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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 noncontiguous 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.

[The prepared statement of Mr. Keegan can be found in the Appendix on page 65.]

Mr. HUNTER. Thank you, Mr. Keegan.

Mr. Johnsen.


Mr. 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). 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

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 am 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.

[The prepared statement of Mr. Johnsen can be found in the Appendix on page 68.]

Mr. HUNTER. Mr. Johnsen, thank you for your statement.
Mr. Bowman.


Mr. BOWMAN. Good afternoon, Mr. Chairman, and members of the committee.

I am here today on 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 Neptune Orient Lines Limited (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.

[The prepared statement of Mr. Bowman can be found in the Appendix on page 74.]

Mr. HUNTER. Thank you, Mr. Bowman. You get the prize for the most succinct and concise statement of the day.

Mr. BOWMAN. I try.

Mr. HUNTER. Mr. Clancey, sir?


Mr. CLANCEY. Thank you, Mr. Chairman, and members of the panel.

I am chairman of Maersk, Inc., responsible for the operation of Maersk Line Limited (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-estab

lished it was an exception at that time. Today the exception is the rule, with one exception, my good friend, Mr. Johnsen.

And that is 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 are talking about, you know, numbers of $60 million, $80 million, $90 million a copy. You need a number of them. You need ancillar 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 is also important to understand what we provide to the Department of Transportation and U.S. Transportation Command (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.

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

Mr. HUNTER. Just one second, Mr. Clancey. How are you moving that into the base camps in the theatre in Afghanistan?

Mr. CLANCEY. We are moving it to

Mr. HUNTER. What is the last leg?

Mr. CLANCEY. The last leg is through the "stans".

Mr. HUNTER. Is through where?

Mr. CLANCEY. Through the "stans".

Mr. HUNTER. Well, but once you get through the "stans" and you actually get to the Afghanistan border, how do you get it over?

Mr. CLANCEY. The containers are unloaded and put in military vehicles and taken to the camps.

Mr. HUNTER. But you do not move it across Afghanistan itself?
Mr. CLANCEY. Into Afghanistan? No, just to the border.
Mr. HUNTER. Okay. Go ahead.

Mr. CLANCEY. There has also been comment today about, you know, what we do and what we do not 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 cannot 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 did not do it last month, he might do it next month," and on and on and on. It is 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 citizens 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 is 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.

[The prepared statement of Mr. Clancey can be found in the Appendix on page 81.]

Mr. HUNTER. Thank you very much, Mr. Clancey.

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. Clancey, is Iran one of your customers?

Mr. CLANCEY. We have a small fleet of ships that serves Iran. Mr. HUNTER. Okay.

Mr. CLANCEY. With no U.S. citizens involved at all. And there are no U.S. citizens in Iran.

Mr. HUNTER. I understand. So the United States is one of your customers, in fact, a very major customer.

Mr. CLANCEY. Correct.

Mr. HUNTER. Iran is also a customer and a smaller customer. And you give good service to your customers.

Mr. CLANCEY. Correct.

Mr. HUNTER. And so your customers can trust you.


Mr. 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,

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