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57–560 PDF 2010

STATUS OF THE U.S.-FLAGGED 

VESSELS IN U.S.-FOREIGN TRADE 

(111–130) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COAST GUARD AND MARITIME TRANSPORTATION 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

July 20, 2010 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

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 

Dumas, Michael R., Vice President and Chief Financial Officer, Intermarine, 

LLC ........................................................................................................................ 14 

Johnsen, Neils M., Chairman of the Board, Central Gulf Lines, Inc. and 

Waterman Steamship Corporation ..................................................................... 14 

Keefe, Donald, President, Marine Engineer’s Beneficial Association, accompanied by Paul Doell Director of Legislative Affairs, American Maritime 

Officers .................................................................................................................. 14 

Marcus, Captain Donald, Secretary–Treasurer, International Organization of 

Masters, Mates, and Pilots .................................................................................. 14 

Matsuda, David, Administrator, United States Maritime Administration ......... 4 

Reinhart, John F., President and Cheif Executive Officer, Maersk Line, Limited ......................................................................................................................... 14 

Shapiro, Philip, President and Cheif Executive Officer, Liberty Maritime Corporation ................................................................................................................. 14 

Turner, Terrence, Seafarer’s International Union ................................................ 00 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Dumas, Michael R. .................................................................................................. 41 

Johnsen, Neils M. .................................................................................................... 46 

Keefe, Donald, Paul Doell and, Captain Donald Marcus ..................................... 50 

Matsuda, David ........................................................................................................ 70 

Reinhart, John F. ..................................................................................................... 74 

Shapiro, Philip ......................................................................................................... 77 

SUBMISSIONS FOR THE RECORD 

American Roll-on Roll-off Carrier, LLC, Raymond P. Ebeling, Chairman and 

Cheif Executive Officer, written statement ....................................................... 84 

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(1) 

HEARING ON THE STATUS OF THE U.S.- 

FLAGGED VESSELS IN U.S.-FOREIGN TRADE 

Tuesday, July 20, 2010 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COAST GUARD AND MARITIME

TRANSPORTATION, 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:00 a.m. in room 

2167, Rayburn House Office Building, Honorable Elijah E. 

Cummings [Chairman of the Subcommittee] presiding. 

Mr. CUMMINGS. The Subcommittee will come to order. 

In March, the Subcommittee convened to examine the availability of shipping services to carry U.S. exports. During my opening statement, I presented a few facts detailing the small size of 

the U.S.-flag fleet in the foreign trades. As I explained, the vast 

majority of U.S. trades move on foreign-flagged vessels. 

During that hearing, I also noted that President Obama has 

called for a doubling of U.S. exports over the next five years, a goal 

that is challenged by our reliance on foreign-flagged vessels for our 

carrying capacity. Of particular concern is the fact that the testimony we heard in March made it clear that it is our level of imports, not exports, that determines the level of carrier services calling on the United States. 

Today, the Subcommittee convenes to consider in more detail the 

state of the U.S.-flag fleet in the foreign trade. We will assess the 

current economic realities faced by this fleet, including the difference in the costs of operating a vessel under the United States 

flag and under so-called open registry or flag of convenience. 

We will also assess the policy parameters that shape current 

U.S. policy toward a U.S.-flag foreign trade fleet. This discussion 

is intended to provide the current information necessary to inform 

future U.S. policy toward our foreign trade fleet. 

As I detailed during our March hearing, according to a study produced in 2009 by IHS, Global Insight for the U.S. Maritime Administration, in 1975, there were 857 ocean-going U.S.-flag ships with 

a carrying capacity of more than 17.6 million deadweight tons. 

Data provided to the Subcommittee by the Maritime Administration indicates that as of March 1, 2010, there were 94 U.S.-flag vessels regularly engaged in the foreign trade. 

Unfortunately, like many of the issues we examine in the Subcommittee, the decline of the U.S.-flag foreign trading fleet and the 

concomitant reduction in the percentage of U.S. trade carried on 

2 

U.S. ships are not new issues. And yet nothing has been done to 

effectively reverse this unfortunate decline. 

Thus, a study of maritime subsidies issued by the Comptroller 

General in 1981 in response to a requests from the then-Merchant 

Marine and Fisheries Committee decried what was then a decline 

in the percentage of U.S. commercial cargo carried in U.S.-flag vessels from just over 10 percent in 1959 to just over 4 percent in 

1979. Not surprisingly, in the absence of a specific U.S. policy that 

could reverse this trend, the percent of U.S. trade carried in U.S.- 

flagged vessels has only continued to decline. 

Thus, the IHS study found that in 2009 less than 2 percent of 

U.S. foreign trade moved on U.S.-flag vessels. Those U.S.-flag vessels that now participate in the foreign trade remain heavily dependent on subsidies. The specific details of the subsidies have 

changed over time, but their shared purpose of making it viable for 

vessels to operate in the U.S.-flag foreign trade fleet remains essentially unchanged. 

Thus, the Operating Differential Subsidy Program was replaced by the Maritime Security Program, which currently provides $174 

million to support 60 vessels operating under the U.S. flag that 

agree to be available to meet U.S. military needs. The construction 

differential subsidy has been eliminated and now all of the vessels 

currently sailing under U.S. flag in the foreign trade were built 

overseas. 

According to the Maritime Administration, all of the 94 U.S. vessels now regularly engaged in the foreign trade also participate in 

cargo preference programs which reserve 100 percent of military 

cargoes, 100 percent of Export-Import Bank cargoes, 75 percent of 

government-impelled agricultural cargoes, and at least 50 percent 

of civilian agency cargoes for U.S.-flag vessels. 

MARAD has indicated that preference cargoes comprise nearly 

50 percent of the cargoes carried by U.S.-flag vessels in the foreign 

trade, and the carriage of such cargoes provided more than $1.35 

billion in revenues to the United States-flag fleet in the foreign 

trade in fiscal year 2007, the most recent year for which data is 

available. 

Let me be clear about the picture of the United States-flag fleet 

that emerges from the current data. The U.S.-flag fleet is essential 

to meeting our military sealift need and carrying the bulk of our 

government-impelled cargoes, and the MSP program is essential to 

keeping our current U.S.-flag fleet afloat. 

That said, the current U.S.-flag foreign trade fleet of just over 90 

vessels is not carrying either the greater portion or even a substantial portion of our foreign trade. In fact, since the 1980’s, the U.S.- 

flag fleet has been carrying what can only be described as an increasingly minuscule portion or our foreign trade. 

And this fact has serious implications both for our merchant marine and, indeed, for our Nation’s economy. Over the past century 

as the flags of carrying capacity has continued its steep decline, 

there have been many voices warning that this decline constituted 

both a security risk and an economic risk. These risks remain real 

now. 

I again urge today that as we work to expand U.S. exports, we 

should also work to formulate a meaningful U.S. maritime policy 

3 

that will revitalize our merchant marine and expand the percent 

of U.S. trade carried in U.S. ships. Formulation of such a policy 

will require a truly critical examination of decades of policy assumptions, as well as articulation of clear goals that acknowledge 

current realities and that meaningfully address current needs. 

We look forward to the testimony of Administrator of the Maritime Administration, Mr. David Matsuda, and let me take this opportunity to applaud his confirmation to the Administration’s position by the Senate. Congratulations. 

MARAD is charged with promoting the United States merchant 

marine and administering the Maritime Security Program, Title XI 

program, the Cargo Preference Program and related programs that 

benefit the U.S.-flag fleet in foreign trade. 

We will also hear from representatives of carrier lines that operate U.S.-flag vessels and we will hear from the representatives of 

maritime labor organizations. We look forward to hearing from all 

of our witnesses on how current programs intended to support our 

U.S.-flag fleet can better serve the fleet. 

We are also particularly interested in identifying what can be 

done to expand the fleet and increase the percent of U.S. trade carried on U.S. vessels. 

With that, I yield to the distinguished Ranking Member, Mr. 

LoBiondo. 

Mr. LOBIONDO. Thank you, Mr. Chairman. 

The United States of America has always and will always be a 

maritime Nation. From her earliest days and continuing through 

today, we have depended on waterborne transportation as the principal means to carry goods and cargo between the U.S. and ports 

overseas. 

According to the Department of Transportation, nearly 80 percent of the volume of foreign trade enters and leaves the U.S. by 

ship and total volumes at our major ports are expected to rise in 

the coming years. While the volume and value of maritime trade 

has greatly increased in recent decades, the number of ocean-going 

vessels operating under the U.S. flag has plummeted. 

According to the U.S. Maritime Administration, there were 88 

U.S.-flag vessels operating in foreign trade at the end fo 2008. The 

U.S. fleet now makes up less than 1 percent of the world fleet and 

nearly all commerce at U.S. ports arrives and departs on board a 

foreign-flag vessel. 

The U.S.-flag fleet is uniquely positioned and tasked with serving 

the economic and national security needs of our Nation. The domestic registry also provides stability and enhanced opportunities 

for U.S. merchant mariners and domestic shipyards. We have long 

recognized the importance of a strong U.S. fleet, shipbuilding industrial base, and merchant marine. I am concerned by the continued contraction of these important national resources. 

The Subcommittee has reviewed several issues that are impacting merchant mariners here and abroad. The first, changes in the 

Coast Guard s credentialing process, seems to be greatly improved. 

However, American mariners and vessels are still facing the seemingly ever-present threat of piracy in several parts of the world. 

I look forward to hearing from the witnesses thoughts on these 

and other issues affecting U.S. mariners. The U.S. fleet provides a 

4 

critical service in supporting our military and economic interests, 

and I look forward to working with you, Mr. Chairman and Members of the Committee and the witnesses to examine ways to support the growth in the fleet in the future. 

Thank you. 

Mr. CUMMINGS. Thank you very much. 

I ask unanimous consent that Congresswoman Mazie Hirono, a 

Member of the Committee on Transportation and Infrastructure, 

may sit with the Subcommittee on this dais today and participate 

in this hearing. And without objection it is so ordered. 

Ms. Hirono, do you have an opening statement? 

Ms. HIRONO. Thank you, Mr. Chairman. I appreciate your having 

this hearing because as you probably know, Hawaii is the most dependent on ships coming to Hawaii since over 80 percent of the 

goods that we use in Hawaii come to us via ships. 

So this is a very important topic for us, and as we focus on issues 

such as the Jones Act, I am very concerned about the future of 

U.S.-flag ships in this Country, particularly as it relates to Hawaii. 

Thank you very much, Mr. Chair. 

Mr. CUMMINGS. Thank you very much. 

Mr. Ehlers? 

Mr. EHLERS. Thank you, Mr. Chairman, for holding this hearing. 

I continue to be very concerned about the state of the United 

States merchant fleet in foreign commerce. It is indicative of the 

problems that we have in many other areas, including for example 

automobiles which is vital to the State of Michigan. It is very difficult for us to compete internationally with the wage rates of other 

countries, and I suspect that is the base cause of much of the problem of the merchant fleet as well. 

So thank you for holding the hearing and I look forward to it. 

Mr. CUMMINGS. Thank you very much. 

We will now hear from the Honorable David Matsuda, the Administrator of the Maritime Administration. 

TESTIMONY OF THE HONORABLE DAVID MATSUDA, ADMINISTRATOR, UNITED STATES MARITIME ADMINISTRATION 

Mr. MATSUDA. Thank you and good morning. 

Mr. CUMMINGS. Good morning. 

Mr. MATSUDA. Chairman Cummings, Ranking Member LoBiondo 

and Members of the Subcommittee, thank you for your invitation 

to testify on the state of the U.S. merchant fleet in foreign commerce. 

Our national policy is to maintain a U.S.-flag merchant marine 

sufficient to carry our waterborne domestic commerce and a substantial part of our foreign commerce. Our Country’s ability to respond to major military threats worldwide also relies on the availability and dependability of commercial merchant ships and skilled 

crew members. But U.S.-flag ships now carry less than 2 percent 

of our Nation s international trade. This is a major decline, even 

from the 58 percent carried in 1947, just six decades ago. 

Mr. Chairman, as the U.S.-flag fleet has declined, so has the 

number of jobs for mariners. We rely on the pool of skilled commercial merchant mariners to meet our needs to crew governmentowned reserve ships when called upon. Also, with an aging workVerDate Aug 31 2005 11:18 Dec 22, 2010 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 P:\DOCS\57560.0 KAYLA
5 

force, we are at a crucial point where we need to be recruiting and 

training America s next generation of mariners. 

One method is by running a strong collegiate maritime program 

which includes the U.S. Merchant Marine Academy at Kings Point, 

New York, along with the six State maritime academies. Together, 

these schools produce a total of 700 maritime officers and leaders 

annually. 

The Maritime Administration also works with 19 maritime high 

schools around the Nation to help introduce young men and women 

to careers in this vital industry. One includes the Maritime Industry Academy in Baltimore, Maryland, which I had the privilege of 

visiting earlier this year. 

Mr. Chairman, the U.S. merchant marine, including ships and 

crew, is among the safest, most secure and environmentally responsible in the world. However, U.S.-flag operators face serious competitive challenges because not all foreign registries require such 

standards of excellence as the U.S. 

Two programs administered by the Maritime Administration 

help create a more even playing field for U.S.-flag operators: the 

Maritime Security Program and the Cargo Preference Program. 

The Cargo Preference Program simply requires a preference for the 

use of U.S.-flag ships when the Federal Government pays for or 

otherwise finances a cargo shipment. The 16 million revenue tons 

of cargo shipped each year through this program help allow businesses to operate under the U.S. flag. 

Most of these carriers also participate in the Maritime Security 

Program. This program provides annual stipends to U.S. carriers 

in return for assured military access to their ships, crews and global infrastructure if needed. 

Our status as a trading Nation depends on our ability to transport via sea. Both imports and exports move smoothly through the 

global supply chain. While much of what moves through U.S. ports 

is import cargo, our Country also exported more than $1 trillion 

worth of manufactured goods in 2008. These exports supported 

more than 20 percent of all U.S. manufacturing jobs that year. 

President Obama has launched a National Export Initiative to 

double U.S. exports within five years. Having an efficient global 

transportation system, including maritime services, will help 

achieve that goal. 

In addition, maritime transportation itself is an export service. 

When a U.S.-flag ship is used, salaries and tax revenues remain in 

the U.S. economy and support U.S. jobs. 

Mr. Chairman, the U.S. merchant marine has enabled our Country to respond to every military conflict and crisis since our Nation 

s founding. In fact, of the five Federal service academies, only the 

U.S. Merchant Marine Academy is entitled to carry a battle flag. 

The school s students have been sent to serve aboard U.S. merchant ships in every conflict. Many have died in that service to our 

Country. 

Some of these conflicts have taught us valuable lessons about 

readiness and availability of ships and skilled crews. For instance, 

the government-owned fleet of 49 Ready Reserve Force ships that 

provides a relatively immediate capacity that our U.S.-flag commercial fleet cannot provide. This fleet has been used during surge 

6 

conditions when a very large amount of cargo must be transported 

quickly overseas. 

Mr. Chairman, it is my hope that our discussion today will lay 

the groundwork for legislative initiatives and policies that will support a strong U.S. merchant marine. I will be pleased to answer 

any questions the Subcommittee may have. 

Thank you. 

Mr. CUMMINGS. Thank you very much. 

I wanted to address an issue that several of the witnesses on our 

next panel will raise. Do cargo preference laws apply to cargoes financed with loan guarantees created by the Energy Policy Act and 

administered by the Department of Energy? And if not, why don’t 

the cargo preference laws apply? 

Mr. MATSUDA. Sir, I have to tell you that that is an issue we are 

looking at currently. We have asked the Secretary’s General Counsel to work with us and the Department of Energy to ensure we 

have a consistent interpretation of the law. 

Mr. CUMMINGS. Can you tell us what the nature of the issues 

are? Can you give us any idea of what you are trying to figure out? 

Mr. MATSUDA. We believe there may be a difference between the 

credit programs and other straight grants or loans that are given 

out, but that is something we are looking at very closely. 

Mr. CUMMINGS. When do you expect to have that resolved? 

Mr. MATSUDA. I hope soon, but I am happy to follow up with the 

General Counsel and get back to the Committee. 

Mr. CUMMINGS. I know you have only been before this Committee once. 

Mr. MATSUDA. Twice, I believe. 

Mr. CUMMINGS. But we have a little thing about people getting 

back to us and holding their feet to the fire because we realize that 

if we don’t do that, then sadly they just wait until the next Congress and then it gets lost in the hay. 

So I want you to give us a date when you expect that to be done. 

And because there are a lot of people that are concerned about this 

issue, and I have said it many times, in order for people in business to do business, what they need is answers one way or the 

other. And so I think that we are paying folks to do a job in government and government should be able to render opinions and resolve these kinds of issues. 

So I would ask that you try to give us a date within the next day 

or so, and then we will hold a hearing just for you to come back 

to tell us exactly what those policies are, what the answer to the 

question is because it is just that important. OK? 

And then we also want you to come back and let us know whether you think the Congress needs to clarify the law. That is another 

thing that I would like for you to come back to us with. 

Since World War II, the size of the U.S.-flag fleet engaged in 

international trade has been in constant decline, as I think you just 

said. What initiatives are you taking to stem that decline? And further, what federally imposed requirements contribute to reducing 

the competitiveness of the U.S.-flag fleet? 

Mr. MATSUDA. Sir, on the question of what initiatives we are undertaking, we are using all available resources and programs that 

the Congress has provided to help make sure that we maintain a 

7 

strong U.S. merchant marine. The two programs I talked about, 

the Maritime Security Program and Cargo Preference Program, are 

ones that we are actively engaged in and pushing to make sure 

that the law is enforced and that these funds are provided with a 

fully staffed program of vessels, all 60 vessels for the Maritime Security Program. 

Mr. CUMMINGS. From what you can see, why do you think the 

decline has not been arrested? It is not like we are standing still. 

We are going backwards. 

Mr. MATSUDA. I think, as I mentioned in my testimony, there are 

a number of factors, but probably the difference in regulatory 

standards that is required. The U.S. maintains standards to make 

sure ships are safe and that crews are trained and skilled and that 

they understand safety security requirements and environmental 

requirements to make sure that ships are operated both in an environmentally responsible manner and safe and secure manner. 

There are just many risks involved with the movement of these 

large vessels that need to be addressed. 

Mr. CUMMINGS. Also, it sounds like is this a situation where you 

think that there will be a continued decline because right now, you 

are not giving me any confidence that it is going to get any better. 

Mr. MATSUDA. I wish I could, sir, but much of it also depends on 

the state of the global economy. It is a global marketplace. Industry 

has been hurting the last couple of years by laying up ships. That 

makes it even more competitive for cargoes around the world. 

Mr. CUMMINGS. The Merchant Marine Act of 1936 states that it 

is U.S. policy to foster the development and maintenance of a merchant marine that is sufficient to carry its domestic waterborne 

commerce and a substantial portion of the waterborne export and 

import foreign commerce of the United States. 

I assume that the substantial portion of waterborne export and 

import commerce is defined to be more than 1 percent or 2 percent. 

And what would you say constitutes a substantial portion of the 

waterborne export and import commerce? What would you say? 

And what are you telling your staff? You are the leader. 

Mr. MATSUDA. It would have to be at a minimum to satisfy what 

is needed to support our military. And I think that based on those 

requirements, we would like to see more, but we have a strong 

merchant marine. We would like to make it stronger. 

Mr. CUMMINGS. I want to go back to something you said a few 

minutes ago. You were talking about the different standards. And 

all U.S. and foreign ships comply with IMO standards. Is that not 

correct? 

Mr. MATSUDA. No. Some standards the U.S. has not adopted that 

IMO has passed. Other countries have varying standards. But for 

the most part, we work within the U.N.-sponsored IMO process. 

We work with our partners at the U.S. Coast Guard who take the 

lead, and the State Department, to make sure that the U.S.’s voice 

is heard in putting together these global standards. 

This is an industry that prefers to have an even playing field 

across the board, but that is not always the case. 

Mr. CUMMINGS. So you are saying that there is no even playing 

field. Is that right? 

Mr. MATSUDA. Currently, no. 

8 

Mr. CUMMINGS. And our standards are much higher. Is that 

right? 

Mr. MATSUDA. Well, yes. 

Mr. CUMMINGS. And you seem like you had some hesitation 

there. Well, I assume they are higher because I take that the higher standards means that the costs may be a little higher, I guess. 

Is that a reasonable assumption? 

Mr. MATSUDA. Yes. 

Mr. CUMMINGS. But you seem like you were hesitating when I 

asked you were the standards higher. 

Mr. MATSUDA. I was trying to think of some examples off the top 

of my head. But I believe security requirements, for instance, not 

many other countries require things like a TWIC card or some of 

the things that are required by the Department of Homeland Security in order to serve on a ship. 

As an example, I think there are many instances like that. 

Mr. CUMMINGS. Can you give me something other than TWIC, 

because TWIC is really kind of new. This decline has been taking 

place for a while and I was just wondering if you can tell us. 

Mr. MATSUDA. Not at the moment, but I am certain I can get 

back to you with some examples. 

Mr. CUMMINGS. And TWIC is $132, right? 

Mr. MATSUDA. That is right. 

Mr. CUMMINGS. I am concerned that it seems like you are painting a picture, I didn’t expect a rosy picture, but I didn’t expect a 

picture of, it just seems like there is no way that we can begin to 

at least get to a neutral point to stave off some of this and move 

forward. 

Mr. MATSUDA. Ideally, a consistent set of global standards as 

promulgated through the IMO would help ensure a level playing 

field. There are other laws that the U.S. has that wouldn’t apply 

in other countries, for instance wage laws. Fair wage laws, there 

are many foreign mariners that don’t make the kinds of wages that 

U.S. mariners do. 

Mr. CUMMINGS. Mr. LoBiondo? 

Mr. LOBIONDO. Thank you, Mr. Chairman. 

I would like to pick up where the Chairman has been on some 

of this and try to get in my head and understand a little bit better. 

We are not in a good position. The numbers are very low. There 

are global factors that impact decisions to flag vessels in the U.S. 

But do you or can you give us what factors would be within our 

control that maybe we haven’t done that we could develop a plan 

and agenda, a timetable? Are there things that this Committee 

needs to do, that the Congress needs to do? What do the shippers 

say? 

Your agency, what role do they play? I mean, can you help me 

out here about developing something that gives us a handle to grab 

onto? 

Mr. MATSUDA. Yes, sir. Our discussions with the carriers, and we 

talk to them quite a bit, have circled around what is needed to flag 

a ship under the U.S. And time and time again, they have told us 

that the difference between operating under a foreign flag and the 

U.S. flag can be made up with both the Maritime Security Program 

and the Cargo Preference Program. 

9 

Right now, the Maritime Security Program is limited to 60 vessels and it is fully staffed. The Cargo Preference Program is utilized as best we can to make sure that the remaining ships that 

are not in the MSP program can participate and have cargoes to 

make sure they fly U.S. flag. 

But you will notice the majority of U.S.-flag ships participate in 

these program, all of them in Cargo Preference and most of them 

in MSP. 

Mr. LOBIONDO. Mr. Chairman, I am no sure whether you specifically asked this. I know you asked for some feedback, but did you 

ask for when our witness comes back for him to be providing us 

with a specific list or outline of recommendations? We have a high 

level of frustration. We understand what the numbers mean, but 

how do we get the numbers up and how do we develop a plan to 

get there? It seems like you all should be taking the point position 

and at least making the recommendations that could be real and 

acted on so we have an idea of what we have to do. 

Mr. CUMMINGS. No, what we will do, Mr. LoBiondo, is we will 

put together a letter to Mr. Matsuda today where we will list the 

things that we want him to bring back at our next hearing. Because what we are about is trying to be effective and efficient with 

our time. And so if there are things that you want included in that, 

we will work together in drafting that letter and get it to you. 

Mr. LOBIONDO. OK. Thank you, Mr. Chairman. 

Thank you, David. 

Mr. MATSUDA. Thank you. 

Mr. CUMMINGS. Mr. Taylor? 

Mr. TAYLOR. Mr. Chairman, I had the great pleasure of having 

Administrator Matsuda before the Seapower Subcommittee last 

week, so I am not going to take too much of his time, but I do want 

to ask you a related question. 

I am curious if anyone in your office has been tracking the availability of space on either ships under Military Sealift Command or 

any of the Federal operating subsidies as they return from either 

the Port of Karachi or Kuwait or Umm Qasr in Iraq. I am curious, 

what percentage of available cargo space is being utilized? 

And there is a reason for this. I have very grave concerns based 

on the amount of very expensive equipment and material we left 

behind in Panama when we shut down our bases there; what we 

left behind at Roosevelt Roads on U.S. territory. I have grave concerns that we are going to leave billions of dollars worth of equipment behind in Iraq out of concern that there may be some shipping cost to bring this stuff home. 

And I think we could start with taking a look at the available 

space. I may be dead wrong. Every one of those ships may be 

chock-a-block full and that would be great. But I do have concerns 

that there is unused space on those ships and that we are not making every effort to get the bulldozers, the generators, the fire 

trucks, all those things that the American taxpayers paid for, get 

them home and make them available for reuse for State and local 

governments. 

Could you comment on that? Have you given that any sort of a 

look-see so far? 

10 

Mr. MATSUDA. Congressman, we have been working with the 

U.S. Transportation Command on their plans for the draw-down in 

Iraq to make sure that there is sufficient capability to move these 

items. What I can do is offer to work with them to make sure that 

we get this information to you in a form you would like, and that 

is space and availability aboard the vessels leaving the Gulf due to 

the draw-down. 

On a related note, I can tell you that one major concern that we 

have heard from the U.S. industry has been that once this drawdown starts to complete or wind up, that the number of cargoes 

available under the Cargo Preference Program will drop significantly, and that it will contribute to an even more competitive environment. It is going to be a struggle, according to them, to maintain U.S.-flag status. 

Mr. TAYLOR. When do you think you could get back to me with 

that, Mr. Administrator? Could you do it in the next week? 

Mr. MATSUDA. I will call General McNabb today. 

Mr. TAYLOR. OK. Thank you. Thank you very much. 

Thank you, Mr. Chairman. 

Again, that is a short-term opportunity, but I don’t think we 

need to ever miss an opportunity to put our folks to work, particularly if it means our use of something that the taxpayers have already paid for. 

Thank you, Mr. Chairman. 

Mr. CUMMINGS. Mr. Coble? 

Mr. COBLE. Thank you, Mr. Chairman. I am sorry I am late. I 

had another meeting, my belated arrival. 

Good to have you, Mr. Matsuda. 

Sir, how does the reliance on foreign carriers affect U.S. economic 

and security interests? Specifically, how would a larger U.S.-flag 

better respond to the interests of U.S. consumers and exporters? 

Mr. MATSUDA. I think with a larger U.S.-flag fleet we will have 

more of an ability to carry our goods and ensure that there 

wouldn’t be, for instance, any refusal to do so based on a political 

or other geopolitical issues. For instance, around the world, this is 

not a perfect market. There are Israeli-flag ships that are denied 

access to Arab-owned country ports. There are other issues that 

come into play besides just can a ship service a particular port or 

not. It is not always as simple as will it take the money. 

Mr. COBLE. Well, obviously we would be the beneficiary, would 

we not? 

Mr. MATSUDA. Absolutely. 

Mr. COBLE. The Maritime Security Program, Mr. Matsuda, provides a subsidy of $2.9 million per ship for the 60 vessels now in 

the program. How is the basis of the subsidy calculated? 

Mr. MATSUDA. That was the amount authorized by Congress and 

the amount that has been appropriated each year of the program. 

I will note that in the fiscal year 2011 bill, the President has proposed full funding for the program. 

Mr. COBLE. OK. I thank you. 

Thank you, Mr. Chairman. I yield back. 

Mr. CUMMINGS. Thank you very much. 

Ms. Hirono? 

Ms. HIRONO. Thank you. 

11 

Mr. Matsuda, you said that you had talked with carriers who say 

that what is needed to better level the playing field for our shippers can be done through the existing programs, which are the 

Cargo Preference Program and the Maritime Security Program. Do 

you have some very specific suggestions as to how we can strengthen both of these programs, I take it, in response to what the carriers are saying needs to be done? 

Mr. MATSUDA. Madam, the Administration doesn’t have any positions about either growing the program other than fully funding 

what is currently available. But I do know that just the economic 

model that I am talking about, that is what we have heard from 

the carriers is effective in meeting that operating differential between the foreign and U.S. flag. It is making it up with an MSP 

payment plus the availability of preference cargoes. 

I think it might be fairly logical to draw the conclusion that if 

you grow the program, there may be more interest in taking advantage of it. 

Ms. HIRONO. If we are not fully funding these programs, to what 

percent are we funding either or both of these programs? 

Mr. MATSUDA. We are fully funding these programs to the extent 

authorized and appropriated. 

Ms. HIRONO. So then I am confused then. We just want to continue the funding at the level that it has been funded? 

Mr. MATSUDA. That is what the President has proposed for fiscal 

year 2011. 

Ms. HIRONO. Although I am sure the carriers would say that we 

should put more money into these programs. 

Mr. MATSUDA. That is something they might have to tell you, 

yes, on the next panel. 

Ms. HIRONO. OK. You mentioned that of the U.S.-flag ships, 12 

of them are Jones Act-qualified. Are these 12 also part of the 60 

Maritime Security Program ships? 

Mr. MATSUDA. I don’t believe so. I believe these are vessels participating in the cargo preference program that usually operate in 

the Jones Act trade, but they are not full-time participants in the 

foreign commerce, but we listed them anyway because they do participate. 

Ms. HIRONO. As I mentioned in my earlier brief remarks, Hawaii 

is very much dependent on shipping. Our ships are Jones Actqualified ships. The argument has been made, and I certainly make 

this argument, that for a place like Hawaii which is the most vulnerable to shipping disruptions, would you say that having a Jones 

Act carrier would be the carriers that bring our goods to Hawaii, 

that we are very concerned about shipping interruptions, and 

would a Jones Act ship be much better able to ensure that Hawaii 

could get uninterrupted shipping service? 

Mr. MATSUDA. I can tell you that the Federal Government dealing with a Jones Act carrier, you have quite a bit of jurisdiction 

over them. You are talking about U.S. crews, U.S.-built ships. That 

can give you some assurance about the quality of the ship and the 

expertise and skill of the crews. 

I can tell you that this pool of mariners that is sustained by the 

Jones Act also contributes to the same pool that we utilize in times 

12 

of surge capability like I mentioned for crewing the Ready Reserve 

Fleet. 

Ms. HIRONO. There are those who argue that Hawaii should get 

an exemption from the Jones Act. And if that were to be the case, 

then foreign-flag ships are now bringing goods to Hawaii. Is there 

any way that we can ensure ourselves that these ships that are 

supported by countries that provide a lot of subsidies, et cetera, 

whatever is happening in those countries. Can we be assured that 

these ships will continue to bring goods to Hawaii if they were not 

Jones Act ships? 

Mr. MATSUDA. I don’t believe so. I think you would be in a situation where, just like any other Jones Act or foreign carrier, it is a 

commercial marketplace. They can choose to do it or not. But we 

find that the Jones Act ships that do participate in the trade are 

usually very pleased with the ability to compete in that trade. 

Ms. HIRONO. Thank you. 

Thank you, Mr. Chairman. 

Mr. CUMMINGS. Thank you. 

Do we have goals? Have you set goals for your department? 

Mr. MATSUDA. Absolutely, sir. 

Mr. CUMMINGS. And what are they? 

Mr. MATSUDA. They are number one to make sure that we maintain a strong U.S. merchant marine. Like I mentioned, that includes both the availability of vessels, as well as skilled crews. And 

that is something that many of our programs help support. 

Second, our work is focused also on making sure that there is an 

efficient national freight transportation system. Maritime is a big 

part of that, and we want to make sure that what comes off a ship 

is available to get into a port and through the surface transportation system as smoothly as possible. 

I have noticed over the years a major disconnect between this industry and the remainder of the national freight transportation 

system. That is something that want to make sure that our national policies reflect a smoother and better transition. 

Mr. CUMMINGS. What about numbers? I am sure you want to increase the size of the U.S.-flag fleet. Is that right? 

Mr. MATSUDA. That would certainly provide more resources for 

us to use when we need. 

Mr. CUMMINGS. And when you get together with your staff, do 

you say we want to increase the numbers to a certain amount? Or 

do you just kind of say let’s do the best we can with what we have? 

The reason why I am asking that is that I am trying to figure 

out how will you measure your progress and how will you measure 

what at the end of your tenure when we look back, what will we 

say? You know, you say, OK, this is what I am going to try to do, 

and then I want to see what you did. 

Mr. MATSUDA. Sir, we use every available tool to the Maritime 

Administration. 

Mr. CUMMINGS. Can you share what those numbers might be, because a lot of people are very interested. They want to be measuring with you. They want to be on the sidelines with their rulers 

and yard sticks trying to figure out whether you are making first 

downs. 

13 

Mr. MATSUDA. Yes, sir. Like I said, with the Maritime Security 

Program, making sure that if we hadn t gotten this money out the 

door and gotten these contracts in place, that is something that 

would be harmful to the U.S. merchant marine. But making sure 

that it is fully staffed up, that folks can participate in it, is something that we maintain. 

We keep a strong communications with the U.S. military to make 

sure that the ships entering this program are ones that they will 

find militarily useful and that they need in their mix of sealift capabilities. So making sure that we have that in place is something 

that we will continue to do. 

With the Cargo Preference Program, ensuring that there is a 

clear understanding among all of the shipper agencies which cargoes are subject to the law is something that we are doing. These 

are the types of things that, again, help feed into the merchant marine, growing it. 

Like I mentioned in the statement, making sure that have a pool 

of skilled mariners, especially the next generation, is something 

that we are focused on as well, and that requires a strong collegiate high school program to let folks know what it is like to work 

on a ship, to be in this industry. 

So these are all things that we are doing. I am happy to provide 

you with some proposed metrics. 

Mr. CUMMINGS. Yes, at our next hearing, would you do that for 

me as another way at the beginning of your tenure it would be very 

helpful. We will include that in our letter to you, which we will 

have to you within the next 24 hours so we can get started on that. 

Just one other thing. There are a number of questions that I did 

not get to, but I do want to ask you about this. Going back to your 

testimony before the Seapower Subcommittee of the House Armed 

Services Committee, which is of course headed by Congressman 

Taylor, you spoke about building ships for the marine highway or 

short-sea shipping trades that are militarily useful. Has MARAD 

conducted an analysis to determine what the costs of building such 

ships to meet military specifications might be, compared with 

building ships for strictly commercial use? 

Mr. MATSUDA. I can tell you, we are currently working with the 

military to help take what has already been done, the state of the 

art. There has been a number of initiatives to look at the markets 

for designing a militarily useful marine highway ship, and we 

would like to make sure that we get an independent look at these 

and truly understand what is the potential for designing and building a ship that is both militarily useful and can compete commercially in the Jones Act trade. 

I can tell you that there is probably not a major difference in cost 

between these two ships, from what we have seen early on, and 

that the military requirements are generally limited to certain features aboard the ship like for a roll-on/roll-off ships they would 

want to make sure that the decks and the ramp are sturdy enough 

to handle heavy-load equipment which may not be moving commercially. So there is probably not a large difference, but we are fully 

engaged with the military and we will be working with them closely to understand just what their needs are. 

Mr. CUMMINGS. Like I said, I will submit other questions. 

14 

Mr. LoBiondo did you have anything else? 

All right. Thank you very much. 

Mr. MATSUDA. Thank you sir. 

Mr. CUMMINGS. Our second panel should come forward. 

Mr. Neil M. Johnsen, the Chairman of the Board of Central Gulf 

Lines and Waterman Steamship Corporation; Mr. Michael F. 

Dumas, Vice President and Chief Financial Officer of Intermarine 

LLC; Mr. John F. Reinhart, President and CEO of Maersk Line, 

Limited; and Mr. Philip Shapiro, President and CEO, Liberty Maritime Corporation; and Mr. Donald Keefe, President, Marine Engineers Beneficial Association, who will also have at the table Mr. 

Paul Doell, Director of Legislative Affairs, American Maritime Officers; Captain Donald Marcus, Secretary-Treasurer, International 

Organization of Masters, Mates, and Pilots; and Mr. Terrence 

Turner, Seafarer s International Union. 

You may be seated. Thank you all for being here, and we will 

now hear from Mr. Neil Johnsen, the Chairman of the Board of 

Central Gulf Lines. 

TESTIMONY OF NEILS M. JOHNSEN, CHAIRMAN OF THE 

BOARD, CENTRAL GULF LINES, INC. AND WATERMAN 

STEAMSHIP CORPORATION; MICHAEL R. DUMAS, VICE 

PRESIDENT AND CHIEF FINANCIAL OFFICER, INTERMARINE, 

LLC; JOHN F. REINHART, PRESIDENT AND CEO, MAERSK 

LINE, LIMITED; PHILIP SHAPIRO, PRESIDENT AND CEO, LIBERTY MARITIME CORPORATION; DONALD KEEFE, PRESIDENT, MARINE ENGINEER S BENEFICIAL ASSOCIATION, ACCOMPANIED BY PAUL DOELL, DIRECTOR OF LEGISLATIVE 

AFFAIRS, AMERICAN MARITIME OFFICERS; CAPTAIN DONALD MARCUS, SECRETARY–TREASURER, INTERNATIONAL 

ORGANIZATION OF MASTERS, MATES, AND PILOTS; AND 

TERRENCE TURNER, SEAFARER S INTERNATIONAL UNION 

Mr. JOHNSEN. Good morning. 

Mr. CUMMINGS. Good morning. 

Mr. JOHNSEN. Chairman Cummings, Congressman LoBiondo and 

other Members of the Committee, as the Chairman of Central Gulf 

Lines and Waterman Steamship Corporation, I appreciate the opportunity you have provided today to address the U.S.-flag merchant marine s ability to compete with foreign-flag vessels in international commerce. 

Central Gulf and Waterman are both American-owned United 

States citizen companies, and as such are commonly referred to as 

Section 2 citizens. Central Gulf and Waterman currently operate 

13 U.S.-flag commercial vessels in the international and domestic 

trades that provide a wide range of ocean-going commercial freight 

transportation services, including pure car/truck carrier and domestic coast-wide services. 

Central Gulf and Waterman have also provided from their inception sealift support to the Department of Defense for its global military operations. Our U.S.-flag vessels and the dedicated crews that 

serve on those vessels willingly and without hesitation have delivered and will continue to deliver vital military equipment, supplies 

and other material into war zones and other hostile areas in direct 

support of DOD operations. 

15 

Mr. Chairman, at your hearing in March, you observed that you 

would certainly hope that as we work to expand U.S. exports, we 

also work to formulate a meaningful maritime policy. We agree 

with your observation and we therefore recommend several specific 

initiatives. 

At the outset, I would like to address a program that you mentioned that continues to serve its intended purpose, the Maritime 

Security Program. MSP is the most cost-effective means to ensure 

that DOD has the access it requires to commercial U.S.-flag shipping and merchant mariners for the Nation s economic and military security. MSP was established in 1996 and originally provided 

for 47 U.S.-flag commercial vessels. 

Subsequently, due to the success of this program, the strong support of Congress, and our partners at the Departments of Transportation and Defense, the program was reauthorized and expanded to 

60 ships in 2005. With that expansion, Congress specifically provided that priority must be given to Section 2 citizen/Americanowned companies for vessels enrolled in MSP. As Section 2 citizen 

companies, Central Gulf and Waterman strongly supported that 

priority requirement and I urge Congress to continue providing priorities in this respect. 

Of the 60 vessels in MSP, Central Gulf has enrolled four state 

of the art pure car/truck carriers and Waterman has enrolled two 

such vessels and two self-sustaining container vessels. These Central Gulf and Waterman vessels include some of the newest and 

largest roll-on/roll-off vessels in the U.S.-flag fleet. 

Mr. Chairman, we are pleased the House of Representatives has 

demonstrated its continuing support for MSP by voting in this Congress to extend the program. We look forward to working with you 

and other Members to ensure that the extended program provides 

for priority participation of Section 2 citizen companies; to ensure 

that the program payments equalize operating costs of U.S.-flag 

vessels with foreign-flag vessels; and to provide for a continued full 

complement of U.S.-flag vessels in the program that are required 

to support the national and economic security of the United States. 

I must note that as a complement to MSP, DOD must continue 

to abide by its longstanding commercial-first policy to provide military cargo to privately owned U.S.-flag vessels when they are available, in lieu of government-owned or controlled vessels. This policy 

has resulted in military cargo to support the U.S.-flag fleet. 

If MSP is reauthorized and funded at a level to equalize the operating costs of U.S.-flag and foreign vessels, it will be necessary 

to continue our efforts to remove trade barriers and hurdles that 

exclude or limit U.S.-flag companies access to certain international 

markets. 

Over the last 20 years, we have on a limited basis, with the help 

of Congress, the Maritime Administration and the Federal Maritime Commission, the Department of Commerce, and the U.S. 

Trade Representative, gained access to certain markets for U.S.- 

flag vessels. With an adequately reauthorized MSP, I am sure that 

all of my colleagues in the U.S. merchant marine are prepared to 

compete effectively in the world market, but we must have access 

to markets which are not currently fully open to us. 

16 

We stand to work collaboratively with the Trade Representative 

in a sustained effort to promote increased U.S.-flag participation in 

the carriage of goods to and from the United States. 

Additionally, Mr. Chairman, U.S.-flag vessels operating in international trade are forced to compete with foreign-flag vessels whose 

owners pay little or no taxes. While the tax climate for U.S. vessels 

has improved through Congressional enactment of the tonnage tax, 

we recommend two additional improvements. 

First, we recommend adoption of legislation that would put our 

American mariners on an equal tax footing with other U.S. citizens 

working outside the United States by allowing them to be treated 

for tax purposes like American expatriates, with the first $80,000 

of their income is not subject to U.S. tax. 

Second, we also recommend that changes be made to the Capital 

Construction Fund Program that would incentivize U.S.-flag shipowners to repair their ships in U.S. shipyards. Congressman Artur 

Davis and Charles Boustany have introduced legislation that would 

allow funds to be withdrawn on a tax-free basis from CCF to be 

used for maintenance and repair of U.S.-flag vessels in U.S. shipyards. 

Mr. CUMMINGS. I am going to have to ask that you wrap up because we have let you go two minutes above, and all of it is very, 

very interesting, but we have the statement, your full statement. 

Mr. JOHNSEN. OK, thank you. Just in closing, I would like to reiterate the importance of the various cargo preference programs 

that were mentioned by the Maritime Administrator and to say 

that they are an important component as well. 

Thank you very much, Mr. Chairman. 

Mr. CUMMINGS. Thank you. Thank you very much. 

Mr. Dumas? 

Mr. DUMAS. Good morning, Chairman Cummings and other distinguished Members of the Committee. 

Mr. CUMMINGS. Good morning. 

Mr. DUMAS. Thank you for the invitation to discuss the state of 

the U.S. merchant fleet in foreign commerce. 

I am Mike Dumas, the Vice President and Chief Financial Officer 

of Intermarine, a U.S.-owned and operated Section 2 U.S.-flag company. 

Intermarine specializes in the ocean transportation of great bulk 

and project cargo that is oversized, over-dimensional, non-containerized and uses multi-purpose vessels that have self-sustaining 

heavylift up to 400 metric tons. 

The project and breakbulk industry is a specialized and often 

complex trade and Intermarine is its largest U.S.-based project participant. 

Intermarine currently has three heavylift vessels, the Ocean 

Atlas Titan and Charger, and a fourth heavylift vessel, the Ocean 

Crescent, is in the final stages of U.S.-flag registration. 

The Atlas and the Titan both participate in the Maritime Security Program and the Voluntary Intermodal Sealift Agreement. We 

are the only heavylift vessels enrolled in these programs. Our U.S.- 

flag vessels are crewed by U.S. union mariners with whom we have 

a long and very good, strong partnership. Altogether, Intermarine 

supports hundreds of good jobs for U.S. citizens, merchant mariVerDate Aug 31 2005 11:18 Dec 22, 2010 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 P:\DOCS\57560.0 KAYLA
17 

ners, stevedores, administrative office and technical personnel, as 

well as the many ancillary jobs supported by our operation. 

Mr. Chairman, concerning the purpose of this hearing, you correctly chronicled the decline of the U.S.-flag fleet, both in the overall number of U.S.-flag vessels and in the volume of cargo carried 

by these vessels. You correctly noted, too, the real economic and security risk that attends such a decline. 

Intermarine is committed to remaining a commercially viable 

U.S.-flag carrier. I would briefly like to highlight what we might 

do collectively to overcome the challenges facing the U.S.-flag industry. 

Number one, and as mentioned several times I am sure by many 

of my colleagues, ensure reauthorization and full funding of the 

Maritime Security Program. MSP provides support for some 60 vessels enrolled in the U.S.-flag registry, including two of the Intermarine U.S.-flag vessels. Ensuring that MSP will remain fully 

funded through 2015 and reauthorized thereafter provides U.S.-flag 

participants with some relief from the high cost of operating such 

vessels. 

To fully support U.S. exports in the U.S.-flag fleet, we would encourage consideration of a reauthorized MSP program reasonably 

modified to provide for, one, priority participation by Section 2 citizens; and two, an extended contract period to provide enhanced 

business stability for MSP participants. 

MSP provides mission-critical capacity for our military and helps 

to employ thousands of professional and very dedicated U.S. seamen. The MSP is an asset multiplier for the U.S. Government and 

its support helps sustain U.S. industry that is not simply a luxury, 

but a necessity to the national and economic security of the United 

States. 

A second highlight: protect and vigorously enforce cargo preference laws, extremely important. Cargo preference laws are critical to the continuing viability of the U.S.-flag fleet. Without protection and vigorous enforcement of our cargo preference laws, U.S.- 

flag carriers simply will not be able to compete with their foreign 

counterparts who enjoy advantages on the tax side, operating costs, 

and safety. Cargo preference laws ensure the continuing viability 

of the U.S.-flag fleet, and this is far too important to this Country. 

Third highlight: support the role of U.S. carriers in the National 

Export Initiative. The interests of U.S.-flag carriers must be represented in the President’s National Export Initiative. Though it is 

indeed unfortunate that the Secretary of the Department of Transportation was not included as a member of the Export Initiative, 

U.S.-flag carriers should be given a voice in that critical initiative 

and we stand ready to assist. 

Additionally, Intermarine is also eager to continue working closely in a public-private partnership with MARAD, Ex-Im Bank and 

shippers to ensure adequate U.S.-flag vessel capacity to help promote U.S. Ex-Im Bank. 

Finally, fourth highlight: leverage the strength of U.S.-flag carriers in support of TRANSCOM. Intermarine’s heavylift vessels are 

well suited to support DOD missions for TRANSCOM, and by obvious extension, support the security and safety of the United States. 

Perhaps no better example of the vital role Intermarine vessels 

18 

play in support of national security occurred in 2004 when our 

Ocean Atlas was urgently asked by the Department of State to divert to Tripoli, Libya. The Atlas was the first American vessel to 

call on that country in many years. In Libya, the vessel loaded sensitive cargoes that was then safely and securely transported to the 

United States. This mission is a reminder of the forceful importance of having a U.S.-owned and controlled Section 2 U.S.-flag 

fleet. 

Mr. Chairman, the nexus between maintaining a viable U.S.-flag 

fleet and ensuring U.S. security is very real. If we are able to remain competitive, if we can continue to move U.S. exports and create U.S. jobs, then U.S.-flag carriers can continue to support this 

Country’s economic and security interests. 

Thank you once again, Mr. Chairman, for the opportunity to 

speak with you today. 

Mr. CUMMINGS. Thank you. Thank you very much. 

Mr. Reinhart? 

Mr. REINHART. Thank you, Mr. Chairman. 

Mr. CUMMINGS. Thank you. 

Mr. REINHART. Members of the Committee, I am John Reinhart, 

President and CEO of Maersk Line, Limited, a U.S. company based 

in Norfolk, Virginia. 

Our company is managed by U.S. citizens, employs thousands of 

U.S. merchant mariners, and has over 200 shoreside employees. 

We pay taxes in the United States and we are one of the largest 

owners and operators of U.S.-flag in international trade. We are 

part of the A.P. Moller-Maersk Group, and international transportation and energy company. 

I appreciate the opportunity to testify before you today about the 

state of the U.S. merchant marine operating in international commerce. We applaud the Committee for its commitment to a strong 

U.S. merchant marine which is critical to both the U.S. economic 

and national security. 

As your Committee knows, the global maritime industry, like all 

industries, has faced an unprecedented economic difficult time over 

the last few years. In the wake of that challenge, Maersk Line, 

Limited continued to provide critical services with U.S. merchant 

vessels to the military over the last few years, delivering cargo to 

Iraq, Afghanistan and humanitarian aid to Africa. 

The success of our business is based on our ability to provide 

competitive international transportation services to our customers. 

The foundation is the U.S. laws that you have as the Congress put 

them forward, designed to ensure that we stayed strong and economically viable. 

The Maritime Security Act, the cargo preference laws, the tonnage tax regime and other U.S.-flag programs Congress has enacted has stopped the rapid decline, but still more needs to be 

done. I would like to give you a few highlights of what our company 

has done in the last 10 years. 

We own, operate and charter 33 vessels that are enrolled in government sealift readiness today. We only had four doing this 10 

years ago. We have modernized nearly our entire fleet, investing 

$1.6 billion in new assets under U.S. flag in the last 10 years. We 

continue to work with DOD to match their requirements with U.S. 

19 

assets. We have 24 container ships. We have added four Ro/Ro 

ships. We have included three tankers. We have tried to adapt our 

fleet to meet the requirements of the military. 

Since 2008, during this economic time, we have added seven vessels that have increased employment for U.S. merchant mariners 

by 240 slots or billets, providing employment for almost 600 mariners. We train more than 200 cadets every year on our fleet from 

the academies to provide for a workforce for the future. 

The programs that Congress has enacted to support the U.S. flag 

have been working and have delivered value to the U.S. military. 

They have been maintaining privately owned, commercially viable 

U.S. vessels in the fleet. 

One fact that demonstrates this success is that between 2002 

and 2008, 60 percent of the cargo to Iraq and Afghanistan were 

carried on commercial vessels like we all represent, compared to 21 

percent during Desert Storm. 

As the Committee considers future opportunities to strengthen 

the U.S. flag and the merchant marine industry in foreign commerce, please remember that it is not just the ocean transportation 

that our customers look for. They look for global capability and 

door to door capacity to deliver cargo efficiently from any point to 

any other point. That is what companies like ours practice and do. 

It is part of our DNA. 

As we look at Afghanistan, we have delivered cargo thousands of 

miles over land after we have taken it on the ships, going across 

Latvia, Russia, Uzbekistan, Georgia, Armenia, Azerbaijan, as addition to the gateway in Pakistan. So we have had to do more than 

just operate ships to be competitive in the global marketplace. 

As an American company with American citizens, we are proud 

to serve our Nation. We recognize that the U.S. Government services are a key part of our business. Because we utilize our commercial solutions, we are able to compete on a cost basis and find opportunities to eliminate the cost differential that exists in the U.S. 

flag. Only 2 percent of the trade goes to on U.S.-flag ships and 

more needs to be done. We need to avoid complacency and aggressively protect and preserve the programs that you have so wisely 

put in place, the Maritime Security Program, the cargo preference 

laws, the tonnage tax, as we look for more. 

There are other opportunities for development and we look to 

those opportunities for development in the energy field to help 

grow employment and deliver new U.S. vessels. 

In closing, let me reiterate my company’s commitment to our Nation s sealift capacity, the requirements that you provide, and the 

honor it is to serve. Every day, our colleagues, mariners and partners feel pride in serving the U.S. flag, developing the U.S. merchant marine, and serving our Nation. 

This is a brief part of my testimony, sir, and I look forward to 

your questions. 

Mr. CUMMINGS. Thank you very much. 

Mr. Shapiro? 

Mr. SHAPIRO. Thank you, Mr. Chairman, Chairman Oberstar, 

Mr. LoBiondo, Mr. Taylor, Members of the Committee. Thank you 

for the opportunity to testify on the importance and status of the 

foreign trading U.S.-flag fleet. 

20 

With your permission, sir, I would like to submit my written 

statement for the record. 

Mr. CUMMINGS. Without objection, so ordered. As a matter of 

fact, we will have all of your written statements submitted as a 

part of the record. Thank you all. 

Mr. SHAPIRO. Thank you. 

Liberty’s fleet consists of nine U.S.-flag vessels, six modern large 

bulk carriers, and three large roll-on/roll-off vessels built in 2005, 

2009 and 2010. All of our vessels are engaged in the carriage of 

military cargoes and/or food aid preference cargoes primarily today 

to Africa. 

Let me take a moment, Chairman Cummings, to thank you and 

Mr. LoBiondo and Mr. Taylor, as well as the Members of your 

Committee for your outstanding leadership on the piracy issue. The 

entire U.S.-flag industry, both operators and our labor partners 

alike, deeply appreciate your concern and involvement. 

Two weeks ago, this Committee reported a bill, H.R. 5629, that 

seeks, among other things, to Americanize U.S. waters. The purpose of the bill is to help ensure safe operations in drilling and 

other activities and goes well beyond the requirements of the Jones 

Act. This is a bold step. 

Bold thinking is also needed to sustain and expand the U.S.-flag 

fleet engaged in the foreign trade. Our existing programs, particularly the Maritime Security Program and the Cargo Preference Program have worked well to stabilize and maintain a modern militarily useful fleet. These programs must be sustained if the U.S. 

is to maintain this essential capability. 

As you have noted, Mr. Chairman, these programs, however, can 

and must be improved and new ideas are needed to maintain and 

grow a vibrant U.S.-flag fleet. None of us can rest on our laurels. 

More aggressive action is needed. 

First, the Maritime Security Program should be reauthorized and 

expanded. We at Liberty have committed over $170 million in private capital to build two brand new roll-on/roll-off vessels to serve 

the needs of our armed forces. These are ultra-modern vessels, the 

newest in the U.S.-flag fleet, ordered, by the way, when the U.S. 

Transportation Command announced a need for more Ro/Ros. Yet 

there are no available MSP agreements to cover these vessels. We 

respectfully urge Congress to consider expanding MSP when it is 

reauthorized to ensure that DOD has the sealift capability it needs. 

Second, MSP originally intended as a U.S. citizen program, has 

become nothing short of a foreign-dominated program. When started in 1997, four of the 47 agreements were held by a foreign company. Today, all but 11 of the 60 agreements are effectively controlled by foreign citizens or companies. This foreign dominance is 

a threat, in our opinion, to the national security of our Country and 

unhealthy for the long-term viability of the U.S. merchant marine. 

We respectfully request that Congress alter the balance to ensure 

that a majority of this program is reserved to U.S. citizens. 

Third, when MSP was reauthorized in 2005, most of the agreements were grandfathered. In other words, they are re-awarded to 

the same carriers which had agreements in the prior program. This 

has resulted over time in the DOD not always having the vessel 

21 

mix that it needs. We urge Congress to provide for more open competition in the award of MSP agreements when it is reauthorized. 

Fourth, I would like to spend the balance of my time discussing 

cargo preference, which represents the common sense notion that 

when our U.S. Government ships cargo, at least some of it should 

go in U.S.-flag vessels. It is not an exaggeration at all to say that 

without cargo preference, we would have no U.S.-flag fleet engaged 

in foreign commerce today. 

It is therefore vital to the U.S.-flag merchant marine and to U.S. 

national security that our cargo preference laws are followed by the 

various government agencies that ship cargo. Toward that end, the 

Maritime Administration plays a vital role in making sure that 

contracting officers in other agencies are aware of their responsibilities and that the law is enforced when necessary. 

We urge Congress to be active in its oversight of MARAD and its 

cargo preference role. MARAD needs Congressional support to get 

the job done, and maybe on occasion, with all due respect to my 

friend Administrator Matsuda, a nudge or two to be a little bit 

more aggressive in enforcing the law. 

Thank you again, sir, for the opportunity to testify. Chairman 

Cummings and Members of the Subcommittee, we appreciate your 

attention to our industry. We could not have better support than 

what you are trying to provide us. 

With that, I would be pleased to answer any questions. 

Mr. CUMMINGS. Just one quick observation. Sometimes it is good 

for the person who testifies first to stick around to hear from you 

all. In other words, Mr. Matsuda left. I am sorry he did, but I want 

to make sure that he gets copies of your testimony, if you don’t 

mind. He needs to hear some of this. All right? 

Mr. SHAPIRO. Thank you, sir. 

Mr. CUMMINGS. Mr. Keefe? 

Mr. KEEFE. Mr. Chairman, Members of the Subcommittee, my 

name is Don Keefe. I am the President of the Marine Engineers 

Beneficial Association. I am presenting this statement on behalf of 

the MEBA, as well as the American Maritime Officers, the International Organization of Masters, Mates, and Pilots, and the Seafarers International Union. 

Together, we represent the overwhelming majority of licensed 

and unlicensed American merchant mariners working aboard 

United States-flag vessels operating in our Nation s foreign and domestic shipping trades. 

We appreciate this opportunity to present our views on the state 

of the United States merchant fleet in foreign commerce. History 

has shown that our Nation must have the U.S.-flag commercial 

vessels and United States citizen crews necessary to support our 

troops and protect our American economic interests. We believe 

that the best way to do so is for Congress and the Administration 

to support, enforce and fund existing maritime programs and to 

enact new programs that will enable our merchant marine to operate more competitively. 

One such program is the Maritime Security Program. MSP helps 

retain U.S.-flag vessels and their U.S. citizen crews for our Country, more specifically for the use of the Department of Defense in 

time of war and other international emergencies. To ensure the 

22 

continued availability of the MSP fleet, Congress should continue 

to approve funding for this program at the Congressionally authorized level of $174 million for fiscal year 2011, $186 million in fiscal 

years 2012 and 2013. This fund helps U.S.-flag vessels compete 

against foreign-flag, foreign-crewed vessels for the carriage of cargo 

in foreign trades. 

Unlike U.S.-flag vessels, foreign vessels operate in what is essentially a tax-free environment beyond the reach of many U.S. Government-imposed requirements that are applicable to U.S.-flag vessel operations. 

It is equally important that U.S.-flag shipping requirements 

under the Cargo Preference Program be fully funded and implemented in compliance with the law. For example, the existing Food 

for Peace Program not only serves U.S. humanitarian and foreign 

aid objectives, but provides a significant return to the American 

taxpayer by creating and maintaining American jobs for the maritime and agricultural-related service and supply industries. 

The U.S.-flag shipping requirements that cover the shipment of 

Food for Peace and other food aid cargoes help provide an important base of cargo to support U.S.-flag vessels operations to help 

vessel operators keep their vessels under our flag. Proposals to replace the existing Food for Peace Program with a program that 

simply provides cash to other nations to purchase foreign agricultural commodities in foreign shipping services should be rejected. 

All federally funded cargo should be transported in compliance 

with the existing cargo preference laws. The National Defense Authorization Act of 2009 gives the Maritime Administration great 

authority to implement the cargo preference laws and this statute 

and MARAD’s authority should not be subverted. 

We believe that changes should be made in our tax laws in order 

to promote the growth of the industry, preserve and create jobs, 

and help reduce the disparity in tax treatment that gives foreignflag vessels and their crews a significant economic advantage over 

U.S.-flag vessels and their U.S. crews. 

For example, one such change in the tax code that could improve 

the competitive position of U.S.-flag vessels and increase the employment of American mariners is to extend the existing foreign 

source income exclusion to American merchant mariners working 

aboard commercial vessels operating in the foreign trade. At 

present, section 911 of the tax code allows every U.S. citizen working outside the United States, except for American mariners, to exclude up to $80,000 in income from their Federal tax. 

A report prepared by the Maritime Administration, released on 

January 7, 2009, noted that most major nations either do not tax 

or sharply reduce taxes on the income of their mariners in international shipping. Other nations do this to help reduce operating 

costs for their flag vessel operations. The United States should do 

the same. 

In addition, Congress should enact legislation to eliminate the 

double taxation of waterborne commerce moving between American 

ports under the harbor maintenance tax in order to enable creation 

of a short sea shipping marine highway system in the United 

States. 

23 

Also, Congress should support the Title XI Ship Construction 

Loan Guarantee Program and appropriate the funds necessary to 

assist shipping companies to obtain the commercial financing they 

need to build, upgrade and expand their fleets in the American 

shipyards. 

Finally, there is one other major area of U.S. maritime policy we 

would like to raise. The full enforcement of the Jones Act helps to 

guarantee that our Nation will have the domestic shipyard mobilization base and the American merchant mariners available to support the Department of Defense requirements. Equally important, 

the full implementation and enforcement of the Jones Act means 

that the waterborne transportation of American domestic commerce 

will not fall under the control of foreign shipping interests, but will 

instead remain under the control of American companies and 

American crews. 

American crews, unlike foreign mariners, are subject to U.S. 

Government-imposed background and security checks as a means 

to guard against maritime-related terrorist incidents. 

In conclusion, if Congress and the Administration believe, as we 

do, that the economic and military security of the United States is 

best served when our country has a strong competitive U.S.-flag 

shipping capability, there are a number of important and innovative steps that can be taken to achieve this objective. We have 

raised what we consider to be some of the most important immediate steps that should be considered. We look forward to working 

with you, Mr. Chairman, and your Subcommittee on these and 

other essential maritime initiatives. 

Thank you. 

Mr. CUMMINGS. Thank you very much. 

We are pleased that we also have Mr. Paul Doell, the Director 

of Legislative Affairs, the American Maritime Officers; and Captain 

Donald Marcus, Secretary-Treasurer, International Organization of 

Masters, Mates, and Pilots; and Mr. Terrence Turner of the Seafarers International Union, here for questions, to answer questions. 

They will not be providing testimony. 

Is that understood? Very well. 

Let me just ask a few questions. 

Mr. Shapiro, what percentage of the cargoes carried by your 

U.S.-flag vessels are comprised of cargo preference cargoes? 

Mr. SHAPIRO. Mr. Chairman, today we would probably be in the 

80 percent range, about 75 percent to 80 percent. In prior years, 

we have been 100 percent. In 2007 and 2008, when there was an 

explosion in the foreign shipping market, some of our ships traded 

there and we actually went as low as 50 percent to 60 percent. But 

we are clearly dependent on U.S. Government programs to support 

the U.S.-flag fleet. 

Mr. CUMMINGS. So you would be pretty much out of business if 

it weren’t for the preferences. 

Mr. SHAPIRO. Well, we would be out of business as a U.S.-flag 

company. I mean, the alternative that everyone faces at this table 

who’s operating ships is if you take the U.S. flag off and put a foreign crew on, you can compete internationally around the world 

without all the unfunded mandates that are placed on U.S.-flag 

vessels. 

24 

We have chosen to be U.S. because we are not only patriotic, but 

believe that it is our duty to support a U.S. merchant fleet that can 

sustain our military and national security. 

Mr. CUMMINGS. We appreciate that very much. 

You wrote in our testimony that today all but 11 MSP agreements are effectively controlled by foreign citizens. What do you 

mean by this, particularly given that MARAD has reported that 

more than 11 vessels participating in the MSP program are controlled by Section 2 companies? 

Mr. SHAPIRO. My understanding is that in 2006 after the renewal 

of MSP, well, let’s go back to 1996. In 1996, there was a very 

strong Section 2 requirement which was enforced vigorously by the 

Maritime Administration. It mandated that those companies that 

have foreign ownership connections, of which there are many, had 

to hire U.S. citizen-qualified shipping people to actually be the 

intermediary between them and the U.S. Government. 

In the renewal of the program in 2004, which became effective 

in 2005, I believe, they changed that requirement to allow foreign 

companies that had a special security agreement with the United 

States to qualify as an alternative to Section 2 citizenship. 

What ended up happening was foreign-based companies were 

buying up other American-based companies that were in the program so much so that I believe Congress in 2006 intervened and 

said if there is a transfer of an MSP agreement from a non-citizen, 

priority should be given to a Section 2 citizen in having it awarded. 

Well, the intent of Congress was great. Unfortunately, the enforcement by the Maritime Administration was somewhat lacking 

because they found people who had really never operated ships 

acted as owners of companies on behalf of foreign companies and 

they became the Section 2 citizens. 

So for instance, you have someone who was at one time a U.S. 

Government government relations person who all of a sudden 

dropped his position, became owners of an American Section 2 citizen, even he had no employees and no people that were working 

for him, and he acted as the intermediary between the foreign company. 

So I again would urge this Committee to direct the Maritime Administration to tighten up these requirements so that Section 2 

U.S. citizens can participate in this program in a substantial manner, not just a minuscule manner. 

Mr. CUMMINGS. Thank you. That was very helpful. 

Mr. Reinhart, what advantages are there to operating under the 

U.S. flag? Is cost the only factor that discourages operators from 

choosing the U.S. flag? 

Mr. REINHART. Thank you, Mr. Chairman. 

As far as cost, all global trade is really driven by being in the 

right place at the right time and providing a service at the right 

cost. If the cargo isn’t mandated to go on U.S. flag, a lot of those 

U.S. manufacturers that build or export, they do not look to put 

their cargo on a U.S.-flag ship, so cost drives them to whatever is 

the most efficient export or import vessel available. 

Mr. CUMMINGS. And the development of the tonnage tax was an 

attempt by Congress to help level the playing field in terms of costs 

for U.S.-flag operators. How many of you have elected to pay tax 

25 

under the tonnage tax system? And what has been your experience 

with the system? 

Anybody. Let me start with Mr. Dumas, since he hasn’t answered yet, and we will get to others. 

Mr. Dumas? 

Mr. DUMAS. Mr. Chairman, we do pay under the tonnage tax. We 

elected to go under the tonnage tax immediately after it became 

available to us. We pay a nominal amount. I think it is $7,000 or 

$8,000 a year under the tonnage tax for our four ships. That allows 

us to keep our profits inside of the company, which then helps us 

to grow our business. We started off with one ship in 2002 and we 

are just adding our fourth ship this year. 

Without that tonnage tax, we would not be able to hold our profits within our company and expand our fleet. 

Mr. CUMMINGS. As the others answer that same question, I want 

to know, do you think the tonnage tax system can be improved? 

And if so, how would you want to see it improved? 

Mr. Shapiro? 

Mr. SHAPIRO. We opted as well, Mr. Chairman, for the tonnage 

tax. I don’t know that it can really be improved. The benefit is 

there just from the creation of the tonnage tax. But if I could just 

divert back one second about the cost of operating U.S. flag? 

Mr. CUMMINGS. Please. 

Mr. SHAPIRO. Our seamen pay taxes. Their families pay taxes. 

When we are competing in the international trade, you asked me 

what percentage we carried of U.S. Government cargo versus commercial cargo. We are at an $11,000 a day disadvantage to a foreign-flag ship, foreign operating costs. The math is very simple. 

And the $2.9 million, I would point out, under the MSP program, 

switching hats from food aid to military, the $2.9 million doesn’t 

cover the full differential. Without the Cargo Preference Program 

cargoes being added to that $2.9 million, there is no way that anyone can sail a ship and make any money. 

So the support we need from the Congress or from our Administration is vast support, but the benefit is you get a merchant marine that can ensure your economic security as well as your national security at a fraction of the cost that it would cost the government to build these and own these ships themselves. 

Mr. CUMMINGS. Mr. Reinhart? 

Mr. REINHART. Thank you, Mr. Chairman. 

As I mention in my testimony, we have increased our fleet from 

four to 33 ships owned. The tonnage tax was a big driver in us 

being able to effectively deploy the capital and modernize our fleet. 

So it is an important step. 

But as Philip and some of the other folks on the panel have said, 

it is not enough by itself. We do need cargo preference. We do need 

the Maritime Security Program and other initiatives to offset the 

adverse cost of running a U.S.-flag ship in the international trades. 

Mr. CUMMINGS. Mr. Johnsen, did you have a response to that? 

And then I will move on to Mr. Keefe. 

Mr. JOHNSEN. Thank you very much. 

I would like to just reiterate the fact that, and I said this in my 

testimony, that it is important that the Maritime Security Program 

26 

be adequately funded. What I was alluding to there is that there 

should be more money in the program. 

Mr. Taylor asked an interesting question of the Maritime Administrator about back haul cargo from Kuwait. That leads into a very 

important consideration. The Department of Defense’s requirements are often very much surge requirements, and they need 

many more vessels than they need on a more routine basis when 

they have a surge. So that says to us that it is important that we 

have the DOD priority, but we have to have an adequately funded 

Maritime Security Program in order to have the vessels available 

to DOD. 

When the operations changed in the Middle East from a surge 

of sending cargo over to now the retrograde operation, many of us 

operating in that program rearranged our transportation capability. Unfortunately, I think we have a reality that DOD is having 

a difficult time getting the cargo out because, to answer your question, I know what our ships are doing and I know what other people s ships are doing, and they are not full. 

So it is a question of continuing to work with DOD to ensure that 

we have a flow of cargo that matches the retrograde. Because we 

have the capability there to do it, but we do need initiatives. We 

do need to have the Trade Representative and all of our other 

agencies support utilization of U.S.-flag ships. If they cut us free 

and they don’t help us, there will be a serious impact. 

Mr. CUMMINGS. Mr. LoBiondo? 

Mr. LOBIONDO. Mr. Chairman, out of deference to Mr. Oberstar, 

I will yield to Mr. Oberstar. 

Mr. OBERSTAR. You are very kind to do so, Mr. LoBiondo. I will 

withhold at this time, except to make this one brief observation. 

Thirty-five years ago, my first year in Congress, Tom Downing, 

Chairman of the Merchant Marine Subcommittee, Member from 

Virginia, held hearings similar to this over a five-month period to 

evaluate the Merchant Marine Act of 1970 to see where we stood 

with the status of the merchant fleet. 

You and Mr. Cummings have now launched the second era of 

hearings on the value to the United States of the merchant fleet, 

and I hope that this will be an in-depth and continuing series of 

hearings to shine a bright light on the very important area of merchant shipping that goes too often ignored in our panoply of transportation issues in this Country. Much more attention is paid to 

aviation, to highways, to transit to intercity high speed passenger 

rail. 

This Country was founded by the water. Our citizenry lived on 

or near the water at the very beginnings of this Nation. Seventyfive percent of the population of this Country still lives along the 

water’s edge. There are only two major cities that are not located 

along a body of water. Most of our major cities were ports before 

they were cities. 

This hearing today and the series that I expect we will continue 

to have will continue to focus that light on this maritime heritage 

of the United States and the importance of maritime to the future 

of this Country. 

Thank you for yielding. 

Mr. LOBIONDO. Thank you, Mr. Chairman. 

27 

Talking about the shortage of merchant mariners, for Mr. Turner, to what degree is there a shortage of merchant mariners available to work aboard U.S.-flag vessels? 

Mr. TURNER. Mr. LoBiondo, there is a worldwide shortage. We 

with Seafarers do our best and do our due diligence in supplying 

the best trained mariners that this Country can provide. I don’t 

have a percentage for you, but we will stand ready, as my boss Mr. 

Sacco says, when the balloons go up and the bell rings, we will be 

there. 

Mr. LOBIONDO. Can you identify any particular segments of the 

maritime community that are experiencing more of a shortage than 

others? 

Mr. TURNER. I think I would have to defer to the Officers Unions 

on this. I can only speak relative to our unlicensed. 

Mr. LOBIONDO. I think I and probably the Committee would be 

interested in knowing if you have any ideas of how the Federal 

Government could support industry efforts to attract and retain 

qualified merchant mariners to work aboard U.S.-flag vessels. 

Mr. TURNER. Our industry is a well kept secret, quite frankly. 

What Mr. Oberstar has referred to is we kind of fly under the 

radar. One of the things that we do in terms of getting our message 

out, we go to various Members of Congress in their Congressional 

districts and basically recruit from those areas. We would be very 

interested from any Member of Congress who has a jobs need, we 

would be glad to basically come into your district, explain to your 

constituents exactly what we do, and recruit them into the industry. 

Mr. LOBIONDO. Thank you. 

Any of the other panel members, are you experiencing difficulty 

being able to hire folks for your vessels? 

Mr. MARCUS. Yes, sir, on behalf of Masters, Mates and Pilots, 

thank you for the opportunity to be here and thank you for your 

vigorous support of the merchant marine. 

I would have to say that regarding licensed deck officers, it is a 

function of availability of jobs. As the Administrator stated, there 

are 700 licensed officers graduating from State and Federal academy every year. If the suitable and attractive opportunities are 

there, people will fill the jobs. It is a function of supply and demand. And right now, from the position of our union, there is a 

lack of jobs and we have Third Mates, qualified personnel, that 

can’t get employment, can’t get steady employment, or that the 

range of employment is simply not attractive. 

So I think it is a function really worldwide of the attractiveness 

of the job. If there are good jobs, people show up. If there are not 

enough jobs and if they are not good jobs, people don’t show up. 

So I think the shortage, at least in terms of the U.S. officers, is 

somewhat of a red herring. I believe it is a function of the quality 

of the opportunity. 

Mr. LOBIONDO. Anybody else care to comment? 

Mr. KEEFE. Yes. I agree with Don from Masters, Mates and Pilots. When I mentioned in my testimony about a Federal tax incentive, it is very, very competitive when we are going to our partners, 

our companies to try to talk with them to bring a foreign flag under 

the American flag, when our competition in the foreign market, 

28 

they are getting national health care already. They are getting national pensions. They are not paying taxes into what they earn on 

the vessel. 

The costs at one time I believe it was about a 30 percent differential and could have even been more with the Euro up and down. 

I believe at one time we looked at it, it was about 30 percent. 

Some of our employers, we have partnered with them. We have 

had to take 20 percent pay cuts to make it competitive for them 

to bring foreign vessels under the American flag. 

Mr. LOBIONDO. Thank you. 

Mr. CUMMINGS. Thank you very much. 

Mr. Oberstar? 

Mr. Taylor? 

Mr. TAYLOR. I would like to open this up to the pane, going back 

to, again, I realize it is short term, but walk me through how your 

firms are compensated for bringing a cargo home from Iraq. I have 

to believe the crew size doesn’t vary if you have a partially full 

ship. I have to believe you are traveling in ballast so your tonnage 

really doesn’t vary, so therefore the amount of fuel you are going 

to use doesn’t vary. 

Are you compensated by the trip? Are you compensated by the 

piece of equipment? Are you compensated by the actual tonnage of 

the cargo that you are carrying? If you could walk me through that. 

Mr. REINHART. Yes, sir, Mr. Taylor. 

Firstly, there are rates on file with TRANSCOM. 

Mr. TAYLOR. Could you speak up a little bit, sir? 

Mr. REINHART. Yes, sir. 

TRANSCOM has rates on file to move cargo from any port to another port, so most of the cargo would move under USC 06. Then 

there can be unit moves or one time only rates put on file to bring 

the cargo back from the Middle East. But since we are still delivering on networks with our liner vessels and our Ro/Ro vessels, we 

are providing that mostly under our USC 06 rates. 

Mr. TAYLOR. Again, walk a civilian through this. 

Mr. REINHART. Well, to be a member of the Maritime Security 

Program 

Mr. TAYLOR. No, I am familiar with that. 

Mr. REINHART. OK, sir. 

Mr. TAYLOR. If your vessel is coming over, if you have a heavylift 

vessel or a reinforced deck Ro/Ro, that is returning home at 60 percent capacity, do you still bill the Nation the same as if you were 

full? Or does the Nation get a 60 percent bill of what a full cargo 

would have cost the Nation? 

Mr. REINHART. If I may, sir, the rates are unit rates. We aren’t 

charging for the full vessel. We are charging for the rates on the 

piece portion. 

Mr. TAYLOR. By square foot and tonnage or tonnage or what? 

Mr. REINHART. Yes, sir. 

Mr. TAYLOR. Square foot and tonnage? 

Mr. REINHART. Weight, ton or container. 

Mr. SHAPIRO. Mr. Taylor, all of us are subject to the universal 

services contract. When he says USC 06, that is what it is. 

Mr. TAYLOR. Thank you. 

29 

Mr. SHAPIRO. We have submitted thousands of rates, literally 

thousands of rates for the movement of different pieces of material 

and cargo from points all over the world, not just to the United 

States. It could be repositioning someplace else. Those are analyzed 

and accepted by the Department of Defense. If they think your rate 

is too high for something, before you get approved for that universal services contract, they come back to you and say you are not 

approved on this rate, this rate, this rate or this trip, this trip, this 

trip. 

So before you ever even put this vessel in the water to go pick 

up cargo, you have been approved already on all these rates by the 

DOD. 

Mr. TAYLOR. And Mr. Shapiro, I hate to cut you short, but I am 

going to. 

Mr. SHAPIRO. OK. 

Mr. TAYLOR. Walk me through, if you could very quickly, a typical vessel sailing right now, coming back from Iraq. What is your 

typical capacity? 

Mr. SHAPIRO. I can do that, sir. 

Mr. TAYLOR. What percentage of capacity are you traveling at? 

Mr. SHAPIRO. We have 580,000 square feet of cargo space on a 

12-deck roll-on/roll-off vessel. OK? We are carrying about 30 percent to 40 percent cargo in that coming back, no more than 40 percent. And we are paid on a unit move by pieces of equipment. We 

don’t charge for the full ship. We get whatever we have been approved for on an item by item basis. 

Mr. TAYLOR. Is that fairly universal? Is that a fairly universal 

percentage? 

Mr. SHAPIRO. On the Ro/Ro, sir, yes. On the containers, it could 

be even less on the container ships. 

Mr. TAYLOR. Sir? 

Mr. JOHNSEN. That is correct. 

Mr. TAYLOR. Again, going back to the old penny-wise analogy, I 

have serious concerns that we are leaving billions of dollars of 

equipment behind that is going to end up on the black market, that 

is going to make some Iraqi wealthy, because we are trying to save 

millions of dollars in shipping costs. 

Have any of you gone to both the Sealift Command or 

TRANSCOM and said, look, I am making this trip anyway; I am 

willing to work with you on a negotiated rate for additional tonnage to come home. 

Have you done that? And if you haven t, why not? 

Mr. JOHNSEN. We have done that. 

Mr. TAYLOR. You have. 

Mr. JOHNSEN. Yes. 

Mr. TAYLOR. And what has been their response, sir? 

Mr. JOHNSEN. We have had one instance where they did work 

with us and they helped us get back. But we have had in the last 

60 days, we have had multiple instances where we have held ships 

waiting for cargo. We have a ship sitting now that has already 

been sitting for two or three weeks. We get no compensation for 

that, obviously. 

Mr. TAYLOR. It is sitting in Kuwait? 

30 

Mr. JOHNSEN. It has been sitting in the Arabian Gulf. And prior 

to that, the last ship that we loaded coming back had waited for 

two weeks. So it is a question of the cargo volume is obviously 

there and I think your concern is very legitimate about getting it 

moved out, but the cargo is not flowing to match the vessel s capability. 

So as Mr. Shapiro said and as Mr. Reinhart said, we get paid for 

every measurement ton of cargo that we carry and that is all. 

Mr. TAYLOR. Mr. Chairman, if you would afford me the luxury 

of one last question for the record? 

If each of your firms could get back to me, when leaving Kuwait 

or Umm Qasr, what percentage of the tonnage is being forwarded 

to, say, Karachi for redeployment to Afghanistan? And what percentage is being returned to a CONUS port, leaving the Iraqi theater? 

Thank you very much for indulging me, Mr. Chairman. 

Mr. CUMMINGS. Thank you very much. 

Mr. Kagen? 

Ms. Richardson? 

Ms. RICHARDSON. Thank you, Mr. Chairman. 

Thank you, all of you, for being here today. 

My first question is for the entire panel. Were any of you invited 

to participate in the President s Export Commission? 

Mr. SHAPIRO. No. 

Ms. RICHARDSON. Did any of you know about it before his announcement? 

Mr. SHAPIRO. No. 

Ms. RICHARDSON. OK. If you were able to participate in that 

Commission, and the President is expecting that we are going to 

increase exports, and many of us on this Committee, we serve not 

only on Coast Guard and Maritime, but also on Highways and 

Roads, and we have a real question of whether we would be able 

to support that demand. 

If you were able to say something to that Commission, what 

would it be? And why don’t I start off here with some of our labor 

representatives and friends, Mr. Turner and Captain Marcus? 

Mr. MARCUS. I can answer that question, at least for our organization. It would be that we would welcome some bilateral trade 

agreements. It would seem to me that these countries value the 

United States market. They are exporting goods into our Country. 

We want to export good out of our Country. It would seem to me 

that bilateral trade agreements would be reasonable. It is a subject 

that doesn’t get much play, but it would certainly seem reasonable 

from our perspective. 

Thank you. 

Ms. RICHARDSON. Actually, it is getting quite a lot of play right 

now, the one they are looking at with Korea and some others. So 

it is interesting that you have that point. 

Mr. Keefe, did you want to add anything to that of what you 

would like to recommend to the Commission? 

Mr. KEEFE. I agree with everything that Don said. It is all about 

creating jobs. It is a way to create jobs and we are all behind it. 

31 

Ms. RICHARDSON. What can we do, though, to ensure that there 

are job and that they are U.S.-flag ships that are gaining the benefit of the Export Commission and not foreign-flag ships? 

Mr. KEEFE. What I had mentioned earlier in my testimony, you 

weren’t here, was I had mentioned tax incentives, Federal tax incentives. 

Mr. SHAPIRO. I would say, Ms. Richardson, that cargo is the key 

element to a vibrant U.S. merchant marine and a vibrant economy. 

If there is cargo required to be carried on ships, ships will be built, 

jobs will be created, and an American presence overseas with exports will manifest itself. 

So cargo that moves either by government mandate or by bilateral agreement, it all comes down to one thing: you need something 

to put in the ship in order to build the ship and to employ people. 

Ms. RICHARDSON. OK. 

Mr. Reinhart, the President of Maersk, which is a large carrier 

down in my district, the Port of Long Beach and Los Angeles, what 

things would you want to share with that Commission? 

Mr. REINHART. We have talked about the cargo to create the jobs, 

but there has to be incentive for that cargo to go on a U.S.-flag 

hull. There has to be some reason to put it on a U.S. hull. If we 

go back before 2008, cargo continued to grow coming in and out of 

this Country, but the portion of it on a U.S.-flag vessel has dropped 

to 2 percent. So there has to be something to incentivize that cargo 

to move on the U.S. flag; also, cargo preference enforcement on the 

U.S. flags. 

Ms. RICHARDSON. Mr. Keefe, we briefly had something there. In 

your statement, you talked about that if Congress and the Administration does not take steps to attract and retain more vessels for 

U.S. producers and shippers of U.S. commodities, we can find ourselves hostage to foreign shipping interests. That obviously is 

something dangerous to us all. 

I was recently in the Gulf twice and I think us not having our 

own systems in place in readiness to be able to move as we need 

is definitely short-sighted. Other than the tax incentives, is there 

anything else that you had a specific direction to? 

I do see the MSP program and us continuing that, but was there 

anything else further that you wanted to add? 

Mr. KEEFE. Yes. What was discussed earlier, capital construction 

fund. There was the tonnage tax, the harbor maintenance tax, the 

Title XI that I had mentioned earlier about capital construction, 

again with Title XI building ships. Under that, there was when the 

companies are bringing their vessels into the U.S. to have repaired, 

there could be a tax break on having repairs done in the yards over 

here in the U.S. That is about it. 

Ms. RICHARDSON. OK. 

Lastly, Mr. Turner, with you representing the Seafarers, we have 

them represented down in my district in the two ports there. I 

know we just finished looking through some negotiations with 

ILWU. Are there outstanding labor infractions that we should be 

aware of? 

Mr. TURNER. Relative to the SIU, I don’t believe there is anything outstanding. You do reference the ILWU, and there is a problem there. We are aware of that and are working with our brothers 

32 

and sisters along those lines, but we have no infractions or complaints to this point. 

Ms. RICHARDSON. Thank you, gentlemen, for all your testimony. 

Mr. CUMMINGS. Mr. Oberstar? 

Mr. OBERSTAR. Thank you. 

We are now, as I observed earlier, we are observing the 40th anniversary of the Merchant Marine Act of 1970. And I applaud 

Chairman Cummings for initiating this hearing and I expect a follow-on set of hearings that will further explore the status and the 

health of the American merchant marine. 

And Mr. LoBiondo, thank you also for your constancy and participation, and Mr. Taylor, who has been a watchdog on the Jones 

Act and the American shipbuilding sector. 

But I would just observe that that set of hearings I referenced 

earlier with Chairman Downing was a great learning experience. 

It provided for me a foundational experience for my engagement in 

international shipping and the entire maritime interest of the 

United States. 

And I will just make a personal observation. When I was elected 

in 1974, we went through the Committee selection process. Of 

course, I wanted to be on the then-Public Works Committee because I had been its Administrator. I started my service on the Hill 

as Clerk of the Subcommittee on Rivers and Harbors. We didn’t 

have fancy titles in those days, Clerk, like sit in the corner, kid, 

and learn something. 

I worked then for my predecessor, John Blatnik, who later was 

Chairman of this Committee. And I set about the task of learning. 

The first act of the first Congress came from the Committee on Rivers and Harbors in September, 1789, to establish and maintain a 

lighthouse at Hampton Roads, Virginia. 

The second act of the first Congress came from the Subcommittee 

on Rivers and Harbors to establish and maintain a lighthouse at 

Cape Henry on the entrance to Chesapeake Bay. And the third act 

of the first Congress, from the Committee on Rivers and Harbors, 

was to establish the Revenue Cutter Service to exact duties on cargoes coming into the United States with which to pay the debts of 

the Revolutionary War. 

The founders of this Country, the framers of the Constitution, 

the first legislators understood the importance of maritime, understood the vital necessity of safety in maritime by establishing lighthouses. 

In fact, as a further parallel, in 1927 when the first night flight 

was established in commercial aviation by one of those early airmail pilots flying from Kansas City to Chicago, he asked farmers 

along the route to light bonfires at night because there was no 

night navigation. And when it proved successful and he was able 

to fly, at each checkpoint the bonfires were lit, within a year the 

U.S. Lighthouse Service established lighthouses with million candle 

power beams fired up through arrows pointing to the next lighthouse. That served as air navigation. 

If you look today at air traffic control towers, they are patterned 

after lighthouses, with the same sequence of entry. And the point 

where air traffic controllers operate is called the cab. That is what 

a lighthouse is called, the cab. 

33 

America owes so much to maritime history, to the movement of 

goods and to the safety at sea that it is a tragedy that we have 

allowed this vital interest to deteriorate. And those who have access, and everybody does, to our Committee briefing reports, look 

on page four, Global Policies in Support of Shipbuilding and Vessel 

Operations. 

There are 15 different categories of aids to shipbuilding; aid to 

vessel operations, that other countries with panache employ to support their fleet, without apology. And we go around wringing our 

hands, oh, my goodness, the subsidy was going to pay for this; oh, 

my God, we can’t do this; we have to operate by Marquess of 

Queensberry rules in international maritime trade while the other 

countries are using black belt karate against us. 

Parenthetically, Mr. Taylor is a black belt Karate champion. So 

that is why we turn him loose. 

So look at the state of the American fleet. In 1948, at the end 

of the war, two years after the end of the war, we had 5,500 U.S.- 

flag merchant vessels; 25 million dead weight tons of shipping. We 

were number one in the world. The fleets of Europe, Japan, Korea, 

all the rest, they had been bombed, torpedoed, sunk, exploded in 

the war. We were moving the world s goods. 

When I came to Congress, we had 800 ships in the American-flag 

fleet. We were eighth. That was dead last. The Far East shipping 

company of the Russians had 2,500 vessels. They were number one, 

FESCO, Far East Shipping Company. The Polish and Baltic Atlantic fleet were number two. 

That has changed. Now, you have COSCO, which has nearly as 

much dead weight tonnage of shipping as the entire United States 

did in 1948. And they are the ones that are moving the Wal-Mart 

containers and the Target containers and Home Depot and all the 

rest. All are moving, that constant flow of goods. It was Maersk 

that launched the first 6,000-container vessel, and then the second, 

6,600, the Regina Maersk and the Sally Maersk. 

And now you have the race for who can have more containers onboard a vessel. Maersk went to 10,000. COSCO went to 11,000. 

Maersk went to 13,000 and COSCO is catching up. And now you 

have a 16,000-container vessel, I think, Mr. Reinhart, in the works. 

And so the race is on and has been on for a long time. 

Who s being left behind in the race? U.S. shipyards, the U.S. 

merchant fleet, U.S. mariners. Those are good jobs. Those are good 

decent jobs that require a lot of skill. And we should not sit back, 

wring our hands, and say, oh, my goodness, we have to play by the 

international rules while operating subsidies, construction subsidies, restructuring aid, financing program, cargo preference requirements and so on are all being employed by the leading maritime nations of the world. 

They are not sitting back and taking second place. So we have 

got to move the ball ahead. 

Mr. Keefe, thank you for referencing my 2001 bill. I didn’t think 

anybody remembered these things anymore, but you did, and you 

quoted exactly from my statement. 

But the second part of it, the first part was the tonnage tax. The 

second part is excluding up to $80,000 in income. I didn’t pull that 

out of thin air. That was an Eisenhower Administration initiative 

34 

as part of his initiative to generate more international trade for 

U.S. companies, to allow employees of International Business Machines and Control Data and other high-tech companies to locate 

overseas and be exempted from U.S. income tax if they stay for 18 

months or longer, so that they would establish relationships with 

foreign companies and foreign governments and benefit U.S. trade. 

When you are on a ship, you are overseas. You are out of a U.S. 

port. You are out there for a very long period of time. We ought 

to have the same treatment for our merchant mariners, and we 

were very close to getting that done in the Tax Act of 2004. I will 

give credit to then-Chairman Bill Thomas, who saw the wisdom of 

this proposal, concurred with it, and was attempting to win support 

from the previous Administration and from the Senate. The only 

thing they could reach agreement on was the tonnage tax. So we 

ought to recapture that second piece and provide benefit for mariners. The harbor maintenance tax, it is double taxation. It hurts 

us on the Great Lakes in competition with Canadians. Canadian 

vessels are outside the harbor maintenance tax and so they are 

capturing a good deal of the cross-border trade. And we ought not 

to let that continue and I expect that when we get our water resources bill ready for Floor action, we will include the repeal or 

modification of the harbor maintenance tax. 

Now, Mr. Shapiro and Mr. Reinhart, you have referred to unfunded mandates, construction standards and a host of other 

things. We have had the Title XI Construction Loan Guarantee 

Program and the Operating Differential Subsidy Program, and they 

didn’t work for one reason or another. We spent $10 billion or $11 

billion on those programs over a number of years and our fleet kept 

going down. 

There are obstacles, no question about it, but Mr. Keefe had 

some very thoughtful suggestions: approve applications subject to 

appropriations; an expedited review process for MARAD; the Capital Construction Fund to allow companies to accumulate their 

fund, but expand that fund to use some of it for maintenance and 

repair. 

We are doing that in the transit program now for smaller metropolitan areas. Those 250,000 or less population can use, the transit 

agencies, can use some of their capital account for operating and 

maintenance needs. If the principal applies there, we could apply 

it here to maritime as well. 

So I want Mr. Shapiro and Mr. Reinhart, and perhaps others 

who want to chime in on it, to give us your thoughts about how 

we can deal with these, in particular these construction loan guarantee and other aids to maritime. 

Mr. SHAPIRO. Mr. Oberstar, it would be my pleasure to address 

that. 

Firstly, I think we can all look back on the failure of the ODS 

system. The operating differential subsidy system was set up in a 

way that it didn’t encourage the owner or operator at the time, and 

this program has been expired now for 15 year, 16 years. It did not 

encourage the owner or operator to be efficient in its management 

of the vessel because the overtime cost above the foreign cost was 

paid for by the U.S. Government. 

35 

That, in fact, was exactly what we addresed, and I was one of 

four industry people put on Secretary Pena s Working Group on 

Maritime Subsidy Reform that came up with the MSP program. We 

took a fixed amount, $2.9 million now, which we know doesn’t give 

you parity with the foreigners, but it gave you a strong enough 

footing that with the carriage of cargo preference, you could bridge 

that difference. And that is what we have done. 

So I think the failure of the ODS system was corrected in the 

MSP system when it was put together, number one. 

With regard to shipyards, every one of us supports U.S. shipyards to the extent we can and we would like to have a vibrant 

shipbuilding industry in the United States. Our problem is that we 

are competing with foreign-built ships in the foreign commerce of 

the United States, not in the domestic commerce of the United 

States. 

So unless the government can provide a subsidy to the shipyard, 

which gives you a foreign capital cost equivalent, you can’t compete. And I think that is precisely why the CDS program failed is 

that it was at 42 percent at the time; 42 percent of the cost of the 

ship was paid to the shipyard. 

Today, it is 200 percent differential. So you would have to pay for a $50 million ship overseas, you would end up paying today 

$150 million for that same ship because of the subsidies that the 

foreign governments put in place to promote their own domestic 

shipyards. 

So all of us will support legislation that takes care of American 

shipyards. Unfortunately, it has to be the government that does it, 

not the shipping companies. The shipping companies can’t sustain 

that kind of capital burden, the foreign trading shipping company. 

Mr. OBERSTAR. And I think the Chairman will understand in 

Baltimore, we had a vibrant shipbuilding industry and Mr. 

Cummings grew up in Baltimore. He knows the city. He knows its 

connection to the waterway, and you worked there. I didn’t know 

that. 

Mr. SHAPIRO. Mr. Oberstar, my wife is from Baltimore and I 

went to Sparrows Point Shipyard and Key Highway. When I first 

got into this business, all of the vessels of the company I started 

with were being repaired at Key Highway or built at Sparrows 

Point. So I am well aware of what has taken place since. 

Mr. OBERSTAR. All right. Let s go. 

Mr. Reinhart? 

Mr. REINHART. Thank you, Mr. Oberstar. 

Philip defined the ODS pretty well. We did not participate in 

ODS. We have been in the Maritime Security Program as Maersk. 

On the construction, the viability of the U.S. yards is a challenge 

just like the viability of the shipping yards in all of the developed 

nations. We would like to see it vibrant, but that would be more 

of a government responsibility. 

In international trade, the differential has grown so far that we 

brought in the ships from the international marketplace to trade 

internationally. Maersk is a domestic or documentation citizen 

company, so we do not participate in the coast-wide or the Jones 

Act trades, which is another strong area that supports our shipyards here in the United States. 

36 

Mr. OBERSTAR. Any others have comments about how we can 

close this gap? If it is a 200 percent differential today, that is a 

stunning gap in competition. Well, they do pay their workers less. 

They have lower cost of materials, but all those are governmentsubsidized. 

I know how the Japanese do that. I know their tax structure. I 

know how the Bank of Japan intervenes in providing financing to 

shipbuilding, steel manufacturing to their high-tech industry. They 

are unabashed about it. They don’t apologize to anyone. They just 

go ahead and do it and then they take the markets away from us. 

Mr. SHAPIRO. And the Korean and Chinese yards are even more 

subsidized thank the Japanese yards. 

Mr. OBERSTAR. Sure. 

Mr. SHAPIRO. But they are subsidized by their governments. 

Mr. OBERSTAR. Mr. Keefe, do you have any further expansion on 

your well thought out observations? 

Mr. KEEFE. Yes, sir. What I should have said to Ms. Richardson 

is that when you asked me about the different things, the enforcement of the cargo preference. I should have probably keyed on that. 

We have these laws set up. What we have to do is enforce what 

we have set up. 

I can go back 40 years ago, way before my time, the president 

of my union, his name was Jesse Calhoun, and he was at that 

point—do you remember him? 

Mr. OBERSTAR. I remember him well. 

Mr. KEEFE. At that point in time, he was testifying about the 

U.S. merchant jobs going overseas to foreign flag, U.S. flag going 

foreign flag. And then in the labor movement, a lot of his counterparts, presidents in the labor movement, listened to him, but now 

40 years later, most of those presidents, if they were still around, 

would realize what he was pointing out basically the warning signal that most of our jobs have gone overseas in all sectors of labor. 

So it is very, very difficult once you have lost that workforce, it 

is very difficult to bring it back. Through these programs, whether 

it be Maritime Security Program, Cargo Preference Program, any 

type of tax incentive-type program, that is what keeps us alive because otherwise we are going to die on the vine here. 

I am sitting up here with two other officer unions and one unlicensed union, and if you add the three of us together, just the officer unions here, I would be willing to bet that we are probably 

15,000 strong today. That is our membership. But I think the unlicensed is probably three times that. But when we are looked at in 

a business world on cost, it is very, very difficult for U.S. labor to 

compete with foreign labor. And that is why we need these programs and that is why we need these incentives to keep going. 

Mr. OBERSTAR. Thank you. 

That really raises the last issue I want to explore, and that is 

ship registers. We have seen and we are witnessing now the danger 

of foreign ship registers. The spill in the Gulf, B.P. built or ordered 

built the drilling ship in South Korea, 350 some million dollars. 

They registered it in the great maritime trading nation of the Republic of the Marshall Islands, which registered it in a ship register maintained by a foreign entity in Reston, Virginia. 

37 

The oversight of the safety and maintenance of that vessel is 

done by the U.S. Coast Guard under international regulations, 

which are far less stringent than U.S. regulations. If that were a 

U.S. vessel, the Coast Guard would spend two to three weeks on 

an inspection, whereas it is only six to seven or eight hours because 

it is an international registry. 

So why would B.P., a foreign-flag operator, register a vessel in 

the Marshall Islands? Why would Transocean, a Swiss company 

which has the drilling operations onboard that vessel, why would 

they engage in operations in the exclusive economic zone of the 

United States as foreign operators? Because all of their costs are 

vastly less than if they were registered in the United States. 

So we reported a bill from this Committee. I hope we can bring 

it to the House Floor this week, I am expecting some go-ahead sign 

from our House leadership, that will require those vessels and 

those drilling operations to be U.S. flag. And Mr. Taylor’s amendment would require them to be U.S.-built, and Mr. Cummings flag 

requirement as well, the Chairman of this Subcommittee. We had 

whole bipartisan support for those provisions when we moved the 

bill in this Committee. 

And there are objections raised that, oh, you will be in violation 

of the World Trading Organization. Well, I said fine. So are all 

these other 25 companies. Let someone bring suit. By the 10 years 

it takes to prosecute a complaint in the WTO, we will have ships 

built. We will have them operating U.S. flag. We will be having 

U.S. seafarers on board those vessels. And the U.S. will benefit. 

That is our exclusive economic zone and we shouldn’t have this 

slipshod operation. But I just want to point out that various countries now have established second registers, international registers. 

The Norwegians registered on their international ship register 

must fly the Norwegian flag; must employ Norwegian ship masters. 

They can employ mariners from other countries, but those mariners are subject to Norwegian law and collective bargaining agreements. 

Suppose we did the same thing for the United States? What 

would you shipowners think about that? And Mr. Keefe, what 

would you think about that? 

Mr. KEEFE. I went overseas for an ITF meeting and I happened 

to be speaking with some of my counterparts from Brazil, Australia, what have you, and I happened to speak to some management people before I went over to Sweden. It was over in Stockholm. And at one point, we came this close of signing an agreement. It was over the Isle of Man. And thank God I didn’t because 

when I walked into this meeting over in Stockholm, I started expressing that I was going to go ahead and sign a contract. And the 

Australian says with a very strong accent, he says: Have you ever 

heard of cabotage laws? I said yes I have. And he said: Well, we 

have them, too. 

And then he said, well, let me introduce you to the Brazilian 

man. So I go over and see the Brazilian representative. He says: 

Oh, you want to sign a contract with so and so? He says, well, you 

are going to join our union. And I am looking at him. Each country, 

that I am unaware, they have their own laws, whether it be cabotage; whether they have certain periods of you have to have all 

38 

Brazilians, say, on a rig for 30 days, and then after that they extend it 15 or 14, whatever. 

I don’t know the particulars, but what I was educated going overseas is that most of these countries, even if I was to sign, say, a 

contract outside of the U.S. is that they have their own restrictions, 

if you will, whether it be union or what have you, organizations 

that keep you from going in there. 

Mr. SHAPIRO. Mr. Oberstar, with regard to open registries, I 

could tell you I would be opposed. This Country is in an economic 

recession. We are coming out of probably our most vulnerable point 

in the last 40 years, 50 years, maybe longer. We need jobs for 

Americans and we need jobs for people, and I don’t think we ought 

to set standards to hire foreigners to fill those positions. We ought 

to train Americans to do them. 

Mr. OBERSTAR. Mr. Reinhart? 

Mr. REINHART. A second registry would be a registry light. I 

think we have a good registry. We just have to enforce the U.S.- 

flag rules and encourage employment for the U.S. merchant marine. Other shipowners can put their flags under these other registries. I don’t see a need for a second registry in the United States. 

We just have to strengthen the one we have. 

Mr. OBERSTAR. Strengthen the one we have. Good advice, good 

counsel, I am for it. 

And I thank my colleagues on the Committee for your forbearance. I know I went on, but I will just close by observing that when 

I had Committee selection, or when Committee selection came up 

in 1974, I of course first chose the Committee on Public Works, as 

it was called then. And then the Merchant Marine and Fisheries 

Committee, because my father had told me when I graduated from 

high school, he said I want you to advance your education. I want 

you to realize your dreams. Mine was to serve in the U.S. merchant 

fleet, but I couldn’t. As the oldest of eight children, I had to go out 

and work and support the family. 

And when I called and told him that I had gotten on the Merchant Marine and Fisheries Committee in his honor, this tough underground iron ore miner of 40 years cried over the phone. I am 

still here pursuing that dream of his. 

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

Mr. LoBiondo, did you have anything else? 

Any other Members of the Committee? 

Ms. Richardson? 

Ms. RICHARDSON. I just had a couple of questions I didn’t get to 

ask to Mr. Johnsen and any of the other operators. The subsidy 

programs that came before the MSP program have been viewed to 

be too restrictive. For instance, operators were not able to deploy 

their ships quickly enough to take advantage of opportunities in 

different trades. They had to build their ships in a U.S. yard even 

though the U.S. construction subsidy often didn’t cover the full cost 

differential of building the vessel in the U.S. shipyard compared to 

a foreign shipyard. 

Does the current subsidy program allow enough room for innovation? And does the current system allow you enough latitude to 

compete in the way that you would like? 

39 

Mr. JOHNSEN. The current MSP program is a big improvement 

over the predecessor programs. It does allow flexibility, and I think 

Mr. Shapiro alluded to that earlier. That has been an important 

step. 

The next step is to make sure that it is properly funded. If we 

have the proper funding, we will compete internationally and we 

will innovate. We have a record of having done that in the past. 

Ms. RICHARDSON. OK. 

And Mr. Shapiro and Mr. Reinhart, chapter 553 of Title 46, U.S. 

Code, contains our cargo preference laws which you guys have just 

been discussing in the last couple minutes. Section 55–305 requires 

that ships that are foreign-built or rebuilt outside of the U.S. must 

be documented under the law for three years. 

Given that all the vessels receiving the MSP program funding 

were built in foreign shipyards and that they carry some of the 

cargo preference, is it time to repeal that rule in your opinion? 

Mr. SHAPIRO. Not in my opinion. I think they are two separate 

trades. The MSP vessels which serve the military have access to 

carry preference cargoes, but there is a limitation on certain 

amounts of cargoes that they can carry. There is a bulk trading 

fleet which is under U.S. flag which was built under Section 615 

of the Merchant Marine Act, which was an amendment to the 1936 

Act, which permitted vessels built with national defense features 

and military approval to be built overseas and bought into the U.S. 

flag right away without waiting three years to re-flag. 

There is an excess tonnage today to carry food aid cargo. Most 

of us who have food aid business are sitting waiting for the government to ship some. We keep hearing it is coming, but it is certainly 

not coming the way it has been in other years. 

The MSP program has access to the program, but it is a limited 

access based on the commodity, the type of shipment that is being 

moved. 

Mr. REINHART. If I may make one quick comment on your earlier 

question and then answer this. The flexibility under the current 

MSP program has worked quite well and the success is proven by 

satisfying the military s requirement. And that did include a lot of 

U.S.-flag operators that are documentation citizens, not Section 2. 

There have been a lot of requests today to strengthen the Section 

2 requirements as we go forward. That would be a risk to the flexibility of that program. It has worked quite well with international 

operators. 

Secondly, on the three-year rule and cargo preference, if we are 

to expand the fleet and grow the business that comes under cargo 

preference, we may have to find some ways to work with the threeyear rule that does not limit the protection in the marketplace so 

it stays stable. But if we are going to go from 94 ships to 150 ships 

because we are going to expand the programs, you are going to 

have find some legislative language that will bring those ships in 

without causing instability in the marketplace. 

Ms. RICHARDSON. OK. 

And then my last question, I have one minute for my labor 

friends to the left of me. We had quite a lot of stimulus money that 

was provided, $787 billion to be exact. Were any of those funds 

40 

being able to utilize for job training and to incentivize and help us 

in your arena in terms of the workers? Any of you can respond. 

Mr. KEEFE. We haven’t received any. I should take that back. I 

think we received a very, very, very small amount and it was down 

at our training school. We brought in a community college that received some of the stimulus to put a few students through our 

school down in Eastern Maryland, but we directly didn’t receive 

anything. 

Mr. DOELL. I believe with the officers unions, we didn’t get any 

in AMO, but we train our own people. We have our own training 

program, as do the MEBA and the Masters, Mates and Pilots. So 

I think as far as the licensed unions are concerned, I would say no. 

Mr. MARCUS. On behalf of MMP, I would agree with Mr. Keefe 

and Mr. Doell. Masters, Mates and Pilots has not received any, and 

to my knowledge the U.S.-flag merchant marine as a whole has not 

seen any of this funding in terms of building merchant marine programs, be it training or any other program. 

Mr. TURNER. I concur with the Captain. SIU, nothing, and the 

industry as a whole, literally nothing. 

Ms. RICHARDSON. OK. 

Thank you, gentlemen, for all your testimony. 

Mr. CUMMINGS. I want to thank all of you for your participation. 

It has been extremely helpful. 

This hearing is now at an end. Thank you. 

[Whereupon, at 12:20 p.m., the Subcommittee was adjourned.] 

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Æ 


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