, I issued an order to make clear what our goal with these 

NAFIs is, and that is that we are going to take action to close down 

20 

some of them. Many were just simply bank accounts being controlled by Federal employees that were off the books. 

We are keeping some of them open and others we are going to 

reform and make sure that if they continue to exist, that their 

dealings with the Federal Government are transparent and that 

their actions—what they are doing—are accountable to the people 

that they are supposed to benefit. 

Mr. CUMMINGS. Has the Department of Transportation or 

MARAD done any sort of analysis to determine what legislative solutions there might be to the Academy’s apparent inability to manage this? 

Mr. TAYLOR. Mr. Chairman? 

Mr. CUMMINGS. Yes? 

Mr. TAYLOR. At some point could I weigh in on this? 

Mr. CUMMINGS. Please. 

Mr. TAYLOR. Mr. Chairman, in my capacity as the Chairman of 

the Seapower Subcommittee, we did look into this. And you raise 

good questions and I think they deserve good answers. The Academy being one of the smaller service academies was looking for 

ways, and quite honestly, for fear that if they asked for too much 

money from Congress, that one possible reaction would be Congress 

shutting the Academy down. 

Towards that end, the Academy had several initiatives to use the 

facilities to provide additional training to mariners on a fee basis. 

And they used those funds to subsidize the Academy. 

All the academies are legally allowed to have, for example, someone give them a yacht. They use the yacht for a while. They sell 

the yacht. They plow that money back into their athletic program. 

That is the norm certainly at Annapolis, and similar type programs 

in the other schools replace the word yacht for airplane or something else. 

In the case of the Merchant Marine Academy, they were not specifically given the authority to do that in law. So while there was 

never any question, never any question that those funds somehow 

ended up in somebody’s pocket, that was never an allegation. The 

real allegation was that somebody in the GAO said they are doing 

this. They are doing this for the right reason, but the law doesn’t 

allow them to do this. 

In the Seapower Subcommittee, we did come up with language 

that does allow them to do this, just like the other academies. 

Again, it was done for the purpose of subsidizing the Academy 

through nontraditional means without coming to the taxpayer to 

pay for it. 

And quite honestly, it is my personal opinion that the Commandant at the time, Admiral Joe Stewart, was given a very raw 

deal because, quite frankly, I think Mr. Matsuda’s predecessor did 

a very poor job of explaining to Admiral Stewart what the parameters were that he could operate in. He was never really told by 

his predecessor that you need to be staying in these boundaries. 

And so it has been looked into. There has never been any allegation of a dime of that money going into anybody’s pocket. What 

they did I think they did for all the right reasons, but unfortunately they were not given the legal authority to do those things, 

and therefore under the law, it was not allowed. 

21 

But those things have been addressed and, again, he’s fairly new 

on the job. Quite honestly, because of my kid going there, I follow 

the Academy matters closer than most. And I can tell you that we 

would be more than happy, and my employee from the Seapower 

Subcommittee, Captain Will Ebbs, anytime that you want to speak 

to them, and Captain Ebbs has done extensive research into this. 

I think he will tell you almost verbatim what I just told you. 

Mr. CUMMINGS. Thank you very much. 

Mr. TAYLOR. Thank you, sir. 

Mr. CUMMINGS. I really appreciate that. That was extremely 

helpful. 

Let me go to something else and then we are just going to finish. 

Tell me something, you know, the National Defense Authorization Act of 2009, which became law in October of 2008, required 

the Secretary of Transportation to direct the Superintendent of the 

Merchant Marine Academy to prescribe a policy on sexual harassment and sexual violence for the Academy. 

I understand that the previous Superintendent resigned and it 

took some time before the new Superintendent was appointed. 

However, has a policy on sexual harassment been implemented at 

the Academy? And if so, who is responsible for ensuring that the 

policy is effective? 

Mr. MATSUDA. Yes, sir. The policy at the Academy is, in short, 

is that they do not tolerate sexual harassment, sexual assault. And 

I can tell you that my conversation with the Superintendent 

verifies that and we are doing everything we can to make sure that 

that policy is being implemented effectively. 

The law you mentioned required a report back to Congress and 

we are hoping to get that to you shortly. We want to make sure 

that if there are lessons within that survey and that report, that 

we can get those to you, and also make sure that they are being 

implemented; that if there is anything to learn, we are using that 

to improve. 

Mr. CUMMINGS. All right. If there are no further questions, we 

will call this hearing to an end and I will provide you with a date 

as soon as we are clear as to the lame duck session, and you and 

I will talk at 5:00 o’clock tomorrow. 

Mr. MATSUDA. I look forward to it, sir. 

Mr. CUMMINGS. Thank you very much. 

[Whereupon, at 5:23 p.m., the Subcommittee was adjourned.] 

22 


Insert offset folio 11 here 58492.011
23 


Insert offset folio 12 here 58492.012
24 


Insert offset folio 13 here 58492.013
25 


Insert offset folio 14 here 58492.014
26 


Insert offset folio 15 here 58492.015
27 


Insert offset folio 16 here 58492.016
28 

Æ 


Insert offset folio 17 here 58492.017