Copyright 2002 FDCHeMedia, Inc. All Rights Reserved.  
FDCH Political Transcripts
October 8, 2002 Tuesday
TYPE: COMMITTEE HEARING

LENGTH: 9921 words

COMMITTEE: HOUSE ARMED SERVICES COMMITTEE

SUBCOMMITTEE: MERCHANT MARINE OVERSIGHT PANEL

HEADLINE: U.S. REPRESENTATIVE DUNCAN HUNTER (R-CA) HOLDS HEARING ON MARITIME SECURITY PROGRAM

SPEAKER:
U.S. REPRESENTATIVE DUNCAN HUNTER (R-CA), CHAIRMAN

LOCATION: WASHINGTON, D.C.

WITNESSES:

GENERAL JOHN W. HANDY, USAF, COMMANDER IN CHIEF, U.S. TRANSPORTATION COMMAND

BODY:

 
HOUSE ARMED SERVICES COMMITTEE: SPECIAL OVERSIGHT PANEL ON THE
MERCHANT MARINE HOLDS A HEARING ON THE MARITIME SECURITY
PROGRAM
 
OCTOBER 8, 2002
 
SPEAKERS:
U.S. REPRESENTATIVE DUNCAN HUNTER (R-CA)
CHAIRMAN
U.S. REPRESENTATIVE WALTER JONES (R-NC)
U.S. REPRESENTATIVE CURT WELDON (R-PA)
U.S. REPRESENTATIVE JIM SAXTON (R-NJ)
U.S. REPRESENTATIVE ANDER CRENSHAW (R-FL)
U.S. REPRESENTATIVE JO ANN DAVIS (R-VA)
 
U.S. REPRESENTATIVE THOMAS H. ALLEN (D-ME)
RANKING MEMBER
U.S. REPRESENTATIVE GENE TAYLOR (D-MS)
U.S. REPRESENTATIVE ADAM SMITH (D-WA)
U.S. REPRESENTATIVE JAMES H. MALONEY (D-CT)



*


HUNTER: The hearing will come to order. My opening remarks will be brief. However, before we address the business before this panel, which is consideration of the military's commercial sealift requirements under a new maritime security program, I'd like to extend a warm welcome to our witness today, General John Handy, commander-in- chief, United States Transportation Command.

Thank you very much, General Handy, for being with us and spending some valuable time with the panel today. We appreciate you.

HANDY: Thank you, sir.

HUNTER: This is the third in a series of hearings being held by the panel that will lead to a reauthorization of a new maritime security program. At the first hearing, the panel heard from current vessel operators, as well as the so-called section 2 citizens. Frankly, I think many of us learned a great deal at that hearing.

At some point, I'm convinced, we will come up with a legislative solution that will address some of the issues raised at the hearing.

At the second hearing, we heard from witnesses representing both large and small shipbuilding interests. Since that hearing, I've started to see some creative financing proposals that offer us a realistic opportunity to have a shipbuilding component in any new MSP reauthorization. My personal view is that we can reach agreement on a shipbuilding component without jeopardizing the operational component of the new bill.

After hearing from General Handy today on DOD's MSP sealift requirements, I will ask the Department of Transportation and the Maritime Administration to appear before us and present their proposal for a reauthorization of MSP. Just as important as their appearance and legislative suggestions will be their commitment to pursue funding for a program in this upcoming fiscal year.

It's my goal, after working with and getting the agreement of the other members of the panel, to have a comprehensive legislative proposal ready for markup early next year and attach it to the FY '04 defense authorization bill. And before I recognize our witnesses, I'd like to recognize, at this point, the distinguished ranking member of this panel, the Honorable Tom Allen of Maine, for any comments he might have.

ALLEN: Thank you, Mr. Chairman. I simply want to say how much I appreciate your holding this hearing and to welcome General Handy. We're very pleased to have you here. I look forward to your testimony.

HANDY: Thank you, sir.

HUNTER: Thank you very much, Mr. Allen.

General Handy, it's a beautiful morning outside. Welcome.

HANDY: Gorgeous, thank you.

HUNTER: And we look forward to your testimony.

HANDY: Certainly, sir. You have my statement for the record.

HUNTER: And without objection, it will be entered into the record.

HANDY: Thank you very much. In the interest of time as well, I'm ready for any questions.

HUNTER: Super.

(LAUGHTER)

Well, in that case, what do you got, General Handy? Give us your inventory of ships. And tell us what you need and tell us how you're going to beat up that old White House to keep reauthorizing this MSP program.

HANDY: Right now . . .

HUNTER: You may prefer to read your statement, really.

(LAUGHTER)

HANDY: The question, as we've discussed many times, and I'll just run down the current MSP that we have. We have 47 vehicles -- vessels -- 36 of which are break bulk; three tankers -- I'm sorry, I'm looking at the PREPO. We have 11 LMSRs, eight FSSs, 76 RRF vessels that are our total ship requirement.

We have another -- we have 10 of those LMSRs currently in our possession. The eleventh one will be delivered in the February/March timeframe of '03.

In our PREPO ships, which is another aspect of our requirement, we have 36 vessels; 23 of them are RO/ROs, six container ammo ships, two container sustainment ships, one crane, one break bulk and three tankers that are in the PREPO business.

Further complicating those numbers are the service breakouts. But it's important to see how the service used these vehicles, 13 of which are Army prepo, 15 are in support of the U.S. Marine Corps, four Air Force all-container, one Navy, which is break bulk ammo and three DLA tankers that are out there.

Now in the MSP, we have 47 ships currently signed up. And would you like a breakout of those ships as well?

HUNTER: Sure, yeah.

HANDY: Right now, of the 47 ships -- let me give you the exact breakout -- they are: 38 container, eight roll on, roll off and one LASH -- that's a lighter aboard ship vessel -- for a total of 47. Our requirement, depending upon scenario and what moves, surface or air, is somewhere between 50 and 60 ships, depending upon the scenario. And that's a square footage requirement.

We feel fairly comfortable at today's 47. But that was derived by virtue of the amount of money in the original MSP authorization in '96.

And so our goal would be somewhere closer to the 50 to 60 ships would make us certainly a more viable program as we look to the future.

HUNTER: Give me your feeling, in terms of the mix. Are you going to give a prepared statement? Or do you want us to jump right into questions?

HANDY: Questions.

HUNTER: You just laid out a couple of them here. What do you feel about the mix?

HANDY: Well, right now, I think the mix is reasonable. We certainly are focused on dry cargo more than we are tankers. MSP is a dry cargo initiative.

The mix, I think, for what we have today, is certainly a -- you know, suits us. I would not want to see it change dramatically in the downward side. I certainly could endorse increasing capability to get closer to the 60-ship number that we have targeted for you.

HUNTER: Okay. Let me ask you -- go to another question that is on our minds since we've been thinking of some creative ways to maintain the shipbuilding base in this country and the Title 11 program. One idea was to give a -- and we're contemplating this right now -- to give a preference to applicants for Title 11 who would sign up for the MSP program. Basically, it's analogous to becoming a reservist in exchange for a benefit upfront -- that is, a loan guarantee on your construction.

What do you think about that?

HANDY: Well, I think that any program that would enhance the warfighter's capability to get resources moved around the world is certainly one that we would stand up and support.

HUNTER: So if you need money now to build something, and you would be willing to sign up for 20 years at no annual payment for MSP in return for loan guarantees for a particular building program and assuming that you're building a vessel that's militarily useful, that would be something you think would be a good creative mechanism to use to make Title 11 work, as well as provide MSP resources basically at no cost to the MSP program?

HANDY: Sir, we would be . . .

HUNTER: You understand what I'm talking about?

HANDY: Yes, sir. Sure do.

HUNTER: You're going to build a ship where you're trying to get a Title 11 loan guarantee. And we say, "General Handy, that's good."

Your company wants to build a couple of ships and they're going to make a certain leverage drawdown on the loan guarantee program. And we've got a lot of applicants standing in line. But your particular ship, you're willing to sign up -- let's assume it's a militarily useful ship and perhaps not a love boat or some other boat that's not as militarily relevant, something we can use.

You would say, in return for this loan guarantee, for having some priority in the loan guarantee, "I'm willing to commit this ship to 20 years in the MSP program." And if you average that out at what we project may be $3 million or so per year, that you're giving us a then-year benefit, if you will, to the U.S. government, of $60 million. It's not a present value, but that's a then-year value.

And that might be a strong inducement for the U.S. government to give you the loan guarantee over another builder who is not willing to sign up for MSP. Now does that sound like a reasonable recruiting tool, if you will, for Title 11 and for MSP?

HANDY: Well, certainly . . .

HUNTER: You understand what I'm talking about?

HANDY: Oh yes, sir. I clearly understand.

HUNTER: What do you think?

HANDY: Well, I think anything that we can come up with that brings industry to the table, that offers adequate shipping for the DOD needs, ought to be examined very closely. And any financial hook that we can put into a program that helps mitigate some of the costs that we have today, then we would certainly be in support of.

HUNTER: Okay.

Mr. Allen?

ALLEN: Thank you, Mr. Chairman.

General, we've had a fair bit of testimony here in the past about the section 2 citizenship issue. And I wondered if you would briefly discuss your views about that issue, particularly whether you're comfortable with current procedures or not? And I also wanted to ask whether DOD has any separate security agreements with other U.S. flag carriers, independent of the MSP program?

HANDY: With regards to the section 2 or documentation citizen, I would tell you that, certainly based upon our lawyers' advice and my personal experience there at TRANSCOM, we are equally supported by both sectors. We have seen no shortfall in support at all. So I can certainly address that.

I'm also informed that I have the same legal capability over documentation citizens and section 2 citizens with regards to exercising either MSP or VISA requirements. And so the way the arrangements are written, we don't feel, from our perspective, that there is reason to treat one any different from the other. And that has been proven over time.

It is certainly -- I'd have to take for the record the last part of your question because I don't know what SSAs that might be written. I can address SSAs which typically are designed to allow us to have some of our classified conversations with the industry that is not shared with any non-U.S. citizens. And so that's the nature of SSAs, is to allow us to communicate with each other about some of the unique DOD requirements or concerns that are shareable between us and other U.S. citizens.

ALLEN: Just one other. I'm wondering if we have -- when we think about our activation needs, you discussed briefly at the beginning, do we have the mariner pool? Do we have the men and women that we need to, if we have an activation of between -- you know, around 50 ships, are the people there?

HANDY: Well, that is a subject of some concern for us and that I think, as a nation, we ought to be concerned about our mariner pool. That is sort of a flat, broad statement. But I think it's absolutely accurate.

As we look at the numbers, we're concerned that today we probably have -- and I have to say probably because we can't say for certain -- we should have the mariners that we need to operate, the ships that we would activate, as well as the commercial market that would continue during a time of conflict. But that number is predicted. And indications are, over time, that it is continuing to decline.

And so as we look out into the future, a lot of the discussions about MSP reauthorization ultimately have an impact on mariner availability. The lack of viable U.S. shipping determines the success or viability of the mariner pool. And so we're concerned, as we look into the future, about the numbers of mariners that might be out there and useful to us.

ALLEN: Do you detect any variation in the size of that pool, based just on trends in the economy? Does the pool grow larger if the economy softens a bit? I mean the global economy now, not just the U.S. Or is that hard to tell?

HANDY: I have no experience that gives me any insights into the health of the economy and the mariner pool. Most of what we see is, as the U.S. flag shipping numbers of ships have declined over time, so have the obvious, the mariner pool that goes along with it.

And so that seems to be the key. And certainly, you could extend that statement and say, "Well, that certainly may be determined by economy." But I don't have any unique insights into ups or downs and what it might do to the mariner pool.

ALLEN: Okay, good. Thank you.

Thank you, Mr. Chairman.

HUNTER: Thank you.

Mr. Saxton?

SAXTON: General Handy, on the subject of section 2 and documentation citizens, in the last hearing, we had a lengthy discussion. And the basis of the discussion was that when you and TRANSCOM have a need for MSP ships, you have to be certain that they're going to be there. And to that extent, there was a long discussion about whether or not a situation without section 2 ownership, or section 2 organization, would permit us to be certain that they would be there.

In your testimony, you say, "Both section 2 and documentation citizens must execute the same contingency contracts with DOD committing vessels to VISA Stage III and thereby assuring us we have access to their vessels." That is a very meaningful statement on your part.

Can you therefore discuss the requirements that you have, in terms of -- or the assurance that you have, in terms of both section 2 and documentation vessels being available?

HANDY: We clearly have the same legal capabilities with regards to reaching out and acquiring those ships, regardless of section 2 or documentation citizen status. That, certainly by agreement and according to our legal staffs, no difference at all.

Now you could -- I mean, there are all sorts of scenarios that could be run. But on the face of the legal capabilities we have as a DOD and specifically those of us at TRANSCOM are able to deal with and treat both equally and have the same legal capabilities with regards to both, just as in the statement.

SAXTON: And our long discussion that I referred to in the last hearing was about what if section 2 provisions went away in MSP? Would that raise concerns for you?

HANDY: Well, I'd turn it around a little bit. And I'd say that the documentation citizen piece allows us to get some, you know, small number of ships. The section 2 provisions would certainly raise some concern. I mean, could I assume by your question that everyone would be a documentation citizen then?

SAXTON: In order to maintain 47 ships, or the appropriate number, I would suppose they would have to be.

HANDY: You could see a scenario that, some time in the future, that might happen. I would prefer seeing a very strong capability for section 2, as well as documentation citizen within any reauthorized MSP. I would certainly favor the flexibility of going on the market and being able to deal with both types of companies.

SAXTON: This is a fairly complicated issue. I understand that documentation citizens are defined as those companies that have 51 percent or more American stockholder, U.S. stockholder participation?

HANDY: That's true. And as we press to test on the button of what they actually are, we find that who physically, who really owns the ship, in accordance with Coast Guard registry, exceeds those requirements. So if there's anything, if there's any measure of confidence in who you're dealing with, for the most part, we are still dealing with majority stockholders that are exclusively U.S. owned.

HUNTER: Excuse me? If the gentleman would yield for a second?

General Handy, I think he was asking about documentation citizens. Those can be 100 percent owned by foreign ownership, according to our -- the stock of the particular company -- according to our facts here. I think you said that it would be 51 percent U.S. That's a section 2 citizen, isn't it?

HANDY: I will make sure and give you exactly.

HUNTER: Okay, I think that's how it is. Section 2 citizen, 51 percent American stock ownership; documentation citizen can be 100 percent foreign stock ownership. And if I'm wrong, I blame it on Rusty (ph).

(LAUGHTER)

(UNKNOWN): That's what staff is for.

(LAUGHTER)

HANDY: There is a subtlety that we're talking about stockholders and composition of the board.

HUNTER: Well, that's not a subtlety. That's two different factors. Tell you what, why don't we walk down through the -- if the gentleman would yield? Let's walk down through this thing so we're all kind of on the same sheet of paper, because this is kind of a complex thing.

Stock ownership, section 2 citizen, requires 51 percent of the stock has to be owned by U.S. citizens. That's a section 2.

With respect to the documentation citizenship, it's no set requirement. Stock can be 100 percent foreign owned. With respect to makeup of the board of directors, in both cases, a majority must be U.S. citizens. The CEO must be U.S. citizens, the chairman of the board, U.S. citizens, et cetera.

So the difference is the stock ownership. That's at least what I see is primarily the difference.

HANDY: That's correct.

HUNTER: Any addendums to that?

HANDY: No, sir.

HUNTER: Okay. Now I think Mr. Saxton asked this very important question, which kind of goes to the heart, the essence of this, the citizenship issue. And that is that you've said you talked to your lawyers. And by golly, you've got legal rights. You've got contractual rights.

And we companies which intentionally and deliberately break contracts all the time because they're willing to pay the breach of contract costs. Actually, that's a part of doing business that is kin to that particular action that they are contemplating because it's economically feasible to break contracts. And people do that all the time.

Now there's remedy for that. It usually is spelled out in terms of dollars.

But they calculate that on a daily basis. Thousands of companies around the world, including U.S. companies, breach contracts knowing they're going to have to pay.

Our problem is, when you're talking about U.S. ships that are going to have to be used to win a war and to save lives, it's little solace that the lawyers ultimately are going to bring you a nice check for the U.S. Treasury against this shipping company because they breached the contract.

So the key here, I think, is reliability and control. And the aspect of having a ship 75 percent, 80 percent, 100 percent owned by the citizens of another country, which may have a major conflict with your foreign policy that those ships are involved in.

And, you know, I hearkened back in one of our earlier hearings to the time when I was in Vietnam, I remember we were still -- Britain, at the time, one of our greatest allies, was supplying North Vietnam and moving ships through Haiphong, carrying war materiel that was going to be used to kill Americans on the battlefield.

So you often have, even with countries that turn out in other scenarios to be extremely close to you, you have a conflict of foreign policy. So I think that's -- if we rephrase, I think, Mr. Saxton's very important question, we know you can rely on you've got a great piece of paper. And by golly, at some point, you're going to collect because your lawyers tell you that you have a good breach of contract action.

The real question is: does that breach of contract action that you have, does that contract that you have with a non-U.S. citizen, does that translate into reliability for the U.S. warfighter? That's the question. And that means that that ship will always be there, that there's no chance for it to be retrieved and there is absolutely the same degree of security as if that stock was American owned.

That's the question.

HANDY: And the key, I would say, is history shows that we have had the same assurances and reliability for section 2 and documentation citizens.

HUNTER: Well, every contract gives you assurances. I mean, that's what a contract is. It's not only assurances, but it's legal assurances that I'm going to do -- that I'm going to perform a certain function as the contracting party.

That doesn't mean that I might not break that contract for my convenience, knowing that I'm going to have to pay some damage. But there's a different standard for the U.S. government, which needs ships in time of war, than for a commercial entity, which can rely on the fact that they can receive dollar damages if the contract is breached.

But what I'm asking you, and I think the essence of what the committee would ask you is: do you have the same degree, do you think that that contract with a company that may be 100 percent foreign owned -- owned -- gives you the same degree of reliability as a company that is owned by Americans? That's the question.

HANDY: Well, aside -- I could say I certainly am more comfortable with a totally U.S.-owned company. I mean, there is no question in my mind that, from the scenario you describe, I would be far more comfortable with a U.S. company. It would be impossible for me to argue that case simply on a written agreement or anything else that we have. I mean, I'd have to absolutely agree with you.

What I am testifying to is that, under our current agreements . . .

HUNTER: Well, you're testifying to that, too.

HANDY: Yes, sir. I realize that.

The key is, I can't write a totally, as you point out, locked tight agreement that can't be breached. I mean, somebody can breach any sort of agreement that we might have. And there are certainly more assurances, more guarantees, more comfort in dealing with a totally U.S-owned shipping industry.

The problem we have is that the sufficiency of the totally owned U.S. industry is not out there today. And that's the problem that we deal with.

And so we find ourselves in a position, as we did in '96 with the original MSP, that section 2 and documentation citizen agreements allow us to operate successfully since then under this agreement and have assurances to have access to those ships. So it may not be the most comfortable position to be in, as you accurately point out, but it is certainly one that has proven itself viable for us in the DOD to date.

MALONEY: Mr. Chairman?

HUNTER: I'll tell you what. I've taken Mr. Saxton's time. So I've got to yield back to Mr. Saxton. But he asked kind of the key question.

And Mr. Saxton, I apologize for jumping in. But you kind of hit the essence of the hearing. Then we'll go -- then, if Mr. Saxton wants to yield to Mr. Maloney. . .

SAXTON: If Mr. Maloney has a point that he wants to make. . .

MALONEY: I would -- on my time or Mr. Saxton's time?

HUNTER: No, go ahead. If it's okay with Mr. Saxton, go ahead.

MALONEY: I'd just like to follow up your question. What the chairman is getting at is the issue of remedies under the contract. And we're having a discussion here assuming that they are financial remedies.

Are there in-rem (ph) remedies? In other words, are there -- does the contract allow you to seize the ship if, in fact, you need it? Or is the remedy only that you get paid back? What does the contract, in fact, provide in terms of your ability to self-assure that that ship is available when it's needed?

HANDY: Well, again, part of the difficulty is the scenario. I mean, you could easily say that a ship could be seized. We have access. We have guarantees that we can physically take the ship.

The issue is it can be anywhere that is not accessible to you. And so we rely on the legal guarantees and the agreements with each of the ship management companies that these ships will be made available to us when we need them.

MALONEY: But the contract does provide you those non-monetary remedies? You can, in fact, take the ship if you can get your hands on it?

HANDY: Yes, sir.

MALONEY: Okay. Thank you.

SAXTON: Let me just reclaim my time for one final question.

HUNTER: I think your time is up, Mr. Saxton.

(LAUGHTER)

Rusty (ph) said.

(LAUGHTER)

SAXTON: Between the last hearing and today, I've had visits from -- visits from and with a variety of people. And one of the conversations that I had with Maersk Sealand, I walked away from thinking, "Well, they've got a real point."

Can you discuss with us -- can you justify a position that says that Maersk Sealand and other foreign-owned shipping companies, why do they believe that section 2 citizen provisions are not necessary/

HANDY: Gosh, it would be really hard for me -- and perhaps even inappropriate, sir -- to try to think why any one of the companies that we deal with would have a position. I mean, I would quickly find myself trying to get inside their minds or defend a position that they are taking. And I . . .

SAXTON: I understand.

HANDY: If I could defer it, I would rather let them speak for themselves on those sorts of points.

SAXTON: I'm being coached.

HUNTER: We've got a joint issue here.

SAXTON: Mr. Hunter and I are both very interested in a related issue, and that's fast ship.

HANDY: The company specifically? Fast Ship, Inc or fast ships?

SAXTON: The concept.

HANDY: Okay.

SAXTON: It seems like the concept of building a 900-foot or whatever ship that can do 38 to 40 knots has a lot of appeal. Getting where we need to get faster, more efficiently, less ships -- more expensive ships, but less ships.

What do you think about the concept of fast ship? And what do you think about expanding MSP to include fast ships or including them in the present program?

HANDY: Certainly, one of the things that we do is watch technology very carefully and closely. And we are very familiar with the current concept of fast ship, as well as HSV/TSV types of ships, which are fast ferry, we are also looking at. The latter, we are more focused on intercoastal, as opposed to open ocean/over ocean carriers.

We are watching the fast ship development very carefully, certainly the one you're referring to. A ship that is roughly 850 feet long to 900 feet that could do 38 knots is an interesting construct.

The bottom line, from our perspective, is it has to be militarily useful and that is multiport capable, draft considerations in the ports that we operate in the world that oftentimes are very constrained. We are looking for, frankly, very high speed.

Right now, we have fast sealift ships that carry considerably more than the current designed fast ship. They're only able to do 24 to 26 knots.

And so as we look at militarily useful, the cost differential for current ships versus next generation fast ships, we would like to see a leap in capability that doesn't result in a smaller capability or a constrained militarily useful. And so we're looking for everything that industry can produce that I emphasize militarily useful -- multiport, preferably not a deep draft ship. So we're watching that with a lot of interest because it certainly is a predictor of what we might be able to develop as time goes on.

SAXTON: Does the fast ship design that exists in the company up in Philadelphia, does that have some of the problems that you just mentioned?

HANDY: As I understand the current option, it's a ship that is about -- it's smaller than what our current capability is. And it's designed primarily for CONUS to Cherbourg, France, fast capability in fixed port operations.

And that is certainly one that we have to ask a lot more questions about what does that fixed port mean and how militarily useful that might be. Is it capable of going to anywhere in the world, for example, and being able to offload, onload military unique cargo?

The things that we ship by ship typically are very heavy, bulky sorts of things and lots of containers. So it just depends on the ultimate design of the ship that they come up with and how flexible it is.

SAXTON: Thank you.

HUNTER: I'm going to go to Mr. Taylor next. But I think your last statement kind of begs the question as to -- one way, you know, one thing we're trying to do, in the next couple of years here, is actually do things. And one of the ways you can get things built is through the Title 11 program.

HANDY: Right.

HUNTER: It gives you enormous leverage. From what I gather, what you've said is it is in the interest of the country to have ships built under Title 11 that are militarily useful. And if you can get ships that can get there and get things there quickly, at the start of a conflict, for example, that's another advantage that we should look for.

Is that accurate?

HANDY: Absolutely.

HUNTER: Well, do you think it makes sense to build those conditions into the Title 11 program?

HANDY: I would certainly suggest that any program involving Title 11 ought to include military useful characteristics to encourage those capabilities in the industry.

HUNTER: Okay.

Mr. Taylor?

TAYLOR: Thank you, Mr. Chairman.

General, I'm one of the ones who has some hesitation about the idea of a foreign entity owning the ships that our nation is relying upon. I think it leads to a lot of unintended consequences. And I think part of that is the declining mariner pool to foreign owners that are more inclined to hire folks from other countries where they will work for less money. It's just the way of the world.

There's a related situation going on that I was wondering if you were aware of. And that is, one of the things that we can count on for our mariner pool has been the coast-wide trade, even though they're working on offshore supply boats and oceangoing tugboats, some of these vessels are very large. An unlimited master's license is an unlimited master's license, whether he's practicing on an offshore supply boat or a supertanker.

Something that's going on -- in fact, the comment period, I believe, ends today or tomorrow -- is there was recently an outfit. And I believe the name was Neighbors Drilling Company (ph). And they, like some other corporations -- Stanley Tool comes to mind -- have decided that they sure like all the benefits of being Americans, but they don't like paying American taxes.

So they have gone through what I believe is called an inversion. Using the '96 Coast Guard Authorization Act, which was intended to allow people to be able to finance their vessels anywhere in the world to get the lowest rate, they're now chartering themselves as a Bahama corporation and saying, "No, that's just the company that's loaning us money." But they want to turn around and participate in the Jones Act, which is for U.S. flagged, U.S. owned, U.S. made, U.S. crew.

Since I would think that part of the labor pool that you're going to depend upon if there is ever a real national mobilization would include inland towing, would include offshore supply boats, would include coastal tugs of that nature, for your immediate ramp-up, and since if this is allowed to continue and become the norm, I see this as turning, in effect, the end of the Jones Act, where we can, in effect, be having Mexican tugboats going up and down the Mississippi River, where we could be having Bahamian coastal freighters going from port to port in the United States.

I was wondering if your agency has weighed in at all on this comment period? Because I do know the Coast Guard is making comments. I do know the vice commandant is coming to see me sometime today, as I'm going to weigh in on this.

But since I think it effects very much so your ramp-up labor pool, I was wondering if you were a) aware of it and b) had taken the time to say anything?

HANDY: No. Certainly, I'm pleased that you've mentioned that. It is something that we're not aware of. And I would have the same concerns that you do.

TAYLOR: May I make this request of you?

HANDY: Absolutely.

TAYLOR: I'm sure, like everything else in government, there is always a provision for an extension of remarks, but I would very much like your agency to take a look at this because I am concerned at the loss of our merchant mariners. But in the back of my mind, coming from -- having spent some time on the Mississippi River and having a lot of friends in the offshore supply boat business, at least in the back of my mind, I'm always aware that we have the backup of these guys.

We take them off a 200-foot offshore supply boat and put them on an 800-foot tanker. We take them off an inland tow boat and put them on one of the RO/RO ships.

But we could very well lose that backup pool of labor if this is allowed to go through. And the Coast Guard is putting those comments together right now. And I do see this as unraveling that and just having all sorts of horrible, unintended consequences for our nation.

So I would very much like your guys to take a look at it. And I would very much like to hear their thoughts on that.

HANDY: We'll do that. And we will forward to you our response.

TAYLOR: I would hope you would also forward that on to the commandant.

Second question is, I read with interest -- and all I got was the local paper back home, which is truly a local paper. For the one- quarter page of international news, they mentioned the French tanker that caught on fire.

Was that an attack? Was that a fire? What do you know of this?

Because, going back to the asymmetrical threats that we have been so thoroughly taught by the folks from the DOD that is the most likely form of attack against our country and given that, as you mentioned, the big, medium-speed RO/ROs carry such a large portion -- each one of those ships carries such a large portion -- of an armored brigade or an Army division on board and so each one of them would represent a huge loss if we lost even one of them, to what extent are we planning on protecting those assets as they are transiting?

I don't think we had anything like convoys during the Gulf War. But I'm curious to hear your thoughts on this because I am concerned, based on what might have happened to that French tanker, about the vulnerability of these cargo ships that we are sending to the Middle East.

HANDY: First part of your question, I don't have any update, other than what we've seen in the media on what happened to the French tanker. We're still obviously very, very watchful of the results of the investigation because we, too, have a great deal of our shipping that transits that area.

We do have self-protection measures. We do and have, over the last year particularly, added capabilities aboard our ships and continue to add capabilities in the budget cycles this year, as well as in the near years, to increase that capability.

In spite of that, I will tell you that it would be naive to not have these kinds of fears. In spite of everything that we know that we can do, in spite of measures taken, we still are very concerned about shipping, not just in that part of the world, but in any part of the world where we have U.S. shipping, especially DOD cargo concerned.

And we are taking every measure we possibly can to mitigate those threats, both in route as well as at the ports, both here in CONUS as well as overseas. But I would share what I sense are your concerns as well about the security of our shipping.

TAYLOR: When you think about it, it was just so incredibly remarkable that in the Gulf War, we did not have one combat-related casualty to any of the ships that were delivering the things we needed. I can't believe that any potential foe would let us get by that easily again.

I mean, people learn from their mistakes. The Iraqis have to learn from their mistakes. And that was one of them.

And so we would certainly hope that the appropriate steps are being taken.

HANDY: We certainly have not only worried but have acted on port as well as shipping concerns and continue to press measures to protect shipping as well as ports. But there is still a lot of work to be done to mitigate the spectrum of threats that we see potentially out there. It's an area that we can't minimize the threat.

It is absolutely there. And it's one that we intend to mitigate as best we possibly can.

TAYLOR: Thank you, Mr. Chairman.

HUNTER: Thank the gentleman.

Ms. Davis?

DAVIS: Thank you, Mr. Chairman. My colleague, Mr. Taylor, is absolutely correct that we were fortunate to not have any combat injury-related incident. But we did face some other problems, I think, during the Gulf War, if I'm told correctly, in getting ships loaded with American equipment into the ports on time.

And one of the things that I understood was one of the problems there was that the foreign crews refused to enter zones that they felt were dangerous. And since that war, many analysts, I think, said that we should do something to do strengthen our Merchant Marine. And I'm not sure if we've done that.

Could you tell me if we have? And if we haven't, are we making any steps towards doing it?

HANDY: Thank you, ma'am. I would tell you that with regards to the whole discussion of the U.S. mariner pool, much of the discussion we've had about MSP and the retention of U.S. flagged carriers enhances our U.S. mariner pool. And so anything that can continue to increase or at least sustain that capability of our U.S. mariner, we obviously favor.

I'm not familiar with the Desert Shield and Storm cases that you refer to. But certainly, a viable U.S. mariner capability precludes those sorts of things from becoming a reality.

DAVIS: Have we increased our pool or maintained our pool? It was my understanding it's dwindled.

HANDY: It has declined. And it is certainly, as we look out into the future, the shortage of mariners, within our own analysis, suggests that we could be as many as 3,000 mariners short of our requirements by the 2005 timeframe, which is literally right around the corner.

And so every endeavor that we can take to sustain and increase where possible that U.S. mariner pool, we're certainly in favor of and endorse.

DAVIS: So if I'm hearing correctly, the problems that we had during the Gulf War -- if they were, in fact, true problems -- we could have even more so in these future wars if we're going because our pool has dwindled down. But let me ask you one more thing.

General Handy, I heard you make a statement a minute ago when you were answering someone's question. And you said -- in quotes -- "Sufficiency of totally owned U.S. industry does not exist today." End quotes.

Why?

HANDY: I think it's an economic issue, that our U.S. flag shipping capability has declined over the years. There are a whole lot of reasons, I think, that that has migrated to a foreign flag. History has proven that that is an issue that this nation faces, is that we have allowed to migrate a great number of shipping capability to foreign flag.

It's taxes. It's economy. It's pay scales. There are a number of reasons that have gotten us in that position.

One of the great values of a program like MSP is it does help preclude any further denigration of that capability.

DAVIS: So then we probably need to tighten up here in Congress on allowing some of the things like the offshore that Mr. Taylor was talking about and then strengthen our MSP here so that we can get more U.S. flag owned vessels.

HANDY: Every endeavor that we can take as a nation to secure and sustain a viable U.S. flag shipping and mariner capability, from a DOD perspective, we absolutely, categorically support. No questions.

DAVIS: Thank you, general.

Thank you, Mr. Chairman.

HUNTER: I thank the gentlelady.

General, you've got a requirement here, you stated in your testimony that the projected capacity of the sealift tanker fleet is adequate to meet the 2005 requirements. Does that conclusion still remain accurate? And doesn't that contemplate using foreign flag vessels to a fairly large degree?

HANDY: Tankers?

HUNTER: Yeah.

HANDY: We use a significant number of non-U.S. flag tankers. There is absolutely no question about that.

Our discussions to date have been dry cargo. The tanker issue is one that certainly is of concern to us as well.

HUNTER: When you say concern, what would you like to see in terms of tankers?

HANDY: According to MRS-O5, the requirement for wet or tanker capability is extraordinary. And U.S. flag tanker fleet is certainly not robust enough to handle those requirements.

HUNTER: Okay.

HANDY: And so I am certainly, as an organization, we remain very concerned and interested in any hooks that might be spun off into the tanker realm as well, as we discuss MSP reauthorization.

HUNTER: Okay. So you believe that U.S. flag tankers that carry jet fuel should be part of that MSP program?

HANDY: Well, I think that I wouldn't constrain it just to jet fuel. It is the . . .

HUNTER: . . . kind of a critical area for us.

HANDY: It is.

HUNTER: Yeah.

HANDY: But it is not just jet fuel. It is the spectrum of tanker capabilities that we utilize routinely around the world, in peace and in conflict, is certainly an area that needs a focus. And it's an appropriate time to raise that issue as well.

HUNTER: Okay. Well, we're talking about perhaps putting some conditions on and priorities on Title 11. Do you think that's a candidate for conditions?

HANDY: Yes, sir.

HUNTER: Okay.

Now you've already answered this to some degree, in terms of talking about Title 11 preferences. But you know, we had a fairly extensive hearing on the shipbuilding component of MSP. Do you think there should be a shipbuilding component in an MSP program?

HANDY: I think clearly, from an organizational perspective, TRANSCOM is of the position that we need MSP reauthorization. I think it's also important that we need a shipbuilding capability in this nation. And the decisions of how we might link those two together are ones that I'm hopeful that you all will be able to address.

And the reason I put it that way is the cost of both programs is certainly one that is an area of interest for you all. From our perspective, we support both initiatives -- strong, viable shipbuilding and a strong and viable MSP program.

HUNTER: On page six of the summary, it's indicated that our port planning orders provide insufficient burdening space and staging areas. Has this been corrected?

HANDY: Are you talking about the MRS 2005?

HUNTER: Yeah.

HANDY: We believe that there has been a lot of improvement. That was an across-the-board comment about the state of ports within the United States.

We believe that we have, as a nation, mitigated a lot of those concerns. We also are confident that, with regards to the two major ports that we use that are military ports, both Sunny Point and Concord, that we have made the investments to improve those ports sufficiently with -- certainly, as you'll see in our budgets -- continuing through the out years funding those upgrades.

HUNTER: Okay.

What we're paying out of the MSP program, the $2.1 million? Prospects for that going higher? Do you think there should be an increase?

HANDY: I think that that's something that industry and we need to continue to work. But those offsets were targeted at the mariner differential -- you know, differential between a U.S. mariner and a foreign mariner. Those costs are bound to go up, have gone up. And so any reauthorization, certainly from our view, ought to look at those costs and try to help mitigate that impact on the industry.

HUNTER: Have you folks done any analysis on this?

HANDY: Not the detailed analysis that would pin down a number for you, sir.

HUNTER: Okay.

We're talking about the prospects of another conflict in the Middle East. Do you anticipate we're going to be using the MSP ships in this conflict?

HANDY: We already are. I mean, our routine contracting processes, on a day-to-day basis, even in complete peacetime, we deal with our VISA and MSP partners. And as we have ramped up over this last year, we have used them even more. And any continued -- whatever the next step might be, we anticipate that we will continue to use those ships and those partnerships aggressively.

HUNTER: Talk to us a little bit about the various stages of activation. What procedures are in place to minimize disruption to commercial services that the companies obviously have? It's somewhat analogous, I think, to our reservists being called up and having a disruption in their peacetime employment -- obviously, a big issue and I think similarly, to some degree, an issue with our MSP ships.

So could you describe those various stages of activation? And do you think if we activate a number of U.S. flag vessels, their foreign competitors will take over customers on a permanent basis?

HANDY: I think that first off, VISA is the program that targets levels of activation -- stage I, II and III. Under stage III, MSP is a subset.

A critical point of MSP is it is the entire ship, you're actually taking an entire ship. In VISA, you're taking capacity. And so stage I, for example, is a small percentage -- around 15 percent, less than 15 percent . . .

HUNTER: And thereby, a small disruption.

HANDY: That's right.

HUNTER: And maybe no disruption.

HANDY: That's right, capacity. The reason it's phased the way it is, it is designed to take advantage of the existing routes that the shipping companies have. And so we're buying capacity on a ship that is already heading our way, to put it sort of colloquially.

HUNTER: Yeah, I understand.

HANDY: Stage II increases that capability. When we get to stage III, we're using a significant capacity of the ship, as well as if we rely on our MSP partners. Then we are taking the whole ship.

It gets down to the question of by stage III then, do we anticipate there might be some economic disadvantage to our VISA partners. That possibility certainly exists. We see it in the CRAF program on the air side.

HUNTER: Sure.

HANDY: And so it is easy to create the scenario that says, by stage III of VISA, that you would have some economic impact on that particular company. And the other nuance there -- there are a lot of metrics, but the other nuance -- is how many ships does a particular company have committed to stage III of VISA? If it's a small number, then the impact is somewhat mitigated. But if, in some of our partners, it's a significant number, then the impact is even greater.

HUNTER: Mr. Saxton?

SAXTON: General, I'm bedeviled by details on this MSP. I have found that it is so complex and very complicated. And I usually catch on to things pretty quick. But I need to ask you one more detail.

Do you know the term "citizen trust" as it relates to the MSP program? And if you do, we can discuss it. If not, we'll talk about this later.

I heard this term recently. And I was informed that the term citizen trust is involved here. And Rusty (ph) and I talked about it earlier today, I think. And it's related to documentation vessels and citizen trust vis-a-vis American ownership.

And I honestly don't understand the concept. But I think it may be pertinent to the subject that we're discussing in terms of the reliability and the access that we have to these vessels.

HANDY: I have to tell you, Mr. Saxton, that citizen trust is a term that is entirely new in this discussion for me. We'll ask the right questions and try to go to your same source -- Rusty (ph) -- and then we can . . .

SAXTON: Okay. Thank you.

HUNTER: For the record, I want the record to reflect that when you brought up the citizen trust issue, Rusty (ph) reflected only a blank stare.

(LAUGHTER)

HANDY: Then I'm not going to Rusty (ph) for my source then.

HUNTER: Anything else, Jim?

SAXTON: No.

HUNTER: Okay.

Mr. Taylor?

TAYLOR: General, I'm curious if we were to have a mobilization -- that is, 75 percent of the force that was sent to Saudi Arabia last time -- how long would it take you, given the medium-speed RO/ROs, given the prepositioned ships, realistically, how long would it take you to accomplish that goal?

HANDY: Now you used the term "mobilization." You're talking about not in terms of mobilization of Guard and Reserve. You're talking about mobilizing the ships that we have at our . . .

TAYLOR: I'm talking about actually getting the equipment there. Obviously, the force is not as large as it was 12 years ago. But let's say that 75 percent of the force that was sent 12 years ago were to be sent now, how long? And one of the things we had last time was the luxury of time, a lot of time.

How long, given what you have now, would it take to get the force over there?

HANDY: There are a number of estimates. And we've looked at all kinds of planning scenarios. There are a number of estimates. But let me give you a couple of real good points that have happened over the last 12 years.

A lot of lessons learned. You know, we certainly were fortunate to have six months to mobilize. And we have no doubt that they're learned the lessons in that part of the world, as well as the rest of the world.

Therefore, we have done a considerable better job of prepositioning specific assets in the AOR far greater than we had back then. We have also moved an awful lot of force structure forward by virtue of Shield and Storm and Operation Northern Watch, Southern Watch, the other endeavors going on in that part of the world.

There is a considerably more force structure and resources forward today than we found at the start of Desert Shield. There's no question about it.

As we have built up in Afghanistan, we have also moved considerable force structure forward, far greater than we would have seen from the cold start of Desert Shield. All that puts us in a position that mitigates that somewhat cold start, "now we've got to go do it" scenario that we all worry about. So if there is any positive news, it is that, from a mobilization or deployment process perspective, we at TRANSCOM have seen a lot of that force structure move forward and a lot less of it left to have to move.

Having said all of that, some of the estimates for the total force size that we might use in any engagement in the world suggests that it could be anywhere from 60 to 90 days to move the force that we need. Now that's not a force that's necessarily comparable to the size of the Shield or Storm force. And so the roughly 75 percent number, it's -- I don't have any metrics that measure what we're doing today against what we moved back then.

I will tell you that we moved an awful lot that didn't need to be moved. And so that inflates the size of what people saw in Shield and Storm. This time, we are looking at all of those scenario plans and are prepared to move exactly what we need in far less time than we would have done back then.

And so, that 60 to 90 day metric is still a pretty good walking around bumper sticker for what has to be done. And I'll tell you one other thing is that doesn't necessarily determine when you start the conflict.

TAYLOR: I think the key element last time was the -- I was absolutely amazed at the capability of some of the ports I saw in Saudi Arabia. I think I'm probably going to say it wrong, but I believe Dammam had about 24 container cranes. It was just mind- boggling, compared to some of the ports I've seen stateside.

Are you getting the full cooperation of the Saudis for the use of those ports?

HANDY: We haven't seen any reason to doubt the support or use of key seaports in the area that we operate today. We use those ports routinely. It is certainly not to the degree that a significant surge might require, as we see it today.

But we have no constraints on it from a port perspective. And I would certainly anticipate that only time will tell what any of the governments might decide in the future if we find ourselves engaged over there. It would be impossible for me to predict how they might react.

But today, we have great support from all the countries around the entire peninsula, which certainly exceeds just the Saudis.

TAYLOR: What level of confidence do you have that these foreign- owned ships that are part of the American prepositioned fleet, if the Iraqis started launching scuds at Saudi Arabian port cities and if those scuds were somehow able to carry the chemical or biological weapons, how confident are you that companies that are owned by other than Americans would send their ships there?

HANDY: One thing to -- certainly we keep in mind, both air and sea, is the scenario of a chemical or slimed port, airport or seaport, as we talk about. Both those scenarios, for a short period of time, depend upon how bad it is.

We don't continue operating in that port. We move to alternate ports, both air and sea, and use other methods for reception and onward movement of those same supplies. Granted, we're talking about a finite part of the world, which leads to some problems in that if we all focus just on the Saudi Peninsula, you'll draw some conclusions that you might find you realize are not very useful anywhere else in the world.

But in that scenario, we tend not to -- we choose not to go into those ports until we've been able to clean them up and operate there. And so then the subordinate question becomes: would you send anybody in there? And the answer, I've said, is we move to an alternate port.

So we somewhat mitigate the question you're asking. But we face both those questions for all the methods of transportation we have.

It would be theoretical for me to try to decide whether or not someone -- it gets back to the same question of the chairman. Would they support us or not? And in fact, it may have nothing to do with the status of a chemical attack or some other type of biological attack at a port. It might be that someone just chooses not to go support us in that war.

But for the scenario you describe, we move to alternate ports, is the solution. And we have been supported, both air and sea, in the case of the scuds flying even back in Shield and Storm. We didn't know what they contained at the time. We still were able to support those initiatives, using the same partners that we have today.

TAYLOR: General, my last question is I believe the ratio of thing delivered by sea versus things delivered by air was about 90 to 10.

HANDY: Absolutely.

TAYLOR: Is that still what you plan on it being? Even with the addition of the C-17s? I would imagine any future conflict would still be with the great preponderance of goods delivered are still going to be delivered by sea?

HANDY: Again, I'd have to start out and say it's certainly scenario-dependent. But we've seen in the last year that operations in Afghanistan have been virtually, until very recently, totally air centric. And so we have relied on C-17s, C-130s and C-5s to get the vast majority of equipment, men, supplies, everything into Afghanistan.

It's only recently that we were able to -- and certainly by the strong help of our sealift partners, have access to Pakistani ports -- port -- and move things over land into Afghanistan. As we look at generically, over time, aside from Afghanistan, the figures that you quote are about right. Invariably, we end up trying to get the biggest bang for the buck on the mode of transportation that gets stuff there.

And it's sealift. Sealift is by far the greatest contributor to our force projection capability over the long term.

That's short, surgical, very quick high demand stuff goes by air. And that ends up being 10 to 15 percent of what's moved. Sealift does it. An average FSS or LMSR will handle 250 C-5 equivalents. So that gives you a walk around number that tells you it's no wonder we rely on sealift.

We just don't have the numbers of airlift at our hands today. But regardless, scenario-dependent, sealift is the main method of movement.

TAYLOR: Thank you.

Thank you, Mr. Chairman. Thank you.

HUNTER: Thank the gentleman.

Ms. Davis? All set?

Okay, Mr. Saxton? Okay.

Well, general, thank you. And we obviously have a lot of work to do. And we look forward to work with you.

There's actually one last thing that I think is kind of the message from us to you. But I think you already know it. And that is that it's going to take your weight, the weight and the force and effect of DOD arguing and working strenuously with the administration, those that don't think that we should put as much of a priority on this lift as you know that we have to have in order to get the dollars to make it work in the relevant program.

You know, the administration is not a great friend of some of these programs. And unless you weigh in on this battle, it's going to be very difficult to increase the dollar amounts that we know need to be forthcoming -- for example, for the MSP program. And we're going to have to go far above that $100 million cap.

You're aware of that, I'm sure?

HANDY: Absolutely.

HUNTER: I hope you weigh in on this argument. Do you plan to do that?

HANDY: Sir, we have not been bashful about our views on MSP reauthorization at all. We have engaged every level that we possibly can, a la junkyard dog style, to be very blunt about it, to make sure that people understand clearly, throughout all levels of government and within the DOD, that MSP reauthorization is a critical element of the nation's defensive capability for the reasons that Mr. Taylor points out.

HUNTER: Could you weigh in with the White House on this? The Office of Management and Budget? Seriously, I think that you need to get into this battle. And you need to educate the folks in OMB, Director Daniels and his deputies, as to the importance of this program. Because this program is going to be given short shrift by OMB, in the absence of some pretty strong expert advice.

I think you folks have a great deal of credibility when you go over there and talk to those folks. If you don't talk to them, the program's going to be written off as a creature of subsidies that's supposed to be identified as an enemy by a lot of folks in the administration and dealt with accordingly. I think you need to weigh into this fight with OMB specifically.

Have you talked to them about . . .

HANDY: I assure you that -- let me lay the marker down for you. I assure you that I personally will communicate directly with Mr. Daniels. We have a good relationship.

I will press the case at his level, from my level...

HUNTER: Great.

HANDY: . . . very directly so that he is aware of the issues firsthand and not through any of our staffs.

HUNTER: Great. I think we need to do that. And we'll try to work hand in hand with you on those efforts.

So I thank you for being with us today. And I want to thank the members for their excellent questions. And the panel is adjourned.

END

NOTES:
[????] - Indicates Speaker Unknown
   [--] - Indicates could not make out what was being said.[off mike] - Indicates could not make out what was being said.

PERSON:  JOHN DUNCAN JR (94%); DUNCAN HUNTER (94%); JOHN HANDY (91%); THOMAS H ALLEN (66%); CURT WELDON (57%); WALTER B JONES (57%); ANDER CRENSHAW (56%); JO ANN DAVIS (56%); ADAM SMITH (55%); WILLIAM M THOMAS (55%); GENE TAYLOR (55%); JAMES H MALONEY (54%); 

LOAD-DATE: October 12, 2002