Copyright 2002 FDCHeMedia, Inc. All Rights Reserved. FDCH Political Transcripts
July 16, 2002 Tuesday
TYPE:COMMITTEE HEARING
LENGTH: 20377 words
COMMITTEE:HOUSE ARMED SERVICES COMMITTEE
SUBCOMMITTEE: SPECIAL OVERSIGHT PANEL ON THE MERCHANT MARINE
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:
RON DAVIS,
PRESIDENT, MARINE ENGINEERS BENEFICIAL ASSOCIATION. CAPTAIN MIKE
RODRIGUEZ, INTERNATIONAL ORGANIZATION OF MASTERS, MATES, & PILOTS MICHAEL SACCO, PRESIDENT, SEAFARERS INTERNATIONAL UNION MICHAEL R. MCKAY, NATIONAL PRESIDENT, AMERICAN MARITIME OFFICERS JOHN P. CLANCY, CHAIRMAN OF THE BOARD, MAERSK SEALAND ROY
BOWMAN, ESQ., VICE PRESIDENT, AMERICAN PRESIDENT LINES ERIC JOHNSEN,
PRESIDENT, INTERNATIONAL SHIPHOLDING CORPORATION JORDAN TRUCHAN,
CHAIRMAN AND CEO, AMERICAN SHIP MANAGEMENT JAY KEEGAN, PRESIDENT,
U.S. SHIP MANAGEMENT ROBERT ALARIO, PRESIDENT, OFFSHORE MARINE
SERVICE ASSOCIATION
BODY:
HOUSE ARMED SERVICES COMMITTEE: SPECIAL OVERSIGHT
PANEL ON THE MERCHANT MARINE HOLDS A HEARING ON U.S. OWNERSHIP OF SHIPS IN MARITIME SECURITY PROGRAM
JULY
16, 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: OK, folks, we apologize
for the delay, here. That's the way the House works. When they're ready to vote,
we vote. And hopefully we'll have about an hour or so before we have to go
back.
The special panel will come to order.
And I would first like to welcome the witnesses that are
scheduled before us today. And, again, thanks. And thanks for your patience.
Although we have some time before the current Maritime
Security Program expires, the panel wanted to get started right now with the
hope that we can get something enacted well before the current expiration date
of 2005.
I understand that getting agreement among all
the disparate interests will be difficult and I also understand that paying for
a new program will be equally challenging. What I hope the panel will do is work
through each of the difficult issues, with a goal of getting agreement on a
consensus package that we can all unite behind. It is clear to me at this point
that we will not be able to satisfy each and every desire.
This is the first of what I hope will be several additional hearings
relating to the Maritime Security Program. The next hearing will address issues
related to commercial shipbuilding and the MSP program. I hope that hearing will
also address additional incentive programs, such as needed changes to our tax
laws. We may also need to hear from other components, such as the bulk
operators.
Before we proceed to markup, I believe the
panel will need to hear from those within the government who set the
requirements for commercial reserve sealift capability. Accordingly, I will
invite the head of the Transportation Command, General Handy, to testify.
We all know that if we do not get his support for the key
elements that reauthorization of MSP will be very difficult. And quite frankly,
I think these two gentlemen recognize that we are not just getting access to
ships in the Maritime Security Program, but also the infrastructure that goes
with them. We need to hear the importance of that part of the package.
Finally, after we build the record, I want to get the
administration before this panel to hear their view, get their support and, most
importantly, receive a commitment to include funding for a new program in their
budget.
And I want to thank Mr. Allen and Mr. Taylor.
And Mr. Allen is the ranking member. He's given us great support and guidance.
And I understand he is not with us right now. But Mr. Taylor is here and I would
like to let him make any comments that he might wish to make.
Mr. Taylor?
TAYLOR: Thank you, Mr. Chairman. I
was not expecting Mr. Allen not to be here. So, if you don't mind, whatever
statement he had, we'll just send it to the record.
HUNTER: Excellent.
And if any other members
have any statement they'd like to make, please feel free. Does anybody else have
anything they'd like to say before we get started with testimony?
In that case, why don't we just -- for purposes of
convenience right now, just start with Mr. Alario and let's just go right across
the panel -- left to right.
And Mr. Alario, the floor
is yours, sir.
ALARIO: Thank you, Mr. Chairman.
Good afternoon, members of the panel.
My name is Robert J. Alario. I am privileged to serve as president of
the Offshore Marine Service Association, which is based in New Orleans,
Louisiana. My association represents approximately 250 companies that are
engaged directly or in general support of offshore oil and gas exploration,
drilling or production, worldwide.
A list of our
members has been attached, for the record. And our members and crews, it should
be known, operate in excess of 1,200 vessels worldwide. These are special
purpose -- unique vessels. But, nevertheless, though we are often regarded as
sort of second cousins to the merchant marine, we are part of the U.S. flag
fleet and the largest participating marine interests that operate both
domestically and in foreign theatres.
We wish to thank
you, Mr. Chairman for this opportunity, first and foremost, to express our
fundamental support for an effective reauthorization of the U.S. Maritime
Security Program.
At the same time, however, we are
compelled to express our opposition to proposals to repeal, relax or modify
Section 2 U.S. citizenship provisions of law that govern companies that would
own and operate ships under the Maritime Security Program.
While OMSA companies do not operate ships in the Maritime Security
Program, we are concerned that the proposed change to U.S. maritime law
governing U.S. citizenship requirements, that is Section 2 requirements, for
vessels that are operating under the U.S. flag poses, in our opinion, a more
fundamental, potentially corrosive threat to the citizenship requirements for
operation of U.S. flag vessels, not only in this area, but in others.
We feel that the proposed change would, inexorably and
inevitably, erode our ability to truly control the ownership, loyalty and
reliability of access to vessels operating in our nation's domestic and, more
particularly in our case, offshore maritime sectors that presently fall within
the Jones Act, as well as within the MSP.
We have been
assured that the proposals to modify ownership requirements from Section 2 to
documentation citizenship to qualify for operation of U.S. flag vessels within
this Maritime Security Program will not translate into an erosion of citizenship
standards relative to Jones Act operations. We desperately want to believe this,
but our experience -- and particular our experience since 1996 when several
potential loopholes have been opened up in U.S. law -- our experiences simply
don't support this thesis, unfortunately.
The
underlying pillars of our maritime laws have been and are, clearly, to foster
American ownership, operation, construction and crewing. These principles are
embodied in our maritime laws in order to ensure that the United States has the
industrial capability to build a fleet of vessels that are controlled by
American companies and crewed by American citizens to meet our national security
requirements, in particular.
A Section 2 U.S. citizen,
if not protected in the implementation of the MSP program, would be placed in an
unfair, uncompetitive position. As compared with a documentation citizen, the
Section 2 company is subject to U.S. corporate taxes, significantly more
stringent regulation and liability exposure.
To expand
the program to include non-citizen participants would eventually force the
American companies to go "foreign" in order to compete, or, more likely,
relinquish the field entirely to foreign- controlled companies.
Now, we believe that a change to any one of the three underlying
pillars or principles of historical U.S. maritime policy, in our opinion, will
have a direct impact on the others.
ALARIO: And we
perceive that changes to maritime laws governing the ownership of vessels
operating in the U.S. to foreign trade will, prospectively, also probably impact
the fleet serving our domestic trade, arguments notwithstanding. If we are
right, it will, unfortunately, be too late to correct the problems that are
created by the liberalization of the citizenship requirements.
The changes being proposed to this panel, we believe, would create a
new, and, we further believe, a dangerous exception to the fundamentally sound
Section 2 citizenship requirement by permitting, for extended periods
foreign-owned and controlled companies to operate maritime security vessels, if
it is a party to a special security agreement with the Department of Defense.
The implication, which is arguable, is that a special security agreement is an
adequate substitute for independent Section 2 citizenship.
We contend a foreign company with a special security agreement, or SSA,
does not, in our opinion, necessarily ensure the U.S. government reliable access
to a vessel under all circumstances.
OMSA, though it
does not participate in the Military Security Program is extremely sensitive to
and supportive of the objectives that U.S. crews and their jobs within this
program and beyond be protected. But we do not see that the promotion and
retention of Section 2 U.S. citizenship requirements would adversely impact that
objective. To the contrary, we believe that this approach, in the long-term, is
more consistent with U.S. interests.
If the attempts to
achieve reauthorization of the program, which we do support wholeheartedly,
comes at the expense of compromising the Section 2 citizenship requirements
currently in U.S. law, we respectfully maintain that this proposed compromise,
offered to obtain a short-term solution, if you will, will, inevitably,
undermine the Jones Act and, ultimately, although unintentionally, this proposal
will have, we think, the opposite, adverse effect or impact on jobs for U.S.
mariners; the economic viability of U.S. vessel owners and marine operators; and
upon reliable U.S. control of marine assets engaged in routine commercial Jones
Act trades; as well as more sensitive operations critical to our national
security.
So we say that reauthorization under the
purview of this panel and the committee must be, hopefully, obtained by other
means, if at all possible.
In the final analysis, the
proposal to give documentation citizen companies the right to operate vessels
directly in the program concerns us greatly.
While we
are anxious to expedite congressional reauthorization, Mr. Chairman, of this
program, we are opposed to sacrificing the concept of Section 2 citizenship and
the broader problems it prospectively creates for U.S. vessel owners, operators
and mariners.
We believe, and respectfully request,
that this committee does favorably receive and advocate those positions and
actions, instead, as proposed by industry and the maritime unions that would, as
all of us would want to see and that we can agree upon, enhance the economic and
national security benefits of the United States; expand the program to authorize
additional privately owned -- under the provisions of Section 2 citizenship, we
say -- militarily useful United States flag commercial vessels; establish an MSP
payment schedule that better reflects the cost of doing business under the U.S.
flag operations by extending the term and increasing the level of payments under
charter; and, in general, enact provisions that would provide reasonable
flexibility in the administration of the program.
In
all of these respects, we can and do support what our counterparts and other
stakeholders who may have either a direct or indirect interest in the program,
and an interest in the ramifications that might follow from the modifications to
the program.
We clearly accept the fact that there are
parties, beside ourselves, who will appear before this panel that feel very
protective of the Jones Act and would guard it jealously. For example, I
personally know Mr. Eric Johnsen, and have the highest respect for this
gentleman. I am well aware of his personal commitment to maintain the integrity
of the Jones Act, as I do the maritime unions.
Some of
these people will not agree with us on the Section 2 citizenship issue. They may
be in favor of allowing foreign- controlled documentation citizens with
equivalency with Section 2 U.S. citizens under certain circumstances, within
this subject program.
So, Mr. Chairman, we would,
respectfully, ask the panel to include specific language, as this hearing
proceeds, to make it clear that no matter what the outcome of these hearings may
be, there should be no action taken or inference made available through the
hearings which could have a precedential impact or influence with respect to
weakening Jones Act operations.
And I believe that
everybody in this room today, while we may have some disagreements, would agree
and support that if the committee sees fit and finds it possible to do that.
We submit that our concerns are real and not theoretical.
We are already seeing that since 1996 foreign companies have used several newly
available loopholes in the law to proceed to infiltrate maritime services that
have been traditionally protected by the Jones Act.
And
we, therefore, urge Congress to move quickly, but cautiously, to reauthorize the
MSP, but to reject, in this process, any effort or proposal that would weaken
U.S. Maritime Law and the Jones Act, specifically.
Our
nation, at this time and in the current circumstances, we feel needs a U.S.
merchant marine that is truly, effectively controlled by Section 2 American
citizens, dedicated to serving our domestic and international commerce. I don't
feel -- and many of us will agree -- that this can be accomplished equally by
foreign- controlled corporations who may be run by decent people. But under the
circumstances today, that is not enough.
In conclusion,
we wish to acknowledge the complexity of this matter, Mr. Chairman. And we feel
compelled to reiterate that, while we strongly disagree with the proposition to
repeal or modify the requirement for Section 2 citizenship to operate vessels
within the Military Security Program, we are committed to keeping dialogue open,
and look forward to working with you, and all concerned, to find common ground
from which we can constructively advance the broad interests of the U.S.
maritime industry.
And above all, we are committed to
the proposition that this nation must be persuaded that its security and welfare
is at risk and that our country will be exceptionally vulnerable until Congress
acts to rebuild a healthy and versatile U.S. Merchant Marine, based on U.S.
built bottoms, owned and operated by U.S. Section 2 citizens and crewed by well
trained, loyal U.S. citizens. I thank you, Mr. Chairman. We are grateful to you
and the panel for your thoughtful attention to our views, and for your kind
attention to our comments.
HUNTER: Well, thank you very
much, Mr. Alario.
ALARIO: Yes, sir.
HUNTER: I appreciate your very thoughtful statement. And I understand
that your are not -- you do not represent a Section 2 citizen, but that,
nonetheless, you feel that the...
ALARIO: All of my
members are Section 2 citizens, sir. I represent them, in essence.
HUNTER: Oh, OK. You do represent...
ALARIO: Yes, sir.
HUNTER: ... Section 2
citizens.
ALARIO: Yes.
HUNTER:
But you feel that this proposed change would have a -- could start us on a
slippery slope with respect to citizenship requirements embedded in the Jones
Act.
ALARIO: We feel intensely that that could be the
case. And we have evidence that that is already beginning to happen.
HUNTER: OK. Thank you very much for your statement. We
appreciate you being with us today.
Mr. Truchan?
TRUCHAN: Mr. Chairman, members of the panel, my name is
Jordan Truchan. I am the president and CEO of Patriot Holdings, American Ship
Management -- ASM -- Patriot Contract Services all based in Walnut Creek,
California. It is an honor for me to appear before you today to speak about the
Maritime Security Program and the role the United States Section 2 citizens
fulfill in that program.
We believe the MSP program is
working well. MSP is absolutely essential to the continuing existence of the
American Merchant Marine and, therefore, the national defense and security of
our nation.
I respectfully submit it as a statement to
the record. And at this time, I would like to make some highlighted key
comments.
HUNTER: And without objection, all written
statements that have been prepared by the witnesses will be accepted into the
record. But don't feel that you have to repeat your statement word-for-word. It
will be accepted in and you are free to summarize in any way you wish.
TRUCHAN: OK. It's fairly -- bit of a summary.
HUNTER: OK.
TRUCHAN: American
Ship Management is a United States Section 2 citizen as defined by the Merchant
Marine Act of 1916. It is wholly owned by myself and my two founding principals,
all of whom are U.S. citizens.
ASM holds nine MSP slots
with MARAD and is a member and an active participant in the Voluntary Intermodal
Sealift Agreement.
Our affiliate, Patriot Contract
Services, is a major contractor for the military sealift command, holding the
contract for the operation and maintenance of 11 large medium speed RO-RO's, or
LMSRs.
Additionally, PCS employed in the USN Military
Sealift Command (MSC) surge program. Additionally, PCS manages six ships for the
Maritime Administration's Ready Reserve Fleet. All together, our company
currently manages 26 U.S. flag commercial and government vessels.
ASM employs over 1,500 U.S. citizen seafarers covering
over 500 seagoing billets. In addition, we have 150 shore-based positions also
filled by the maritime unions. We employ over 50 shore-based management
personnel working in offices in the states of California, Louisiana and
Virginia.
In 1997, ASM was formed by the three
principals to be a completely independent U.S. citizen entity. This entity would
operate U.S. flag vessels enrolled in MSP, in accordance with U.S. law.
ASM submitted applications with MARAD for MSP agreements
to cover the nine containerships APL had committed to the U.S. government for
participation in MSP. Throughout a seven-month period, ASM underwent intense
scrutiny by MARAD to confirm its independent status before finally being awarded
these MSP agreements. ASM assumed operational control of the APL U.S. flag fleet
in November of '97, concurrent with the sale of all APL stock to Singapore-based
Neptune Orient Lines.
ASM provides unique ship
management services and wholly responsible for the safe navigation of the
vessel; provides officers and crew; places all insurances for the vessels, crew
and cargo; outfits and provisions the vessels; maintains the vessels in a
seaworthy condition at all times; ensures regulatory and statutory compliance;
enforces crew discipline and compliance with collective bargaining agreements;
and provides emergency response and contingency planning for the vessels
operations.
As the responsible party in stage 3 visa,
ASM enjoys close working relationships with the United States Transportation
Command, MARAD and MSC. ASM has participated in numerous Joint Planning Advisory
Group exercises and all visa CEO meetings.
ASM
maintains collective bargaining agreements with six maritime unions. As a
concerned U.S. citizen company, ASM has worked diligently to develop
opportunities for American seafarers and recruit new seafarers to augment the
aging and diminishing American seafarer workforce.
ASM's business model is the prototype for the current MSP Section 2
citizen operator to operate U.S. flagships on behalf of non-U.S. citizen
carriers in the U.S. flag trades. This business arrangement provides the carrier
with the ability to carry U.S. government impelled cargoes while providing
strategic sealift capacity to the U.S. government and jobs for U.S. seafarers
and shore-based workers.
ASM is committed to its
ongoing participation in the current MSP, and ASM is equally committed to
working with all the parties to accomplish reauthorization and expansion of
MSP.
In closing, I want to thank you for the
opportunity to provide testimony before this panel on the subject of MSP. ASM is
a wholly U.S. citizen-owned Section 2 company formed for the purpose of
providing U.S. flag sealift capacity to the U.S. government. In this effort ASM
creates jobs for American seafarers and office workers while providing tax
revenues for the U.S. Government.
ASM provides our
country an industrial base for ship operation and management in the United
States. And last, but most important, ASM, as a United States Section 2 company,
is committed to the security and prosperity of the United States of America and
its loyal citizens.
Thank you very much, sir.
HUNTER: Thank you, Mr. Truchan. Thank you very much for
your statement.
Mr. Keegan?
KEEGAN: Mr. Chairman and members of the panel, my name is Jay Keegan. I
am president and CEO of U.S. Ship Management. And I am pleased to be here
today.
Mr. Chairman, On April 26, 2001, you stated that
U.S. ownership and U.S. control requirements are critical to the continued
viability of the MSP program and must be preserved. It is gratifying that in a
letter to you, dated June 18, 2001, all of the other members of this panel
agreed with your position.
In light of the events since
that time, I would submit that MSP American citizenship policy has become even
more critical.
Mr. Chairman, I want to be clear that
U.S. Ship Management supports the Maritime Security Program. We also support a
properly designed reauthorization of MSP, but we must get it right.
Although we have been excluded from the process, we
understand that Maersk, APO (ph) and others have drafted proposed legislation to
reauthorize the MSP program three years before its current authorization
expires, which contains provisions that truly strain credulity.
Their legislation would bind the U.S. government to 20-year operating
agreements while allowing the operators to opt out of the contracts and even
transfer their vessels to foreign flag, simply upon giving notice to the
secretary of transportation.
KEEGAN: For example, just
before their vessels are required and the contingency in the Taiwan Straits or
Iraq, under their bill, they could give their notice and transfer their vessels,
perhaps, to a PRC flag or an Iraqi flag.
Their
legislation equates a foreign-controlled documentation citizen with a U.S.
citizen-owned and controlled company. This would put American companies like
mine out of business. And most importantly, would have profound national
security implications.
I understand that the seagoing
unions feel pressured to support Maersk in these efforts because Maersk has
threatened to transfer its American flag vessels to foreign flags if their
legislation isn't enacted. This is an idle threat. It isn't logical for Maersk,
a $35 billion company, to abandon U.S. flag vessels and U.S. government cargo in
hope of saving, perhaps, a few million dollars.
But if
they did, other companies would certainly step in to operate U.S. flag
vessels.
Mr. Chairman, the focus of today's hearing is
U.S. ownership and control of vessels operating in the Maritime Security
Program. I don't believe Maersk representatives have fully disclosed to
Congress, or to this panel, information which will be critical to your
consideration of this important issue.
Specifically,
the secretary of state has designated Iran, Iraq, Libya and Sudan as state
sponsors of international terrorism, yet Maersk continues to do business in
these countries. I ask that proof of this fact, including material owned from
Maersk's own Web site, be included in the record -- which I have with me.
According to Maersk, they began serving in Iran in 1950
and, quote, "since then provide uninterrupted service to Iranian customers even
during the revolution and Iran-Iraq war period," end quote. Therefore, Maersk
provided continuous service to Iran while Americans were being held hostage
there and throughout the entire period of U.S. economic sanctions against that
country.
Let me be clear, I am not suggesting that
Maersk has violated U.S. law, because, after all, Maersk is not a U.S. citizen.
But Maersk is appearing before this panel and claiming they should be considered
as the equivalent of a Section 2 citizen.
Mr. Chairman,
it is not enough to be "like" a citizen. Contrary to Maersk's rhetoric, Section
2 companies like mine are not shams. We play a vital role and help to ensure
U.S. national security. We also provide real jobs to real people and provide
exactly the kind of check and balance intended by Section 2 for U.S. national
security.
Let me give you a clear example of why
American control of MSP enrolled ships is critical. On November 26, 2001, while
news reports were indicating that Al Qaeda and Taliban fighters were being
allowed to cross the border into Iran from Afghanistan, Maersk directed one of
our ships -- the Sealand Express, an American flag D9J (ph) class vessel -- to
proceed to the port of Bandar-e 'Abbas in Iran. The ship wasn't due by at the
time. And Maersk began loading containers on board, destined for Iran, which
could not accommodated on Maersk's own foreign-flagged vessel, which goes to
Iran every week.
As an American citizen company, wholly
owned by American citizens, our loyalty and obligations were clear. We would not
allow the ship to go to Iran. The Maersk containers destined for Iran were
removed from the Sealand Express and the vessel resumed its normal schedule.
As Eric Johnsen said, a commercially viable, U.S. flag
fleet is also the way to ensure that foreign carriers don't exert control over
the price of U.S. imports and exports. But is that the case if that U.S. flag
fleet is owned and controlled from Beijing or Singapore or Denmark?
Mr. Chairman, some appearing before you today have tried
to color their proposal regarding citizenship as one that tightens the
requirements. That is pure sophistry. It has been, and remains, the stated
policy of the United States to have a merchant marine, and I quote, "owned and
operated under the United States flag by citizens of the United States insofar
as may be practical." "Citizen of the United States" is defined to mean a
Section 2 citizen. To ensure that policy result, if the MSP program is changed
at all, we should ensure that only Section 2 citizens can be MSP contractors.
In a time of national emergency, the United States needs
to know that it can count on genuine U.S. citizens rather than the legal fiction
of documentation citizens. Unfortunately, we can envision conflicts where
foreign-controlled documentation citizens might decide to be neutral when our
nation requires commitment. If we permit a documentation citizen the same rights
and privileges as a Section 2 citizen, we will hasten the demise of the
citizen-owned U.S. Merchant Marine in the foreign trades. And, as importantly,
it will eventually open up both the domestic and non-contiguous trades to
foreign ownership and control.
Do we want this to
happen? I think not. The Maritime Security Program and the Section 2 citizenship
policy of the MSP have served our country well. And I would respectfully submit
that the policy should not be modified.
Thank you for
this opportunity to testify. And I look forward to answering any questions which
you or your other panel members may have.
HUNTER: Thank
you, Mr. Keegan.
Mr. Johnsen?
JOHNSEN: Thank you, Mr. Chairman, and members of the panel.
I am particularly pleased by the invitation to appear
before you today to address the vital need of the reauthorization of the
Maritime Security Program to ensure the continued viability and survival of the
U.S. flag fleet.
I am Erik Johnsen and I am president
of International Shipholding Corporation. ISC participates in the Maritime
Security Program with its principal U.S. flag subsidiaries: Central Gulf Lines,
Inc. and Waterman Steamship Corporation, both of which provide a wide range of
oceangoing freight transportation through pure car-truck carrier services,
roll-on roll-off, breakbulk and domestic coastwise services.
I am speaking here today on behalf of Central Gulf, Waterman and other
U.S. flag participants in the Maritime Security Program, including American
roll-on roll-off carriers, American President Lines and its sister company,
American Automar, Maersk, Sealand, Overseas Shipholding Group and American Ship
Management.
Though many of these U.S. flag carriers
will submit separate written statements for the record, I wish to strongly
emphasize to you that we all, collectively, support the continuing need of the
Maritime Security Program and urge you to expeditiously enact legislation to
reauthorize that program, which is so vital to the sealift capability of our
nation and its armed forces.
Mr. Chairman, during the
past year, Central Gulf and Waterman have been working closely with the U.S.
transportation command, the maritime administration and other maritime security
program participants and the maritime labor unions in an effort to develop a
legislative proposal to reauthorize the Maritime Security Program that would
preserve and enhance the Maritime Security Fleet. And I'm very pleased to report
that we have reached a strong consensus on the statutory provisions that are
required to ensure the viability of such a program.
To
that end, we strongly support an extension of the Maritime Security Program for
a period of 20 years. This extension would give investors and leading
institutions more confidence to provide the funds necessary for the replacement
of vessels and the expansion of the U.S. flag fleet.
Additionally, we urge the expansion of the Maritime Security Fleet to
at least 60 militarily useful vessels, an increase of 13 vessels beyond the
current authorization. This would bolster the U.S. sealift capacity, while
providing a greater base of employment for American merchant mariners.
We further propose that each vessel in the Maritime
Security Program would be eligible to receive $3.5 million in the first year of
the extended program, with annual inflationary adjustments thereafter, to keep
these vessels under U.S. flag and to make them available to the military in
times of national emergency.
Mr. Chairman, at this
juncture, I would like to point out that Central Gulf and Waterman are United
States owners and are Section 2 citizens, under the Shipping Act of 1916. We
have participated in numerous discussions with the Department of Defense, the
Maritime Administration, as well as U.S. maritime labor unions and the Maritime
Security participants concerning proposals wherein documentation citizens, under
Title 46 of the United States Code, and their owners would have to fully abide
by the Department of Defense special security agreements in order to take part
on a priority level in the Maritime Security Program.
As Section 2 citizens, Central Gulf and Waterman believe that the
proposed consensus for reauthorization of the Maritime Security Program is an
acceptable compromise in that it gives the necessary safeguards to justify the
equal status of Section 2 and documentation owners in a very limited way for the
47 grandfathered Maritime Security Program vessels, while at the same time
maintaining the Section 2 citizen priority for the 13 vessels that would be
added to the program.
Furthermore, the Maritime
Security Program and our proposed reauthorization provisions only concern the
engagement of foreign trade with the United States and under no circumstances
would they or are they intended to affect the Jones Act.
Mr. Chairman, this legislative compromise provides for the necessary
U.S. citizenship involvement for participation in the Maritime Security Program
and, further, ensures that at least 60 active, militarily useful,
privately-owned vessels will be under the U.S. flag and readily available to the
Department of Defense in time of emergency.
Mr.
Chairman, I very much look forward to working with you and your panel on this
matter of vital importance to our national and economic security. And thank you
very much.
HUNTER: Mr. Johnsen, thank you for your
statement.
Mr. Bowman?
BOWMAN:
Good afternoon, Mr. Chairman, and members of the committee.
I am here today on I behalf of APL and American Automar. We concur in
Mr. Johnsen's statement. And we have submitted a separate statement for the
record. And I will not burden you with the details.
But
a few words about APL -- APL has operated U.S. flagships for over a century. It
was a participant in the operating differential subsidy program before that
program was replaces by the MSP program.
American
Automar, which is a sister company, is a documentation citizen that has a
special security agreement by reason of its contracts with the military sealift
command.
Automar was, also, a Section 2 citizen that
was an MSP participant just prior to its acquisition by the NOL group. So the
company has been on both sides of this question.
Our
experience with a special security agreement, under which American Automar has
operated since its acquisition in May of 2001, convinces us that documentation
citizens with these types of agreements are every bit as reliable as Section 2
citizens.
Like Mr. Johnsen, we wish to see a
reauthorization of the MSP program, with an adjustment to take into account the
changed circumstances in the amount of the payment. And we urge the committee to
work to that end as promptly as possible.
Thank you.
HUNTER: Thank you, Mr. Bowman. You get the prize for the
most succinct and concise statement of the day.
BOWMAN:
I try.
HUNTER: Mr. Clancy, sir?
CLANCY: Thank you, Mr. Chairman, and members of the panel.
I am chairman of Maersk, Inc., responsible for the
operation of MLL, which today is the largest operate of American flagships, with
53 ships based out of Norfolk, Virginia.
We have been
characterized in a few different ways today, but to set the record straight, we
operate ships directly under MSP and also through a Section 2 company that was
created because of regulations of MARAD. We also operate ships directly through
the U.S. government under a top-secret clearance on the oceans of the world. And
those ships are out there today.
We have operated ships
for over 20 years for the U.S. government. And I think the record speaks for
ourself in terms of our reliability and our responsiveness.
The arrangement that we are dealing with today is an outgrowth of,
actually, the acquisition of APL. And as structural as it -- established it --
was an exception at that time. Today the exception is the rule, with one
exception -- my good friend, Mr. Johnsen. And that's just the result of
globalization and the way the equity markets looked at maritime businesses for
the last five or six years, making it very difficult to raise the capital
necessary to replenish the fleet. And this is a capital-intensive business. And
the costs are very, very high.
The question is asked, I
mean, why do you want the change? Probably the biggest reason is we have
significant investment decisions to make. Our ship is aging, as are my -- other
people sitting at the panel. And we're talking about, you know, numbers of $60
million -- $80 million -- $90 million a copy. You need a number of them. You
need cillar (ph) equipment to support them. And we find it very difficult to go
to our board and say, "We need X dollars -- $400 million or $500 million -- to
buy -- to build -- buy and build assets," and be in a position where we are not
allowed to operate them, particularly when the board is cognizant of the fact
that we have been operating ships for over 20 years for the U.S. government. We
have participated in Desert Storm, and today, in Afghanistan, playing a
significant role.
It's also important to understand
what we provide to the Department of Transportation and TRANSCOM because it
certainly just is not vessels. Vessels are an important component, but during
Desert Storm, there was an enormous rush of cargo to Saudi Arabia.
Unfortunately, a lot of it was sequenced incorrectly.
CLANCY: And what we did is used our network around the world to bring
the cargo back to places like Algiers, which is right outside the Rock of
Gibraltar, re-sequence it so that we ensure that you got the guns before you got
the bullets.
And we have these terminals throughout the
world. We have trucking and intermodal assets that are used in support of the
transportation command. And the investment in these facilities is, again, in the
billions of dollars, and that is all for the access of the U.S. government when
they call.
Today, moving cargo into Afghanistan is a
real struggle because there is no port. So we are using our system across
northern Europe, through Russia and through other areas, to deliver merchandise
to the theatre, as requested or commanded by the government.
You have heard today all...
HUNTER: Just one
second, Mr. Clancy. How are you moving that into the base camps in the theatre
in Afghanistan?
CLANCY: We're moving it to...
HUNTER: What's the last leg?
CLANCY: The last leg is through the stans (ph).
HUNTER: Is through where?
CLANCY: Through the
stans (ph).
HUNTER: Well, but once you get through the
stans (ph) and you actually get to the Afghanistan border, how do you get it
over?
CLANCY: The containers are unloaded and put in
military vehicles and taken to the camps.
HUNTER: But
you don't move it across Afghanistan itself?
CLANCY:
Into Afghanistan, no -- just to the border.
HUNTER: OK.
Go ahead.
CLANCY: There has also been comment today
about, you know, what we do and what we don't do. But today, as I sit here, we
have 11,500 Americans, direct and contract employees, working for us in the
United States running this infrastructure. We have like numbers in Europe and in
Asia that allow us to respond to the commands and the desires of the
military.
And that just can't be overlooked. That
network is far beyond the vessels. But we are looking at an enormous investment.
And we think because of what we have done and what we represent, that we have
the right to operate our own vessels.
There has been
concern raised about the Jones Act. We never have and we do not intend to enter
the Jones Act. It is very similar to saying, "I think my neighbor might rob a
bank and he didn't do it last month, he might do it next month," and on and on
and on. It's a threat not made by us. It has been created. And, as people have
said, we would be willing to entertain language that would prohibit companies,
such as ourselves -- documented citizen with a special security agreement --
participating in MSP to enter into the Jones Act.
I
think history has demonstrated, you know, that we can be, quote, unquote,
"trusted." I think if you ask the Marine Corps, they would give you an
affirmative response. I think the Department of Defense would give you an
affirmative response.
As all the members of the panel,
we think MSP is terribly important. What we are able to provide is what the
military believes would cost them $9 billion a year and $1 billion to manage.
And we have committed to it. We are committed to making
the investment. And that's a very critical issue. Someone has to come forward
and build new ships and build the containers in the terminals. And it will be
the owners of the vessels that will do that.
I thank
you for your time.
HUNTER: Thank you very much, Mr.
Clancy.
And thank you all, gentlemen, for your
testimony. I think together you have put together a pretty good composite that
lays out the issue for us very effectively.
Mr. Clancy,
is Iran one of your customers?
CLANCY: We have a small
fleet of ships that serves Iran.
HUNTER: OK.
CLANCY: We have -- with no U.S. citizens involved at all.
And there's no U.S. citizens in Iran.
HUNTER: I
understand. So the United States is one of your customers, in fact, a very major
customer.
CLANCY: Correct.
HUNTER: Iran is also a customer and a -- smaller customer. And you give
good service to your customers.
CLANCY: Correct.
HUNTER: And so your customers can trust you.
CLANCY: Yes.
HUNTER: Right? That
-- I mean -- I presume that means if we were in a hearing in Iran right now and
you were explaining to the Iranian government why you can be trusted not to
disserve them with respect to the United States, you could very truthfully say,
"Attorney-client privilege -- you are our customer and we give good service to
our customers. And you can't show any situation in which we have given
information to the United States or in any way disserved Iran, even though you
and the United States may, at some times, have disparate interests."
CLANCY: Yes. But it's also true, Mr. Chairman, that we
don't do business with the Iranian government. It's also true that we are looked
at as a foreigner in the country of Iran and our presence is very, very
small.
As a global company, we are involved in South
Africa, West Africa, East Africa and it is a global enterprise.
HUNTER: I understand.
CLANCY: And so we...
HUNTER: And you also are -- Iraq is also a customer.
CLANCY: We do not service Iraq.
HUNTER: Oh, you don't service Iraq?
CLANCY: We
do only from -- the food for oil...
HUNTER: OK.
CLANCY: ... approved by NATO and some of the vessels have
carried food out in return for oil.
HUNTER: OK.
Libya?
CLANCY: A feeder that goes into Libya, yes.
HUNTER: OK. Sudan?
CLANCY: I
don't believe so.
HUNTER: OK.
CLANCY: We may, on a spot basis, serve the Sudan.
HUNTER: Well, let me ask you this question: the example that Mr. Keegan
raised where he said that at one point your feeder service was, in some way, not
able to deliver a service to Iran. And the American citizen was asked to handle
that particular run. And they refused to do it.
Is that
the essence of what you said, Mr. Keegan?
KEEGAN:
That's correct, sir.
HUNTER: Is that accurate?
CLANCY: Well, what happens -- you have a network...
HUNTER: I understand.
CLANCY: ...
of 400 ships.
(CROSSTALK)
HUNTER: It sounds very -- I mean, it sounds very realistic.
CLANCY: You have a 27 to 28 year old person looking at the
network at two o'clock in the morning and he finds that he doesn't have the --
an asset that has a mechanical problem or doesn't have the ability to lift -- it
doesn't have empty equipment -- and he substituted a vessel in the network that
is close by.
But it's also true the minute the issue
was raised it did not happen. The vessel was unloaded and it went on its way.
HUNTER: OK. Well, now, Mr. Keegan said that the American
citizen refused to do it. Is that -- which came first, the chicken or the egg,
here?
CLANCY: No, I think what happened is the operator
-- it might have been the captain -- said, "We're not going to do this." And the
27-year-old who -- I don't know where he is or what he is, but I know how we run
the network -- he said, "Well, I'm sorry. Unload the vessel and go on your way,"
not knowing that he -- he wasn't forcing them to do it.
HUNTER: I understand. He wasn't looking at it -- at the political
aspect or the sensitivity of this. He simply said...
CLANCY: He probably said...
HUNTER: ... cab
number three is close to Oak Street.
CLANCY:
Exactly.
HUNTER: I'm going to send cab number three to
take cab number two's place.
But Mr. Keegan is -- just
on this point, because this is an important point -- is that your understanding
that basically this was a consensual thing by the parent company? Or was this --
was there a refusal by the American citizen to do it first and then an
acquiescence to that decision by the parent company? How was it?
KEEGAN: We have a communication log of it and the captain came to the
home office in Charlotte, asked if he could -- what was the procedure. We said,
"You cannot serve Iran. It's a U.S. flag vessel."
HUNTER: So he went back to the American citizen, if you will.
KEEGAN: Correct. Yes.
HUNTER: OK.
Now, I guess my question is, then, if the American citizen hadn't been there,
would you have then sent the ship to Iran?
CLANCY:
Since then, we've put in policy and procedures to prevent this. But I won't deny
that, with 10,000 or 11,000 employees, someone doesn't make a mistake once in a
while.
HUNTER: Well, I'm not talking about a mistake.
I'm talking about policy.
CLANCY: Policy is we would
never do that.
HUNTER: As a matter of policy you
wouldn't use an American ship that's dedicated in the MSP program to this
line?
CLANCY: Absolutely not. And this is the only
incident that I've ever heard of that in my entire career.
HUNTER: OK.
Well, you know -- I mean, these
things happen. I mean, I can remember in Vietnam the -- what I thought was a
tragic situation of the American soldiers dying in Vietnam and our closest ally,
Great Britain, was shipping supplies into Haiphong harbor. They didn't -- as
Mohammad Ali say -- they didn't have any quarrel with those Vietcong.
And so those things happen. And the second similar
tragedy, I thought, was when we had the attack at the Gulf of Seedra with Mr.
Kadafi and France would not let us over-fly their territory -- our great ally,
France, with Lafayette's picture adorning our House of Representatives chambers
-- our closest ally, at one time.
And I remember being
on BBC television and thanking the British people for letting us fly out of
Heathrow to make the strike. And the commentator informing me that they had just
taken a poll and the majority of the British people were against it and it was
Maggie Thatcher, on her own, who let us fly out of Heathrow.
So sometimes well-meaning people, who are strong allies, find
themselves placed in positions where they can't accommodate two friends. And so
my point was, simply, that you have -- you are a business with a number of
clients, some of whom have divergent interests. That's a difficult position to
be in.
You've compartmentalized those interests, I
think, fairly effectively. At least that's the essence of your testimony. And I
don't think there has been any -- except for this one mistake that has been
pointed out -- I haven't seen a lot of evidence that those compartments have
been pierced.
On the other hand, we are -- there is a
pretty strong reason -- and philosophical reason and policy reason -- for having
this American ownership requirement. I think you would agree with that. And if
you look at the history of America's conflict and engagements and the interests
that serve as a backdrop to those engagements, like the example I gave you with
Vietnam with our close allies delivering war supplies to our enemies to kill
Americans on the battlefield -- there was a reason for having a loyalty
requirement, if you will -- citizenship requirement with the ships that attend
American interests in these theatres.
So my next
question to you would simply be this -- and that's this: you are dealing with a
lot of money here. You have mentioned that you go before your board with a
request to build ships that cost...
CLANCY: Oh, I
will.
HUNTER: ... $60 million -- $80 million -- $100
million. The amount of money that you are paying -- the expense of so-called
middlemen -- right? -- the American company -- I'm trying to get a fix on that.
And I see it at somewhere around $8 million to $10 million a year. Now, is that
in the ballpark for America?
CLANCY: It's probably a
bit higher, but I don't have the exact number. But a couple of points -- one,
the Department of Defense knows we serve those countries. And if they asked us
to stop, we would.
Two, it's the money, one, but also
the ability to run an efficient system. And you've just heard USSMI -- Mr.
Keegan -- you know, have some fairly harsh statements about us. We are their
customer -- their only customer. All of the funds into their company are ours
and all the funds out. And it's the ability to build brand new vessels, Mr.
Chairman, and be able to operate them themselves.
HUNTER: But that's the point I'm getting at. if it's -- you're dealing
with $60 million -- $80 million to operate the vessels...
CLANCY: To build a vessel.
HUNTER: ... to
build a vessel, you're talking about an annual expenditure, or burden, if you
will, on Maersk in terms of maintaining the contractual relationship with an
American citizen -- so-called "middleman company" -- of around $10 million a
year.
Now, it's been held out that that $10 million
makes this a very, very difficult thing to do. And one reflects that that's not
a lot of money. If you look at the totality of the MSP program, which is $98
million -- and if we increase it, it would be well above $200 million.
And so I would ask myself the question -- maybe I would
ask you is -- would you take yes for an answer? That is, if it could be proven
to you that the entire cost of maintaining an American citizen in direct charge
of this program -- let's say it was $8 million to $10 million was passed through
-- would you accept that?
And my intuition is it goes
beyond that. The money is not that -- because that's not an inordinate amount of
money when you're looking at the cost of the ships and the enormity of the
operation.
CLANCY: Well, Mr. Chairman, today...
HUNTER: It doesn't look like this is a back-breaker, I
guess, is what I'm telling you.
CLANCY: Today, for an
example, in the Atlantic, our American flag fleet loses money for the
corporation. It's a sign of the times, but it's also the cost of the
operation.
And so $10 million is a lot to us because we
do need to pay for the ships. And I need to demonstrate to the people -- the
shareholders -- that their investment, over the course of 15 or 16 years, will
return something above the cost of capital or we'll simply just go out of
existence.
HUNTER: Well, now, let me ask you this,
further, then -- you have -- if you're paying $10 million a year, is it your
position that all of that is, basically, monies that you wouldn't have to spend?
You wouldn't agree to the proposition that no matter who did it -- whether you
-- even if you had it back in-house, the American citizens are providing some
service -- doing some training -- doing some administration that you're going to
have to pay, whether you pay it or they pay it. So are you maintaining to your
shareholders that you could actually retrieve the entire $10 million a year?
CLANCY: No.
HUNTER: How much of
that do you think you could retrieve in terms of dollars -- bottom line?
CLANCY: Maybe 75 to 80 percent...
HUNTER: OK. So, maybe...
CLANCY: ... or
more.
HUNTER: ... $7.5 million or so -- if it's $10
million?
CLANCY: Ballpark.
HUNTER: But you don't know how much it is?
CLANCY: I think that, you know, that's -- as a ballpark, that's pretty
close. I don't have the exact number.
HUNTER: Well,
it's kind of unusual that if this is a -- if this burden is such a difficult
thing that you're testifying here today and you don't know exactly what it is. I
mean, it...
CLANCY: Well, we know what the information
we've been provided. In fact, there is a court case we have won and we're
waiting for the documents so we know exactly how much waste is involved. It
could be significantly above $10 million.
HUNTER: Why
did you negotiate that?
CLANCY: I did not. But I
inherited it.
HUNTER: Well, but I guess my question is
if you think 75 percent of it is not justified by the labors involved...
CLANCY: Because of the synergies we could bring to the
table.
HUNTER: Well, the question is why did you agree
to pay somebody -- what? -- four times as much as you think the service is
worth? You could -- I was mentioning -- I'm sure you've got a lot of ex-
congressmen out there would be, you know, want to...
CLANCY: They certainly would.
(CROSSTALK)
CLANCY: ... for myself. Every day...
HUNTER: And they would take half the profit.
(LAUGHTER)
CLANCY: Every day we negotiate
contracts with our large customers -- Wal-Mart, Toyota, Heinich (ph) and General
Electric.
HUNTER: Yes.
CLANCY:
When it's not right, we sit down and renegotiate.
HUNTER: Yes.
CLANCY: And they're still our
customers.
HUNTER: Well, have you sat down to
renegotiate here?
CLANCY: We have been totally
unsuccessful, Mr. Chairman.
HUNTER: OK. But at some
point, somebody in your shop, without a gun to their head, sat down and
negotiated these contracts.
CLANCY: The contract was
negotiated, correct. I don't deny that.
HUNTER: Well,
you see, that's another problem that I would have, as chairman of the committee,
if you think the real cost of this is around $2.5 million -- or the real
substantiated costs -- and that anything above that should be credited as
profit, if you will. So you're talking about maybe a $4 million or $4.5 million
program, but it's a $10 million program because you're negotiators paid too
much. The question becomes should we, in this panel, change the U.S. law with
respect to the citizenship requirements, which have a philosophical and policy
substantive base, because you folks made a terrible deal and we need to unfasten
you from it?
CLANCY: My response would be put yourself
in my position in front of my board. We're the largest operator of U.S.
flagships. We have 43 percent of the lift of MSP.
HUNTER: I hear you.
CLANCY: We have a
top-secret clearance. The Department of Transportation, the Department of
Defense and TRANSCOM are in -- have told us they like what we are doing -- they
support the change. And, by the way, I want to recapitalize that business, but
they don't trust us.
HUNTER: Well, I don't think that's
the essence of American requirements -- American ownership requirements. I mean,
I don't think when we ask for American crews we're saying to all other citizens
of the world, "We don't trust you." I think we're simply saying that we know
that we are going to put -- that nations are placed, as the examples I gave you
with Great Britain supplying our enemies during a conflict because they didn't
have a quarrel with them -- that foreign policy issues sometimes put nations and
their policies in conflict with each other. And that's not something people
should be blamed for. But it's a fact of life.
And so,
to maintain a consistency with American purpose and American foreign policy, we
have requested American ownership.
So I don't think
we're calling you a name. And you know something else is the fact that
you're...
CLANCY: No, you're not.
HUNTER: ... and I got my note that Mr. Taylor is next. I bet he even
wants to say something.
So, Gene, I apologize for
monologuing here.
But one reason we've had these
requirements in is because we've always been afraid of being at the point where
we're held hostage -- where we have to do something -- where an interest that's
not owned by Americans, basically, has us in a tight spot.
As you go down the litany of reliances that we have now on your foreign
corporation -- I mean what is not so subtly whispered in our ear is, "Maersk is
the only game in town." And suddenly you realize that this position that we
always told ourselves we'd never be in -- where we had no options -- where we
had no alternatives -- is almost here. So maybe we're not doing ourselves a
service by further promoting that where we get in deeper and deeper because we
can't afford to live without you. And at some point we don't have the options
that I think a free foreign policy would require.
CLANCY: If I may, just...
HUNTER: Sure.
CLANCY: ... Mr. Chairman, MLL, which is the governing
company of these assets, is chaired by a retired three-star admiral.
HUNTER: OK.
CLANCY: On the board
is another three-star officer, a retired chairman of IBM and an ex-ambassador of
the United States -- and myself and employees of the company. They would do
nothing, at any time, that would be not in the interest of this country.
HUNTER: Well, let me just answer you. And then I've got to
move on to Mr. Taylor.
When Americans were being killed
on the battlefield in Vietnam and British shipping companies were moving
supplies to our adversaries -- the North Vietnamese communists, who were killing
those Americans on the battlefield -- there were, undoubtedly, in those
corporate memberships retired admirals and generals who had fought side-by-side
with GIs in World War II, who, nonetheless, found themselves bound by
circumstance in what I'm sure, for them, was a very uncomfortable situation.
Nonetheless, Mr. Clancy, they executed.
Mr. Taylor?
TAYLOR: Thank you, Mr.
Chairman.
And, you know, I used to joke that Neil
Abercrombie and I were twins, separated at birth, but maybe we were triplets.
(LAUGHTER)
We would be honored to
have you in that number.
(UNKNOWN): I'm with you.
TAYLOR: Mr. Alario...
Well, I
enjoyed listening to what all of you gentlemen had to say.
But, Mr. Alario, a couple of things you said got my attention. One of
them, particularly in light of the recent move by Stanley Tool Corporation and
several other companies -- highly publicized -- (OFF- MIKE) -- their home
offices twice.
I heard you say that you felt like the
tax laws favored foreign ownership. Could you be a bit more specific in that?
ALARIO: Yes, sir.
And this might
reflect a little bit on Mr. Clancy's statement about the reliability of people
who would, typically, be considered allies or expected to promote the U.S.
national interests. We have an example, right now, that one of the largest
drilling companies have decided, like Stanley, to do inversion which would cause
this American company to reregister in Bermuda and become a foreign corporation,
if you will, a documented foreign citizen.
That
corporation owns a fleet of U.S. flag Jones Act vessels that are presently
engaged in the offshore out of continental shelf, mineral and oil support
services. Typically, by going to Bermuda and becoming a foreign corporation,
that company would have been obliged to sell that service or that line or that
fleet to U.S. Section 2 citizens. But by use of the loopholes that have been
developing since 1996, either through lax writing in the legislative and
regulatory areas, that company, instead, now will have a favored tax position,
which is very clear under the inversion rules, because Congress is investigating
that type of thing.
But, in the meantime, to add insult
to injury, as I have in my formal notes that I have submitted, we will be,
ironically, in a position of helping this company to erode the Jones Act by
allowing them, through manipulation of some of the regulations -- for instance,
forming what I call an artificial leasing company under the leasing provision
act of the Coast Guard Authorization Bill of 1996, they are going to do all of
the technical, mechanical things that qualify them on paper as a documented
citizen. And we can say that, well, this doesn't relate to that, but that, in
1996, wasn't an option either. But it has become, now, a door through which
foreign-controlled corporations are finding ways to compete with other Section 2
citizens. And they don't pay the taxes. And they don't have to meet the same
rules.
So I don't know whether I've answered your
question, Mr. Taylor, but the fact is that this company will be a Bermudan
corporation, free of a lot of -- unless Congress does something, obviously,
through the inversion -- and will have a tax advantage over the U.S. companies
that are competing with them.
TAYLOR: Mr. Alario, if
you would, I would be very interested in you documenting that.
ALARIO: Yes, sir, I would be happy to.
TAYLOR:
In particular, if you give me several examples of folks who have chosen to keep
their corporate headquarters in America and the additional costs incurred of
them staying in America. Or to put it another way, the relative advantage that
someone -- that the company who is trying to invert would gain, versus the ones
who stay here.
ALARIO: I'll be happy to try to do that.
I'm sure that my one- man staff will be delighted when I get back...
(LAUGHTER)
... and tell him...
(CROSSTALK)
ALARIO: ... I'm
delegating. No, I'll be happy to do that.
(CROSSTALK)
TAYLOR: ... those companies
that...
ALARIO: We have done this.
TAYLOR: ... choose to stay in the states who would be more than happy
to provide some...
ALARIO: Oh, yes.
TAYLOR: ... of the information for you.
ALARIO: No question. And we have done some work on this.
HUNTER: And Mr. Taylor, Rusty (ph) informs me that's a
Coast Guard regulation. And he's going to get a little work up for you...
TAYLOR: OK.
HUNTER: ... and for
me on that background.
TAYLOR: I'm curious to open this
up to the panel. Of those ships that we are paying this subsidy to, how many of
them remain Section 2 ships? Any of them?
JOHNSEN: Me
-- I'm the lone fellow up here with a Section 2. We have seven.
TAYLOR: So the other 38 or so...
(UNKNOWN):
No, sir -- they're all Section 2 operated ships.
JOHNSEN: Well, that's true because you're...
(UNKNOWN): That's ownership.
JOHNSEN: The
ownership of the ships and the operation of Waterman and Central Gulf are one.
We are Section 2. This gentleman here has a Section 2 because he has them
bareboded (ph) in -- right (ph), you (ph)?
KEEGAN: I'm
a dispornant (ph) owner.
JOHNSEN (?): Yes. They're
boded (ph) in -- that are owned by Sealand. And then the other one...
TAYLOR: But in reality, Mr. Keegan...
KEEGAN: Yes, sir?
TAYLOR: In reality you're
owned by Sealand, which is documented, correct?
KEEGAN:
The ships are owned by financial institutions, mostly, Mr. Taylor.
TAYLOR: So if -- I'm trying to get back to my original
question -- if there are any pure...
HUNTER: Mr.
Taylor, Mr. Clancy is shaking his head. So you may want to find out what's
happened here. Mr. Clancy doesn't agree with that.
CLANCY: Can I just speak for a moment to the APL situation? In that
situation, all of the ships are owned by APL entity and...
TAYLOR: Who owns APL entities?
CLANCY: APL is
part of the NOL group, which is a publicly listed company on the Singapore
Exchange. So it's a big company. The APL operations are, by and large, in
California.
TAYLOR: Getting back to my question, I
guess we have a little shell game going on here. Is there anything left that is
a pure Section 2 American-owned ship where the corporation that owns them -- and
if there is a corporation that owns that corporation is also American?
JOHNSEN: Well, our company is headquartered in New
Orleans, U.S. citizen-owned 100 percent. And it's -- Central Gulf and Waterman
are the two companies. And we operate outside of the MSP. We also have other
ships -- we have a total of 17 U.S. flagships that are U.S. owned, U.S.
operated.
TAYLOR: So, of the approximately 45 that we
say belong to the program, only seven...
JOHNSEN: Well,
there are 47 ships in the current program. We have seven of those 47, so there
are 40 ships. And then there -- OSG is a U.S. citizen company. It has one, so
that's eight. They have -- the FABC has two, so that's 10.
So if my memory is correct, that puts you at around 30 that would be --
and I'm not -- I don't know whether that accurate, but 30 would be through the
intermediary of the APL and the Sealand bareboding (ph) their ships to these two
Section 2 companies.
TAYLOR: What disadvantages, if
any, does that put you in?
JOHNSEN: What disadvantage
does that...
TAYLOR: I mean financial-wise --
regulation-wise -- is there anything that your board of directors -- what are
their arguments, if any, that they come to you with and say, "You know, we need
to do like those other guys. We need to just become documented citizens"?
JOHNSEN: In the first instance, my family is the major
shareholders. So my board is my brother and my two sons.
TAYLOR: OK. So at Thanksgiving...
JOHNSEN: So
if they give me hell, it's because of them. But I would tell you that what we
need, as a U.S. Section 2 company -- we need the Maritime Security Program to
continue. And when we saw the existence of what has been approved by our
government and we found that we had an existence -- and, by the way, in the
current law, the documentary citizen is already in the current law -- when we
saw what was already committed, we compromised and said, "Let's hold it to that
and go back to Section 2." And that is in this proposal.
In other words, I'm suggesting, as a Section 2 citizen, in order to
compromise where we are, let us go forward with the ships that APL and Sealand
have in their -- let's grandfather those, but just don't expand it.
TAYLOR: Mr. Johnsen, with all due respect, I don't feel
like you answered my question.
What are the pressures,
within your four family member board of directors, to become a documented
citizen?
JOHNSEN: We have no pressure.
TAYLOR: You don't feel like you have any?
JOHNSEN: No, sir.
TAYLOR: There's no
advantages for your family to do that?
JOHNSEN: No.
TAYLOR: Because I'm -- I very much follow Mr. Alario's
argument, and that is -- and I've watched this -- and there was stuff that
happened before I even got here. But I do feel like there has been a seduction,
by degrees...
JOHNSEN: Well, let me...
TAYLOR: ... -- a little exemption here -- another one over there -- one
over there. and you wake up and suddenly, it is no longer...
JOHNSEN: But let me...
TAYLOR: ... to your
advantage to be an American citizen and own these ships. And I don't want to see
that happen anymore.
JOHNSEN: I agree with you.
But let me make this observation, one of the things, as a
Section 2 citizen, that we find is, unfortunately, the forgetfulness of our
government in respect to our companies. Because we are faced with various costs,
taxes, seamen are that go with our ships -- our own corporate taxes. And we
don't have accelerated depreciation anymore because that was changed.
Yet, our foreign competition has all of that. And, as a
result of that, if I were pressured by just some third party shareholder, I
might have pressure. But I am an American citizen and I want to have our ships
Section 2.
TAYLOR: OK. Mr. Johnsen, thank goodness this
is a hearing and not a markup for a bill. Would you document those additional
costs?
JOHNSEN: Sure.
TAYLOR:
Because, just like I asked Mr. Alario, I am trying to educate my -- I know my
end game. My end game is I want to see a strong Jones Act. I know my end game is
I would much prefer to see it as pure Section 2.
We
also see what the other end game is and that is to, at some point, make the
whole program available to documented citizens. Somebody is pushing this. So I
need your help and Mr. Alario's help in making the committee aware of what are
the unintended consequences, not only in your industry, but in the entire Jones
Act industry for American shipbuilding, for our inland waterways -- we need to
know what are the unintended consequences if we let that happen.
JOHNSEN: I'd be glad to.
TAYLOR: There is --
that's where I'm going for and that's why I would like your information to help
me make that case.
JOHNSEN: Glad to do it.
TAYLOR: OK.
Mr. Chairman, I yield
back.
HUNTER: Well, thank you, Mr. Taylor. And you've
taken your time and Mr. Abercrombie's time, if he comes in.
(LAUGHTER)
Mr. Saxton?
SAXTON: Mr. Clancy, yesterday, in my office in a very short meeting,
you indicated that General Handy favors your position relative to Section 2. And
you indicated that again today. And I don't doubt that he does.
But let ask -- and I haven't had a chance to talk to him. I told you I
would...
CLANCY: OK.
SAXTON:
... and I haven't had a chance to do that, yet. But tell the committee members,
I mean, why it is that General Handy favors your position.
CLANCY: He looks out on the world -- a troubled world, today -- and he
needs lift support. And he knows, because he's been staffed by his people, that
in order to get it from point A to point B, you need terminals -- you need
information technology -- you need thousands of people spread all over the
globe. I mean, if it happens to be in Southeast Asia or in the Middle East at
the same time, you need to have a company that can respond by just breaking its
system up -- working with someone like APL and working it so we can be there in
12 to 24 hours. We have the ability to deliver it through difficult
geographies.
We certainly would enter the theatre of
war, if there was a place we could put a ship in. And we've worked very closely
with him with planning what we would do in contingencies and responding to their
needs wherever they are on the globe. And, you know, he's just spent a lot of
time looking at it, and so have his predecessors.
SAXTON: So it gives you a level of flexibility that you feel you don't
currently have?
CLANCY: No, we have the flexibility and
we're willing to offer it to the government. but what we have said is that on
one hand, we can operate MSP vessels under the existing law. We can operate top
secret ships. We'd like to be able to operate the balance of our fleet as one
company. And we think that it's the most efficient. And I think that history has
demonstrated -- albeit, we make one mistake and I'll take the blame for it --
that we have been responsive and we have been loyal.
SAXTON: OK. I'm trying to -- so you have ships that you can't currently
use in this...
CLANCY: We can use them, but we're
getting to the point in time we have to reinvest.
We
also feel that it's inefficient for someone that's operating ships for the
government on one hand and the other makes a telephone and say turn left or turn
right. We think it'd be much more efficient if we could just operate the ships
ourselves.
I mean, it's our capital, it's our
equipment, it's our terminals and we feel it's more efficient and more
responsive if we could operate it.
It's similar to
anyone building something and saying, "By the way, I'm not allowed to operate
that, so I'll let my neighbor buy the truck and when I want to use it, I'll tell
them which way to go." A lot simpler to buy the truck yourself and drive it down
the street.
SAXTON: Mr. Keegan, what's your take
on...
KEEGAN: Well, I think -- you know, the MSP
program is there for control and control during national emergencies with U.S.
citizens. And I just, as I stated in my statement, it's there.
But the company Mr. Clancy represents, Maersk Line, he talks about
control and control over his ships, but in their fleet, they have 307 vessels.
And 200 are under charter and 107 are owned. So they have 200 vessels which they
don't directly control, just like the 19 that we operate.
So for their foreign flag fleet, you know, they own and charter in, and
the American flag fleet, they charter in. So it's not something, you know,
totally out of their day-to-day way that they do business.
But I think we're missing the point here, in some degree, in some of
the testimony that MSP is a law that was passed for a reason. And it's worked
very well. And it has to do with control during national -- during
contingencies. And those decisions on where the ships go and when made by the
Department of Defense to the Section 2 operator, those decisions are made in the
U.S.
I don't know where the decisions are made in APL
in Singapore or Maersk in Copenhagen. But I know where the decisions for our
ships are. They're made right here in the U.S. and the ships will go when they
are asked.
CLANCY: Congressman?
SAXTON: What kind of decisions...
We'll get
right back to you, Mr. Clancy.
What kind of decisions
are you concerned that might occur if the decisions are not made here in the
U.S.?
KEEGAN: Well, you know, let's say we have --
let's say there's a conflict in China and we're involved. And the U.S.
government says, "OK, gentlemen, you American companies withdraw from China."
Maersk is the largest builder of ships in China, next to the Chinese. They have
tremendous investments. As they said before, they are a global company. If they
were asked to move from China, I don't know what the answer would be, as a
Danish corporation.
And that's, I think, why the MSP
program was limited to U.S. citizens and U.S. control. There is no doubt --
contingency -- you know, if the flare goes up, we go.
SAXTON: And you would make the decision to make them move out of
China?
KEEGAN: No, sir. I would make the decision to
move -- to deploy my ships where the Department of Defense wanted them deployed.
To our captain, we would say, "Hey, Afghanistan direct."
SAXTON: Mr. Clancy, you wanted to say something a minute ago.
CLANCY: Yes. I just happen to have been given TRANSCOM's
position on this -- somewhat concerned as to whether such an expanded waiver
would impair U.S. TRANSCOM's access to the vessels in the time of crisis. In
fact, our review of the appropriate statutes suggest that the United States
would retain significant powers to obtain access to the vessels during a
contingency, even if the Maritime Security Act was amended to
permit more MLL vessels, or vessels operated by all documented citizens, to be
eligible at the top tier of vessels competing for MSP payments.
SAXTON: Now, I'm sorry -- what are you reading from?
CLANCY: TRANSCOM's position.
SAXTON: And what
gives TRANSCOM -- why does TRANSCOM feel that way?
CLANCY: Because they've worked with us for 15 to 20 years. They visited
our corporate headquarters. They visited Norfolk. They visit us, we visit them.
Over five succeeding CINC at TRANSCOM have been supportive of what we are trying
to do. they know that we bring a lot more to the table than just the ships --
and it's the infrastructure that allows them to respond.
Desert Storm was a perfect example, and what might happen in the future
will demonstrate that once again.
And by the way, we
are not the largest builder of ships in China. Last year we built 20 ships --
Germany, Denmark, Taiwan and several in China -- five to be exact.
SAXTON: Mr. Bowman?
BOWMAN: I'd
just like to add to the concept of the network and the infrastructure. I have a
letter here from General Provotsky (ph), the Military Traffic Management
Command, to APL. It's dated June 26, 2002. And I'll submit this letter for the
record. But, among other things, it says, "The success of 'our' operations..."
meaning the military operations, "... in the Afghanistan area would not be
possible without the level of performance you showed..." APL and Automar, "...
in moving this shipment and others into the theatre of operations."
Now, you asked earlier, Mr. Chairman, how did we get into
the theatre of operations. Our operation is a little bit different in that we
went the other way. We went to Karachi, then our truckers took the cargo up
through the internal of Pakistan, across the mountains and into the delivery
zone. It was the infrastructure of the ports that we controlled in Karachi --
the trucking system that we used all the time in the Pakistan area in peace time
that enabled this movement.
And, if Mr. Keegan says,
"Well, you can count on my sailing my ship to Karachi," that's only half the
job. And, in fact, the easiest part of the job.
SAXTON:
Thank you, Mr. Chairman.
HUNTER: Yes. Thank you, Mr.
Saxton.
Actually, Mr. Johnsen has been sitting here
next to me making this same point -- that the infrastructure that -- and the
terminals and all of that -- companies -- the throughput, if you will, of the
goods is part and parcel to that.
And just one question
before I go to Mr. Allen -- who controls your terminals? You...
BOWMAN: Terminals throughout the world are controlled in different
mixes. Some we own, some we have long-term contracts on. And I've heard others
say, "Well, we can always rent a terminal." Not in the middle of an Afghanistan
strike, you can't.
The infrastructure is there -- the
people are there -- they are on the ground, ready to serve. They know the
locality. That's the difference.
HUNTER: OK.
Mr. Allen?
ALLEN: Thank you, Mr.
Chairman.
I want to begin -- there is a second panel
with members of various maritime unions coming up to testify. But, before you
go, I would like to ask both groups what your sense is -- what the impact would
be on the unions that are represented in the second panel if we go one way or
another with this. For example, what's the impact if you have the kind of
legislative compromise proposal that's laid out here? I mean, how would you
analyze the impact on your workforce? Just for the moment, leave aside the
reliability issues. But if I could ask that of anyone that wants to comment.
JOHNSEN: I'll take a crack at that, Mr. Allen. I think
that the compromise that we are proposing or the greatest consensus here was an
effort to preserve and build on jobs. We understand the -- we, particularly, are
the Section 2 company -- had to be convinced, ourselves, that this would be
beneficial for the entire industry. And we have come to the conclusion that the
compromise of limiting the amount of documentary citizens to the existing ones
that are there and then going back to Section 2 is the best method because we
need investment in new ships.
All of us are in a
situation where our ships -- we at Waterman and Central Gulf are in the process,
now, of looking for new ships. And with that, in order for us to move forward
with that, as John Clancy said, each of these pieces are $60 million -- $65
million. If we are going to go forward, we need this program -- we need to be
realistic that what we have now and what the DOD has accepted -- and we think
this, for the point of the unions and for the general well being of the
industry, is the best way to go.
ALLEN: OK. Thank
you.
Others?
Mr. Alario?
And then we'll come back to Mr. Clancy.
ALARIO: I would just like to attempt, again, to segregate the fact that
we are talking on the one hand, appropriately here, about a particular program
which involves a handful of U.S. built, U.S. owned ships, despite the fact that
they may be U.S. flagged.
We are also interested, in
this program, in protecting jobs that are under the mantle of the maritime
unions that are involved in this hearing.
I call the
attention of the panel, again, to the fact that our industry represents over
1,200 vessels, not one, five, 10 or 12, that conceivably could be impacted by
legislation which is not careful to segregate what happens in this program and
what will happen or fall over into the other areas of maritime operations.
And none of those jobs aboard those 1,200 ships come under
the mantel of maritime unions. It's a non-union, privately owned -- many
privately small owned corporations, which are in a militarily strategic and a
national security zone of OCS operations in -- where over 20 percent of this
nation's oil and gas is produced. It is not something that we take lightly,
although we have no direct participation in the program, we remind the committee
and the panel that this is something that we have to proceed with very
cautiously. Because it is not accident that our U.S. Merchant Marine is now
redressed to approximately 180 ships, and waning, and that the Jones Act is
under attack from all angles.
And I know that this
panel or this committee is not unaware of that. But it is time, since 1996 and
since September the 11th, despite the fact that there may be a good record of
participation and cooperation between companies that are presently in this
program, this is a different world -- a different time -- and we have to look at
it with a different -- in a different light.
ALLEN:
Thank you.
Mr. Clancy?
CLANCY:
Not only just, you know, your question in terms of labor -- probably
approximately 90 percent of the owners of the assets in the MSP program support
the compromise. And the compromise, as we see it, would enhance opportunity for
labor. And we've committed that to them.
ALLEN: I'm
sorry, I didn't catch that last part. What did you say?
CLANCY: That the compromise, as we have presented, by 90 percent of the
ownership of the MSP fleet, would enhance the opportunities for labor.
ALLEN: OK.
Mr. Keegan, I'm
looking for a note I made on something that you said. And I'm trying to -- I
can't seem to find it. I know I made the note. It's here somewhere.
But I guess what I would like you -- I think what I wanted
to ask you was what is your reaction to the proposal laid out here that would
establish an equal priority for Section 2 companies and documentation companies,
provided the documentation company had a special security agreement with the
Department of Defense?
Can you speak to that?
KEEGAN: Yes, I can, sir.
I think
I said in my testimony and I said before that the existing MSP program was well
thought out, enacted and I think works very, very well. I don't see a need for
change. I think, you know, the reasons the MSP program was enacted and why it's
running and how it's structured works. It maintains the Section 2 citizenship.
It maintains the integrity of the defense call up. And I think the system -- the
law -- you designed the law -- you implemented it -- I think it works well. And
I say, "Why change it?"
ALLEN: Well, let me ask you,
then...
KEEGAN: Sure.
ALLEN:
... why would that system be -- why would the vessel owners in a system like
that be less reliable than Section 2 citizens? I mean, I heard what you were
saying about, you know, U.S. citizens making a decision and there's no -- I'm
really probing for...
KEEGAN: OK.
ALLEN: ... what else you can add to that particular answer.
KEEGAN: It is my opinion that a foreign corporation is
just that -- a foreign corporation. The interests of that corporation are
governed by the state it is located in or the country it is located in and its
global reach and how that affects its economics. Not true of the Section 2
citizen. We are based here. Our decisions are made based on U.S. law. We operate
on the U.S. law.
And, you know, I can't predict the
future, but I think the chairman said it best. Fighting in Vietnam and our
allies, the British, you know, providing service to Haiphong. I mean, we've seen
it in the Gulf War. We've seen it in the recent Afghanistan conflict.
I mean was Germany truly on our side? Did we get the
over-flight rights from Saudi Arabia like we needed?
And, let's face it, some of these companies, one for example, Denmark,
is in the EEC. That has to be guided by the EEC policy now. And does that match
with U.S. priorities and U.S. statutes?
I'm just saying
that it's clear to operate this fleet, you need U.S. citizens to operate it. And
I think it works well.
ALLEN: And for -- Mr. Bowman, do
you want to respond to that?
BOWMAN: Yes. I'd just like
to respond to something Mr. Keegan said when he said that nothing changed since
the MSP enactment. Seems to me that's absolutely incorrect. Everything changed.
When MSP was enacted, all of these companies were American citizen-owned
companies. Sealand was one of the biggest, strongest American companies. APL,
again, completely American owned -- all of these companies -- and what else? We
all worked for the same companies. These Section 2 companies were part of the
operating entities that were these strong American companies.
In the interim, both APL and Sealand have been sold and, in addition to
a number of others, leaving only my friend, Mr. Johnsen, here as the true
American citizen.
So everything has changed of late.
And we have to address a modern world and make some compromises that will
protect both the security of the United States and induce continued availability
of the kind of networks that these two companies run.
ALLEN: And let me make sure, if I could...
I'll come to you in just a moment, Mr. Johnsen.
... for Mr. Bowman and Mr. Clancy, as I understand the heart of your
argument, you are saying you have these middlemen that you are paying X number
of million dollars per year. And you ought to, I think in your words, Mr.
Clancy, you would like to operate the ships yourselves so you'd have more money
to invest in new ships. And that is, as I understand it, the heart of your
argument.
I want to prioritize this and make sure I
understand where you're coming from.
Go ahead.
CLANCY: It's money -- it's synergies -- it's control. And
it's the focus on our strategic planning as we go forward. If we're going to
re-capitalize the fleet and build new technology, we would like to be able to
control it.
ALLEN: Mr. Bowman?
BOWMAN: I would hate for this to be only about money. It's not only
about money. It's about the question of, as Mr. Clancy said, controlling your
own ships. After all, the way the structure now works, APL and Sealand and the
other companies in their position have to invest in the ships, give them to the
Section 2 citizens and then get them back. What sense does that make when at the
same time these same companies are entrusted by the Department of Defense in
their pre-positioning forces -- where both our ships are -- where we carry
military equipment ready to go -- completely at the disposal of the defense
department and they trust us. It just doesn't make any sense.
ALLEN: Mr. Johnsen?
JOHNSEN: Mr. Allen, I just
wanted to say that we should look at the existing legislation because we, as
Section 2 citizens, saw that way back in 1996 when there are already
documentation citizens that are eligible. They just put a priority system.
Priority one is Assistant Section 2 and if there are no Section 2s, then you go
to documentation.
So, from a practical point of view,
what we are talking about, from my point of view, as a Section 2 citizen, I
wanted to try to, quite frankly, narrow it. And I wanted to say, "OK. We've got
these 28 or 30 ships. Let's grandfather those, but let's go back to Section 2."
That's been my theory here, because I don't back away from the hesitancy factor
because I don't mind telling you about a year ago I had the hesitancy. But all
of these people know about it. But I said, "OK. I have to look at reality and
where we are. And the U.S. government has to look at reality as to what has been
done."
So what's the practical solution? Confine it to
where we are and then grandfather what we have, but then go back to Section 2
citizens.
ALLEN: OK. All right.
One more question for Mr. Truchan and Mr. Keegan.
Mr. Bowman and Mr. Clancy were making the argument that our companies
are so large that we have an infrastructure in other parts of the world that we
count on to deliver materials that -- you know, where the delivery doesn't
finish, you know, right in the port. They have transportation terminals.
Do you have any response to that argument? That's just an
open- ended...
TRUCHAN: Well, under the present
arrangements in the TRANSCOM -- the visa program, in stage one and two, we use
the infrastructure of, in my case, APL to deliver the products to the various
countries. In stage three, we become the servant of the United States
government. if the United States government has another destination for the
ship, it's our responsibility to go ahead and take over that responsibility.
ALLEN: Anything to add, Mr. Keegan?
KEEGAN: Yes. I think -- while some of the larger carriers -- the global
carriers -- have some of their own facilities and lease facilities, there are
many terminals around the world that are common- user facilities. Companies like
ours could go there with a contract -- sign up to use those terminals. The
intermodal system in the U.S., which they claim is very important, is not owned
by them, it's owned by the U.S. railroads. And it's operated by the railroads.
And it's available to, you know, one on -- come one, come all, as long as you
can pay.
The computer systems that are needed in the
systems -- you know, those systems are available in place today to monitor and
track. And, frankly, our systems would be based in the U.S. where any of the
global carriers, their computer systems are based on offshore overseas
locations, whether it be China or India or wherever. I still think you have more
control there.
And I think containers, themselves --
people talk about where are you going to get the containers -- they are
available on a spot basis anywhere in the world from leasing companies. So it's
a system where, you know, you can put that together, if necessary, in a very,
very short time if needed.
ALLEN: All right.
Any response, Mr. Clancy -- Mr. Bowman? I'll give you the
last word.
BOWMAN: If something happened in the Middle
East, we own the terminal at Algaseers (ph). We own the terminal in Oman. Our
own people there -- we have U.S. citizens there.
Going
out on a 24-hour notice and getting a terminal is preposterous. Any terminal in
the world -- let's say Kwai Chung in Hong Kong -- I guess there's no room. All
of the priority on all of the berths is taken. Going out and leasing 50,000
pieces of equipment and putting it into -- a tracking system in -- you would
need 5,000 people to track the equipment. You need dispatchers. You need gate
people. You need truck drivers. You need train drivers.
And certainly, the American railroads own the network. But, you know,
it's our flat cars and our intermodal people that dispatch the trains and pull
them back and forth in the United States. They just make the highway available
to us.
ALLEN: That's fine.
Thank you all very much -- appreciate it.
Yield back, Mr. Chairman.
HUNTER: Thank you,
Mr. Allen.
Just one question here -- but it's a $64
question for everybody -- embedded in this so-called compromise is a $2.1
million to $3.5 million increase per ship. Why do you get -- that's a pretty
substantial increase.
What is your best one-sentence
justification for that increase -- other than we all agreed it would be good?
(LAUGHTER)
JOHNSEN: We are -- Mr.
Chairman, we are...
(UNKNOWN): It's a compromise.
JOHNSEN: ... all of us competing day in and day out with
foreign competition that have costs that are materially below the level. They
don't have income taxes to the sailors. They don't have corporate taxes, et
cetera. And I can tell you that the difference -- and we don't try to make it
just -- the difference is one thing and another -- but the difference between
our operating in an American environment and operating under a -- against a
competitor is more than that -- there's more than $3.5 million.
HUNTER: OK. So you think it's -- one thing Rusty (ph) suggested is tax
breaks for the crews might be -- might help to some degree.
JOHNSEN: That'll help somewhat -- yes. A tax break for the crew will
help somewhat. A tax break for the corporations -- the British, for instance,
have just enacted a tonnage tax, which has helped get flags on the stern of the
ship with the union jack, you know. HUNTER: OK.
Well,
gentlemen, thank you so much.
Oh, Mr. Taylor's got
another question.
TAYLOR: Mr. Clancy, I have a
question.
CLANCY: Yes, sir?
TAYLOR: Is Maersk a corporation?
CLANCY:
Maersk, Inc. Is a corporation. And...
TAYLOR: Publicly
traded?
CLANCY: ... AP Moller is a publicly traded
company. It's two separate companies. In Denmark it's publicly traded -- there's
a thin float -- about 10 percent.
TAYLOR: OK. What
would happen if the guys from Hutchinson (ph) showed up and offered
substantially more money per share than the present owners?
CLANCY: The owner, who owns 90 percent, would say, "How much do you
want for your company?"
TAYLOR: The reason I ask that,
Mr. Clancy, I am aware of at least -- I was very much impressed in a dinner with
some Norwegian container ship owners when they talked about -- when they saw the
fall of -- the rise of the fiddler -- the fall of Norway that they shipped --
they basically told all the ships to bp'd (ph) for America.
But I'm also aware, that around 1936, when Franco revolted against the
Spanish Republic, that American oil tankers in route to Spain delivered their
cargo to North Africa to help him instead of the Spanish government that paid
for the -- so there is historical precedence for guys you are counting on to
switch sides on you, depending on who they think is going to win and where the
money is.
I would hate to have our country be that --
as vulnerable as the Republic of Spain was in 1936.
I'll just leave it at that.
CLANCY: That --
I'm not familiar with that. I just know where...
TAYLOR: It's in the history books.
CLANCY: ...
the sentiment of this company is, and also that Maersk Line, Limited is
controlled by Americans. And the people from Denmark cannot tell that three-star
admiral what to do.
BOWMAN: That's the problem. The
devil is in the detail.
The company that runs the ships
are American companies, in our case, headquartered in Delaware and right here in
Washington. The boards are controlled by these independent American citizens.
And even if the ultimate parent took the view that you suggest, it couldn't be
done, with respect to the American flagships.
HUNTER:
How about if the -- stockholders, though, have the ultimate...
BOWMAN: No, the...
HUNTER: ... vote on
this.
BOWMAN: ... board -- in a corporate entity, the
board controls the corporation. And the board -- these independent directors
cannot be replaced without the consent of the Department of Defense.
HUNTER: Well, now wait a second.
BOWMAN: That's what...
HUNTER: Wait a second,
though. In the corporation, if a majority of your stockholders want to replace
the board, can they replace them?
BOWMAN: No, because
the Department of Defense says you may not replace the independent directors
without the consent of the Department of Defense. There are other directors that
are representative of the foreign owner. They can be replaced.
HUNTER: Well, they can if they want to jettison the program.
CLANCY: What do you mean?
HUNTER:
If you've got a foreign owned corporation, that corporation hasn't for here, for
now and forever vested its power irretrievably in the United States Department
of Defense.
BOWMAN: As long as it is a defense
contract, I guess.
HUNTER: Well, precisely.
BOWMAN: Yes.
HUNTER: Obviously,
if you've decided to go with the enemy, I think we can presume you've probably
broken the contract at that point, right?
(LAUGHTER)
BOWMAN: But my point is that it would take a long time to
get that done.
HUNTER: OK. We'll concur it would take a
while to do that.
BOWMAN: Right.
HUNTER: We've got to go to this other panel.
BOWMAN: Yes, sir.
HUNTER: But just one last --
one real fast one here.
Mr. Keegan, do you agree with
this idea that there is a lot of margin in this $10 million, or so, contract
with Maersk?
KEEGAN: No sir, I don't think...
HUNTER: Do you think most of it is cost and there's a
small profit, but not a lot?
KEEGAN: There is a very --
there is a small profit. And I can tell you what the profit is, if you'd like
that.
HUNTER: Go ahead.
KEEGAN: But Mr. Clancy would have to waive confidentiality for me to do
that. We have a contract. That's OK?
CLANCY: Well,
we're waiting for the courts to give us...
HUNTER:
We've got lots of congressmen that want to pick this contract up --
extraordinary-congressmen.
(LAUGHTER)
They're waiting anxiously to hear this.
KEEGAN: It's not -- it's $216 per day, per ship. We're paid to manage
those ships -- the management fee.
HUNTER: OK. So how
much of that is -- how much of the fee, roughly, in percentage, is profit?
KEEGAN: That's the profit -- $1.5 million if you keep all
the profit. The rest of it is for operation.
HUNTER:
OK.
KEEGAN: The rest of the money, $7 million, is -- 85
percent of that, sir, is for salaries.
HUNTER: So that
must be, basically, those facts must have been put out when the initial
negotiation took place...
KEEGAN: Sure.
HUNTER: ... that ended up, that resulted in this agreement.
I take it, if we reauthorize MSP a new agreement, that
that point, by the contracts own terms, has to be struck. Is that right?
(UNKNOWN): Yes.
HUNTER: If an MSP
is -- are you folks prepared to see that happen, Mr. Keegan?
KEEGAN: No, our company would be out of business, sir.
HUNTER: Well why is that?
KEEGAN: Well, there
is a contract clause that says if a law changes, our company no longer exists.
They can operate...
HUNTER: Well...
KEEGAN: ... these ships.
HUNTER: ... but what
they'd have to -- but if we kept the requirement that you've got to have the
American citizen, they would have to...
KEEGAN: That's
correct, sir.
HUNTER: ... they'd have to maintain an
American citizen. And...
CLANCY: It could be a
congressman.
HUNTER: ... you could tell Mr. Clancy all
those mean things you said about him don't count.
(LAUGHTER)
I'm just kidding, Mr. Keegan. We've
got to have a little humor in this business.
Mr.
Clancy, what's your...
CLANCY: No, I just said that if
that was the case, it could be an ex-congressman.
HUNTER: Yes. We've got a lot of them waiting for this job. It's
crazy.
(LAUGHTER)
Well, just
one last question, Mr. Clancy.
CLANCY: Yes, sir.
HUNTER: Just a historic note. Was Maersk one of the
suppliers of North Vietnam during the Vietnam War?
CLANCY: No.
HUNTER: Are you sure of that?
CLANCY: I was in Vietnam.
HUNTER:
OK.
CLANCY: They weren't there.
HUNTER: Well, I was in Vietnam, too, and I have no idea if they were or
not.
(LAUGHTER)
But who was --
because I know Britain was supplying a lot of materiel at that time to the
North, who was moving that stuff for them? Do you have any idea?
JOHNSEN: I can only tell you that we were there, but we were there with
the American flag on the sterns, supplying you guys over there. And I was in two
of the wars. I was supplying the third one.
HUNTER:
OK.
CLANCY: I don't know. I just know that they didn't
-- all I was concerned about was keeping my head down and making sure I ate
every two or three days.
HUNTER: OK. But you were
supplying the American side, Maersk was?
CLANCY:
Sealand was.
HUNTER: Oh, Sealand?
CLANCY: Yes.
HUNTER: OK.
CLANCY: We were very heavily involved.
HUNTER:
What was Maersk -- do you know, for a fact, whether Maersk was or was not
involved in supplying North Vietnam -- Maersk, not Sealand?
CLANCY: I don't believe -- I couldn't swear to it...
HUNTER: Well, we'll find out.
CLANCY: ... but
-- no they were not. It's just something that the company wouldn't do. But if I
find something to the contrary, I'll certainly let you know.
HUNTER: OK. Thank you.
Well, gentlemen, thank
you for letting us have a good candid exchange. That's the way we're able to get
information and that's the American way. And it's great to have you all in this
panel and have a good back and forth. We appreciate it.
We're now going to get our labor leaders up here and we'll have them
contradict you.
UNKNOWN: Thank you sir.
UNKNOWN: Thank you.
HUNTER: Thanks a lot
now.
UNKNOWN: Thank you.
HUNTER: Gentlemen, thank you for being with us, And we're going to
continue with our hearing.
And Mr. Sacco, I understand
you've been -- I hope you've been well briefed by Mr. Turner to prepare you for
this harsh panel here. We appreciate you being with us, sir.
Mr. Davis, Captain Rodriguez, Mr. McKay -- and we look forward to
hearing your perspective on MSP.
So Mr. Sacco, the
floor is yours, sir.
SACCO: Thank you, Mr. Chairman and
members of the panel.
My name is Michael Sacco and I am
president of the Seafarers International Union. And I am pleased to submit this
statement on behalf of the American Maritime Officers, the International
Organization of Master, Mates & Pilots, the Marine Engineers' Benevolent
Association and my union, the Seafarers International Union of North America.
Our unions represent the American maritime workers
employed aboard U.S. flag commercial vessels, including all the vessels,
including all the vessels participating today in the Maritime Security
Program.
On the outset, I want to express my
appreciation to you, Mr. Chairman, and to the members of the panel, for holding
this hearing on the Maritime Security Program. This program is critically
important to the workers we represent, and also to our ability to be able
recruit, retain, qualified American mariners. Without this program, U.S. flag
vessels will leave the American registry and seafaring personnel will be forced
to seek employment outside the industry. And when that happens, our country will
face a shortage of praying (ph), seafaring personnel, posing a serious risk for
the nation.
Our unions believe that the best long-term
solution in guaranteeing that the United States will have American seafaring
personnel it needs is to develop a larger, more active and competitive
commercial U.S. flag merchant marine.
We are convinced
that this program could, with appropriate and practical changes, serve as an
even greater source of employment for American mariners. Support to a greater
degree, American military operations overseas and better protect U.S. economic
interests from total domination from foreign-flag vessels and crews.
Thus we believe the Maritime Security Program should be
extended for an additional period of at least 20 years.
This change would help create greater stability within the American
maritime industry; provide an enormous boost to our outgoing efforts to recruit
and retain men and women for service in the merchant Marine; and will give
investors and lending institutions more confidence to provide funds necessary
for the replacement of vessels and the expansion of the U.S. flag fleet.
In addition, the Congress and the administration should
capitalize on the initial successes of the maritime program by expanding the
size of the MSP fleet. Not only will a larger militarily-useful fleet ensure
that the Department of Defense will have an even greater commercial sealift
capability at its disposal to meet the sealift manpower and sustain the needs of
our armed forces, but it would also provide a greater, much needed base for
peace-time commercial employment for American mariners.
Furthermore, we believe the annual payment should be increased and
should be subject to annual adjustments to reflect future inflation. And we
believe that the Maritime Security Program should be amended to reflect the
current ownership of U.S. flag vessels consistent with, to the fullest extent
practical, the existing priority system for awarding operating agreements and
the overall interests of the Department of Defense.
We
want to emphasize, Mr. Chairman, that under the proposed changes in citizenship
ownership rules that we suggest, the MSP fleet will continue to be comprised
entirely of American-flag ships with American crews, operated by companies
controlled by Americans and contractually bound to provide national defense
sealift shipping for the U.S. military worldwide.
These
proposed changes would strengthen the Maritime Security Program and help ensure
it's long-term viability. We note that representatives of the Department of
Defense have repeatedly indicated their support for such changes.
In fact, they, too, have indicated that not only are they
necessary to the future program, but that these arrangements have been, and are,
used by the military to provide the operation of vessels performing a wide range
of defense missions.
The unions sitting at this table,
look forward to working with you to develop an expanded and updated maritime
program which will create a more competitive and cost-effective U.S. flag
commercial fleet.
Thank you, Mr. Chairman. And we'll
answer any questions that you may have. And I think Ron...
HUNTER: Thank you very much, Mr. Saaco, for a very fine statement.
Mr. Davis?
DAVIS: Thank you, Mr.
Chairman, and members of this panel.
Thank you for
holding this hearing. I welcome the opportunity to appear before you today on
behalf of the men and the women of the Marine Engineers Beneficial
Association.
Our members serve aboard 40 of the 47 MSP
vessels supplying international waters today and are an integral part of our
armed forces national defense sealift capability.
The
authorization of extended MSP, increase in size to 60 ships, is of vital
interest to my unit and to our nation's economic and military security.
In addition to the points raised in the joint statement
for this hearing, I want to emphasize at the outset in my remarks an important
principal in any such program must be that U.S. mariner jobs, and more
specifically, licensed officers' jobs, can not be disenfranchised.
By this, I mean the relationship between unions and the
ratio of vessels must be preserved so that no future program jeopardizes already
proven, highly trained and ready personnel available to our nation.
As the president of the nation's oldest maritime unit,
founded in 1875, I am deeply troubled that, since January of this year, I have
seen 12 vessels leave the American flag either to be re-flagged foreign or
scrapped.
MEBA officers served aboard all 12 of these
vessels. No doubt my fellow brothers on this panel have also witnessed the
continuing loss of ships to foreign flags or to the scrap yard.
DAVIS: Such a loss of maritime capability is unacceptable for a nation
faced with global challenges and responsibilities. Even more so in light of
September 11 and the ongoing war on terrorism.
Importantly, three of these 12 vessels that once flew the American flag
participated in the MSP program. We are confident that, with an extended and
expanded program to MSP, replacement tonnage for these vessels will be brought
on line soon, together with jobs for sailing members.
The other nine vessels no longer sailing under the U.S. flag represent
a deplorable loss that will, most likely, not be met with replacement ships,
unless a new, expanded program is authorized. In addition to losing an essential
asset in time of national emergency, ships lost to our flag also represent lost
jobs.
The nation's dwindling pool of highly-trained
professional mariners represents not only a threat to the well being of my union
and the U.S. maritime industry, but the lack of U.S. maritime manpower is a
direct threat to our national security. These loyal, ready-to- serve merchant
mariners provide reliable crews for our MSP ships and other merchant marine
vessels in a time of feral coalitions and global uncertainty. Moreover, the same
crew base is expected to fully man the Defense Department's reserve sealift
fleet.
The panel is familiar, I am sure, of the role
played by the merchant marines serving this nation throughout its history. We
have seen heroic efforts ranging from the Murmansk Run in World War II to Korea
and Vietnam -- and to recent emergencies in the Persian Gulf, the Balkans and at
home at the shore side evacuation of lower Manhattan on September 11.
The Staten Island ferries and New York City fireboats
rescuing victims of that tragedy were crewed by MEBA members, eager to lend a
hand at a moment's notice.
Just as the merchant marine
is the cornerstone of the U.S. military's ability to project power globally, MSP
is the cornerstone of our nation's maritime policy. Together with the Jones Act
and cargo preference laws, MSP makes up the absolutely essential triad of
maritime policies and programs supporting the U.S. merchant marine.
Without action to create an expanded program to MSP, MEBA
risks losing 40 contracted vessels participating in MSP. Without action, these
vessels will leave the U.S. flag. Without action, the maritime loses more
mariners. Without action, America will lose a key element of military and
economic power at a time when there is no substitute for American leadership.
Without action, the day may come when U.S. troops engaged in combat halfway
around the world are left vulnerable due to lack of ammunition and supplies
because there are not enough U.S. ships to service them.
Thank you.
HUNTER: OK. Thank you, Mr. Davis --
appreciate it.
Captain Rodriguez?
RODRIGUEZ: Thank you, Mr. Chairman, members of the panel.
I am Captain Mike Rodriguez, executive assistant to
Captain Tim Brown, president of the International Organization of Masters, Mates
& Pilots.
Were it not for the fact that our union
is presently holding its 79th convention, Captain Brown would be here,
personally, to express our union's support for the Maritime Security Program and
for the changes we believe are necessary to make it work even better for the
United States.
On behalf of Captain Brown and the
membership of the MMP, I am grateful that this hearing is being held -- we are
grateful that this hearing is being held so that Congress can gather the
information it needs to properly consider Maritime Security Program
reauthorization legislation.
At the outset, I want to
emphasize that the reauthorization of the Maritime Security Program is extremely
important for the masters and licensed deck officers represented by the MMP. We
represent licensed officers working aboard 37 of the 47 United States flag
vessels enrolled in the program. As such, the Maritime Security Program
represents the most significant component of our U.S. flag foreign trades
commercial fleet.
Let me state that the Masters, Mates
& Pilots strongly endorses the statement submitted to this panel by the four
seagoing organizations represented here, today. Rather than simply repeat what
my colleagues have already said, I would like to make -- and emphasize two
points.
First, we believe that if we have learned
anything from the attacks on our nation of September 11, it is that we must be
even more vigilant about the threats we face through the carriers of cargo from
overseas locations. To us, the only real security is the security that comes
with the operation of United States flag vessels, crewed by United States
citizens, as guaranteed by the Maritime Security Program.
The best way to ensure that our country has the information it needs
regarding the ownership, operation and crews of commercial vessels is if they
are American flagged. We believe that a larger, more realistic Maritime Security
Program, resulting in more vessels operating under the U.S. flag, with American
crews, further enhances America's security by giving our country a greater
measure of control over the loading and transportation of cargo destined for the
United States ports, as more of America's foreign trade is carried on vessels
owned and operated by American companies flying the American flag and crewed by
our mariners.
Second, if Congress considers the issues
relating to the U.S. citizenship ownership of vessels operating in the Maritime
Security Program, it is important to understand exactly what we are suggesting
and how maritime labor's proposal fits under current law.
Neither the Masters, Masons & Pilots union nor the other seafaring
unions are asking Congress to abandon the United States citizen ownership
requirements that apply to United States flagged foreign-trade vessels, in
general, or to vessels in the Maritime Security Program. In fact, today, there
are a significant number of United States flagged vessels that carry commercial
and military cargoes that are operated by documentation citizens, as allowed by
the existing law.
In addition, Congress, in 1996, when
it enacted the Maritime Security Program, specifically allowed documentation
U.S. citizens to participate directly in the Maritime Security Program. In other
words, a maritime labors proposal is needed and an unprecedented attempt to
allow documentation United States citizens to operate U.S. flagged vessels
commercially or for the military or an unprecedented attempt to open the
Maritime Security Program to documentation United States citizens.
As I said, Congress has already enacted laws that
authorize those operations.
On the other hand, maritime
labors proposal is an attempt to reflect the current ownership structure of the
American maritime industry and to incorporate these changes into the law, as
already enacted by the Congress. We suggest that for only existing Maritime
Security Program vessels the distinction between certain documentation United
States citizens companies and Section 2 United States citizen companies be
eliminated. In all other circumstances under the Maritime Security
Act, our proposal would retain the system as enacted by Congress in 1996.
I appreciate the opportunity to appear before this panel
on behalf of the Masters, Mates & Pilots, and I will try to answer whatever
questions you may have for us.
HUNTER: Thank you...
RODRIGUEZ: Thank you, sir.
HUNTER: ... Captain Rodriguez.
Mr. McKay?
MCKAY: I don't have a prepared statement. I agree with
everything this panel has just said. We do believe...
HUNTER: You know, that's some of the finest testimony I have ever
heard.
(LAUGHTER)
MCKAY: You
like that, huh?
HUNTER: Yes. Was that Gordon Spencer's
(ph) idea?
(LAUGHTER)
MCKAY:
No.
(LAUGHTER)
MCKAY: Though
I'll give him credit for it -- no. I think it's a long overdue need for this new
maritime program. Like anything, it can always be improved. And I think this is
a step in the right direction.
HUNTER: OK.
Well, let me kind of summarize what I have heard --
gentlemen, it's this -- is that you see the American crewing and the American
flagging as the paramount goal here. And that if we had some type of a -- as
long as we had an American directorship, from your perspective -- an American
directorship of these companies, the need to have the class 2 citizen -- the
so-called middleman that we have -- is in the present structure, would not be
necessary. You could live with the proposal that's been endorsed, I believe, by
Maersk and the other owners that would have an American directorship in the
companies, but not necessarily an American ownership.
Is that right?
(UNKNOWN): Yes, sir.
(UNKNOWN): Yes.
(UNKNOWN):
Yes.
HUNTER: You could live with it? Let me ask you one
other question -- the one different there, though, major difference -- we've
talked about maintaining the American interest and control -- is that ultimately
the stockholders, as I pointed out to one of the gentlemen who was here in front
of us, ultimately the stockholders could make a decision. And if you don't own
the stock in the company that maintains control, you don't really have control.
But it's true the directors can -- they can go against the stockholders until
the next meeting is held. And that's about as long as they can do it. And at
that point, the stockholders control the company.
So
you would still have a company which would be controlled by the stockholders.
And, therefore, perhaps, not meeting all of the goals in terms of having an
American interest being served, maybe, in time of conflict.
The one thing that was just going through my mind as we have been --
the testimony was going on -- and I was thinking about the situation in Taiwan
with China -- with the other shipping companies -- all the global shipping
companies having major stakes and major interests, because of the massive China
trade and shipbuilding and other economic interests. And if it came time for
them to choose up between Taiwan and China, well that's almost a choice that we
can't make, as an American government. And if you watch us tap dance on these
issues, now, that becomes very apparent.
So it would
be, maybe, a bridge too far for a global shipping company to make that choice in
terms of going with the United States interests over those of China and seeing a
wealth of investments in China and strategic and economic relationships
evaporate.
So this is -- I mean, this is a difficult
choice that this panel is going to have to make if we, in fact, change this. And
I would hope you can appreciate that. And I just wondered if you had any
comments on that.
Yes, sir?
RODRIGUEZ (?): Mr. Chairman, it wasn't that long ago when the United
States had American merchant mariner companies -- liner companies -- that had
around-the-world services. Back in the '80s, I worked for U.S. Lines. U.S. Lines
went around the world. We had infrastructure around the world.
Recently, there was APL -- a wholly-owned American company and Sealand,
a wholly-owned American company. But it's gone -- those are gone.
What we also realize is that in the interest of national
defense and what we are hearing from the other government agencies is that it is
very important to have infrastructure.
HUNTER: You
know, that's true. And, incidentally, Mr. Taylor and I and Mr. Saxton have been
worried about China Ocean Shipping Corporation -- COSCO -- having infrastructure
around the world and not only trying to get the Navy base at Long Beach, which
we were successful at stopping, but now having terminals on both ends of the
Panama Canal. And, in light of the testimony that's gone before, there is a
great deal of wisdom in their strategy, because it has now been pointed out very
clearly that simply having controls of the ships is not even half the ballgame.
You've got to have control of the infrastructure and the intermodal capability
to move cargo once it gets to the shore.
And so the
China Ocean Shipping Corporation is, for practical purposes, totally owned by
the polit (ph) bureau in China -- in Beijing. They are looking at this thing in
terms of a total package. And that's why they go out and buy terminals and/or
rent them or control them. And why Hutchinson (ph) War (ph) in Poland now has
facilities at both ends of the Panama Canal. They are not simply moving to
control bottoms or ships, but to control systems.
And
so that points out, I think, for us, as Americans who want to guarantee the
ability to move cargo from point A to point B, whether it's in Afghanistan or
some other theatre, is that even controlling the ships, we're halfway home, but
not all the way home.
And so you've posed this really
major problem to us. Because I presume that the American President Lines and
Sealand, in the old days, had the total system, did they not?
RODRIGUEZ: is that even controlling the ships, we're halfway home, but
not all the way home.
And so you've posed this really
major problem to us. Because I presume that the American President Lines and
Sealand, in the old days, had the total system, did they not?
RODRIGUEZ: Yes.
HUNTER: And today we don't
have it.
RODRIGUEZ: That's correct. HUNTER: And so, to
some degree, we're at the mercy of the world -- the community that now controls
it and has the pink slip to those operations.
RODRIGUEZ: You're absolutely right, Mr. Chairman. American used to have
economic control of the seas -- of the world's oceans -- economic control and
control of moving the cargo around the world. We don't anymore. And we have to
realize that. We have a wonderful Navy out there that can, through force, do
things. But as far as the economic control -- as far as passenger -- carrying
cargo from port to port around the world -- carrying military cargo when it's
needed, we no longer have -- we no longer control the seas.
HUNTER: OK.
RODRIGUEZ: And we all know that a
nation that controls the seas is always in much better shape than one who
doesn't.
HUNTER: Mr. Taylor?
TAYLOR: No questions, Mr. Chairman.
HUNTER:
Mr. Saxton?
SAXTON: Mr. Chairman, I think I'll follow
Mr. Taylor's example. We have a meeting with the chairman of the full committee
here in less than 10 minutes. So...
HUNTER: OK.
Well, thank you, gentlemen, for being with us.
Well, gentlemen, you've laid out very clearly the
position, I think, very precisely the position of your organizations on this
proposed compromise language.
What I would ask you to
do, if -- and also have -- do we have anything for the record, here -- OK, we've
got a letter from the American Shipbuilding Association that we will -- without
objection, we'll take into the record.
Gentlemen, what
I'd like to ask you to do is if you have any additional comments or
recommendations, as we -- and we'll try to stay in contact with you as we try to
see if we can't put together a package that solves this problem, while
maintaining America's interests.
So if you have any --
we'll try to be in contact with you and have the staff working with you. If you
have any additional thoughts or reflections on these things, we'll keep the
record open and get them to Mr. Johnsen.
But, thank you
so much for being with us today.
TAYLOR: Mr.
Chairman?
HUNTER: You've laid a very difficult -- we've
got a very difficult policy decision here at our feet.
TAYLOR: Mr. Chairman, real...
HUNTER: Yes,
sir, Mr. Taylor?
TAYLOR: One of you gentlemen talked
about 12 vessels being taken out of the fleet in the past couple of years.
RODRIGUEZ: I did.
TAYLOR: You
said some were scrapped, some were reflagged.
RODRIGUEZ: Yes.
TAYLOR: What was the ratio?
RODRIGUEZ: The ratio of those 12 vessels -- between
scrapping and reflagging? I don't know what -- I would say 50-50, but I don't
know the exact numbers.
TAYLOR: Could you get that
number for me, please?
RODRIGUEZ: We could get that for
you, yes.
TAYLOR: That's the only question.
HUNTER: OK.
Thank you very much
for your testimony. And maintain some contact with Mr. Johnsen. Flood him with
information so that he has little time to do anything else.
All right. Thanks.
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%); GENE
TAYLOR (73%); DUNCAN HUNTER (68%); THOMAS H
ALLEN (65%); ROBERT J ALARIO (61%); CURT
WELDON (57%); WALTER B JONES (57%); ANDER
CRENSHAW (56%); JO ANN DAVIS (56%); WILLIAM M
THOMAS (55%); JAMES H MALONEY (54%); ADAM
SMITH (54%);