Copyright 2002 FDCHeMedia, Inc. All Rights Reserved. Federal Document Clearing House Congressional
Testimony
July 16, 2002 Tuesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2246 words
COMMITTEE:HOUSE ARMED SERVICES
HEADLINE: MARITIME
SECURITY PROGRAM
TESTIMONY-BY: JOHN P. CLANCEY,
CHAIRMAN OF THE BOARD
AFFILIATION: MAERSK
SEALAND
BODY: STATEMENT OF JOHN P.
CLANCEY, CHAIRMAN OF THE BOARD, MAERSK SEALAND
BEFORE
THE
HOUSE ARMED SERVICES COMMITTEE SPECIAL OVERSIGHT
PANEL ON MERCHANT MARINE
JULY 16, 2002
Mr. Chairman and members of the Subcommittee, it is a pleasure for me
to appear before you today to speak about the Maritime Security Program (MSP).
We share the view that the MSP is of extreme importance both to our national
defense and to the economic viability of U.S.-flag carriers.
Background Concerning Our Company
By way of
background, most of you are familiar with the Maersk name and logo because you
see our equipment and personnel in United States ports and on America's
highways. In 1928, under the name of Maersk Line, cargo liner service linking
the United States and the Far East was begun. Today, these activities continue
under the name Maersk Sealand, now one of the largest liner shipping companies
in the world. Maersk Sealand is a subsidiary of the A.P. Moller Group, a company
that employs more than 60,000 people in a multitude of activities in over 100
countries. Here in the United States, we generate employment for approximately
11,500 Americans, which includes payroll and contractual employees. Our
commercial fleet includes more than 250 vessels with a total deadweight of
approximately 12 million tons, and more than 800,000 containers. In addition to
the above, I am very proud of the fact that 53 ships fly the American flag and
are crewed with United States citizens, and that our United States corporate
affiliate operating these ships (Maersk Line, Limited) has a top-secret
clearance from the Department of Defense. We also own or operate a large number
of terminals--on five different continents. Maersk Sealand's feeder vessels, as
well as our trucks and dedicated trains, allow us to provide a global
intermodal, door-to-door service to our customers--which includes, most
importantly, the Department of Defense. We have both the resources and
experience needed to meet their demands.
Goals and
Objectives of the MSP
Maersk is a proud participant in
the MSP. As you know, the Maritime Security Act of 1996
creating the MSP was signed into law on October 8, 1996. The Act had multiple
objectives. Under the MSP, the government contracts with the owners of U.S.-flag
commercial ships to make those vessels available when needed in times of
national emergency or war. This means ensuring that the ships and ship crews,
and the global intermodal transportation and communication networks of ship
operators, are available for sealift to the Department of Defense (DOD) during a
contingency. This network includes vessels, infrastructure, logistics management
services, terminals and equipment, cargo-tracking and other communications
networks, providing professional seafarers, and making use of the thousands of
shoreside employees located throughout the world.
Another key objective of the MSP is to assure a continuing presence of
U.S.-flag ships in international trade, and to assure that an adequate number of
trained and experienced ship crews are available at DOD's request. This is an
important component to the program that we strongly endorse.
The MSP provided $2.3 million per ship for the first year of the
program, and currently provides $2.1 million per ship for each fiscal year
through 2005, when the MSP's current authority expires. The Maritime Security Act is authorized appropriations of $100
million each year through 2005, which is enough to fund 47 ships per year.
Funding is subject to annual appropriations, and contracts with ship operators
run for one year and are automatically renewed, presuming sufficient funding.
By any measure, the first objective - the national
security goal - of the MSP has been a tremendous success. The Department of
Defense United States Transportation Command has estimated that it would require
minimum investment of $9 billion to construct-- and annual expenses of more than
$1 billion to operate and maintain (not including crewing)--a fleet and
intermodal infrastructure comparable to that provided by VISA operators. The
Voluntary Intermodal Sealift Agreement (VISA) is a contract between MSP carriers
and the Department of Defense. The ocean carrier provides services during a
contingency that may arise in any part of the world. This obligation includes
operators guaranteeing vessel capacity, providing corresponding intermodal
services, and infrastructure supporting capacity commitments to DOD contingency
operations.
MSP vessels provide invaluable assistance
to DOD. By way of further example, I am pleased to note that Maersk Line,
Limited operated Maritime Preposition Ships were the first ships to arrive in
Operation Desert Storm and off-load critically needed Marine Corps supplies and
equipment. The U.S. corporation's parent company--AP Moller--contributed to the
effort by providing space on its Danish-flag commercial ships free of charge to
the U.S. government so it could load much needed supplies for our troops during
the sustainment phase of Desert Storm. This included four different voyages on
two container ships that were equipped with critically needed roll-on, roll-off
capacity. This space was used to lift tanks, trucks, and other amphibious
equipment. Maersk marine terminals and other critical assets were also made
available in the United States and in strategic locations abroad to support the
sealift effort. More importantly, our commitment to DOD continues to provide
transportation of equipment and sustainment cargo to our forces around the
world. Maersk is actively involved in providing northern and southern route
intermodal services to Afghanistan in support of Enduring Freedom. Our global
network of assets, terminals, equipment, and people help enable DOD readiness as
missions change in the war against terrorism. This is but one example of the
ongoing commitment by Maersk and other carriers to our national security, and
the success of the overall MSP.
The other major
objective of the MSP - ensuring the continued viability of a U.S.-flag merchant
marine - still has not been achieved sufficiently. In short, Mr. Chairman,
carriers are losing money today, and in our experience U.S.-flag operating costs
are compounded by expenses associated with current section 2 citizen company
requirements. The possible end of the MSP in 2005 also serves to chill
investment and growth in the U.S.-flag merchant marine, adding further
uncertainty to the presence of the U.S.-flag fleet.
Reauthorization Needed Now
I urge the Congress
to reauthorize the MSP as early as possible. As I noted above, current law
provides for the MSP to extend through Fiscal Year 2005. Given that, some may
question why we need to reauthorize the MSP now. Let me answer that question: it
is critical that we preserve the important U.S. maritime industrial base and
American jobs. Removing any uncertainty about the extension of the MSP will be
very helpful in that regard. Therefore, we and other advocates of a viable
U.S.-flag presence propose that the MSP be extended for an additional 20 years -
through Fiscal Year 2025. This will provide certainty and stability for the
defense and commercial shipping objectives of the MSP. This will encourage
private lending institutions to invest in U.S.-flag vessel operations and
provide needed certainty over the long term to vessel owners and operators, as
well as labor interests, about the continued allocation of resources to the
MSP.
Corporate Citizenship Requirements
The Maritime Security Act provides for participation
in the MSP/VISA programs by U.S. companies qualified under section 2 of the
Shipping Act, 1916 and by those meeting the separate requirements of chapter 121
of title 46, U.S. Code - often referred to as Documentation Act citizens. For
example, many of the vessels currently enrolled in the MSP are operated by
section 2 citizen companies, but are time chartered to Documentation Act U.S.
shipping corporations for operation in foreign trade as part of the
international liner fleets of their foreign parent companies. Others are
operated directly by Documentation Act companies such as Maersk Lines Limited.
The flexibility inherent in these arrangements works to the overall benefit of
the program, and ultimately, of the U.S. military who rely on those ships for
sealift.
In order to enhance efficiency to the
Department of Defense, the industry proposes that this requirement be changed so
as to permit those documentation citizens which have a Special Security
Agreement with DOD the right to operate vessels in the MSP. We have made a
substantial investment in ship owning and ship management capabilities for
programs associated with the Military Sealift Command. This change, however,
combined with our investments in ships, terminals, containers, chassis, and
cargo tracking systems will enable us to provide added strategic sealift value
to DOD. It is therefore the documentation citizens who are signatory to the VISA
who provide the actual equipment and services to lift critically needed military
equipment during contingencies. Within the broad guidelines offered by the
statute, it should be the international liner carrier working in concert with
its U.S. partners that determines which operating arrangement provides for the
greatest efficiency and cost effectiveness based on their own unique
situations.
In order to strengthen the national
security aspects of the program, the industry proposes that the citizenship
requirement be changed so as to require those documentation citizens seeking to
operate vessels in the MSP to enter into a Special Security Agreement with DOD.
Because the process by which the DOD approves Special Security Agreements with
carriers is very thorough and careful, these Agreements provide a guarantee
that--along with existing U.S. law--will require the VISA assets needed for
national security to be available when called upon by the U.S. government during
a contingency.
Expansion of the MSP
We also need to expand the current size of the MSP, for it is not
adequate to satisfy the increasing military needs of the Nation. Therefore, the
industry proposes that the MSP be expanded in several ways. First, we suggest
that Congress authorize a fleet of thirteen privately owned, militarily-useful
U.S.-flag commercial vessels beyond those presently funded through the MSP.
These additional operating agreements, should be awarded first to section 2
citizens, and thereafter to documentation citizens with a Special Security
Agreement. The expanded MSP will add to our ability to satisfy national security
needs.
In addition, MSP payments must better reflect
the costs of doing business under the U.S.-flag resulting from government
imposed rules, regulations and tax obligations. Therefore, consistent with all
existing operational requirements and limitations, each vessel in the MSP should
be eligible to receive up to $3.5 million in payments. The effective date of
this increased payment should be October 1, 2002, making existing MSP contracts
eligible for the increased payments. Because MSP payments have not kept pace
with inflation since the program was begun, I suggest also that payments be
increased annually by the rise in the Consumer Price Index beginning in Fiscal
Year 2004. These increased payments will go a long way toward helping existing
carriers meet their costs, and encourage continued participation in the U.S.-
flag program.
Maintenance of Existing Collective
Bargaining Relationships
We have discussed that another
objective of the MSP is to ensure that DOD has available a manpower pool of
trained, professional seafarers to operate ships in times of national emergency.
In general, the carriers and the union representatives have worked well together
to ensure that the MSP is a success. If the MSP is extended and enhanced as I
have suggested today, I can state today that it is our intention to honor all
union contracts. Maersk has maintained a constructive dialogue and effective
working relationship with the unions represented on our ships, and we will
continue to do so.
No Effect on Jones Act Trade
Finally, Mr. Chairman, I state clearly that the changes
that I have proposed today would have absolutely no effect on the Jones Act
trade. These changes to the MSP will have no impact whatsoever on the corporate
citizenship requirements of the domestic trade. The extension of the MSP or
these changed provisions will not hurt the Jones Act trade in any way.
Summary
By all accounts, the MSP
has been successful, but it needs to be modified to achieve its goals more
completely. Bringing stability to the MSP through long-term, dependable
extension will help the MSP to ensure our national security and economic
vitality objectives. Clarifying the roles of Documentation Act citizen companies
will also provide incentives and the possibility of further growth. Increasing
the amount of payments indexed to inflation will also make the costs of
operating under the U.S. flag more comparable to those of our foreign
competitors. It is important that these changes be adopted now, to ensure the
continued availability of these vessels for our national security and commercial
well-being.
Thank you for this opportunity to appear
here today and present these comments. Of course, I am pleased to answer any
questions you might have on this matter.