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I support the concept of MSP because as both a shipbuilder and a former merchant mariner, I know the criticality and the necessity of maintaining a strong capability in terms of the manpower and the vessels that are required to provide sealift in support of our national security objectives. I support the concept of MSP, because it supports our nation in its role as a world leader. And I support the concept of MSP because, frankly, the livelihood of hundreds of thousands of people depend on the maritime industries of the United States operators and shipyards alike -; it is a critical element of our National Economy and National Security and if we do not maintain a program like MSP and other similar programs, the consequences will be felt for generations to come and in ways we cannot foresee today.

Despite the compelling nature of these reasons, and the sound public policy foundation for maritime support programs, we must recognize that our industry continues to shrink, the manpower pool grows smaller and our U.S.-flag fleet has diminished to what is now less than one half of its size twenty years ago. A scary thought indeed. This has occurred despite the fact that international trade has grown, and will continue to grow, and our entire economy is almost wholly dependent on imports and exports which, by definition and geography, must be transported on ships that are now 95% owned and operated by foreign companies and flagged in foreign countries.

So, I think we have reached a point, Mr. Chairman, where we have to make some important decisions affecting the maritime industry. We are at a crossroads, and to me the decisions we face are easy since the alternative is to allow our maritime industry to continue its decades-long slide into oblivion and threaten our national security. You,

however, may have a difficult job of convincing your colleagues, who in some measure reflect the low level of visibility and appreciation for the maritime industry, that these modest investments sought by our industry are valuable and well worth the cost.

I think a mistake has been made in the efforts to craft the next MSP that have been undertaken by the operators in not reaching out to the U.S. shipbuilding industry. The old cliché about either we all "hang together or we hang separately" applies here, and I fear that some of the proponents of reauthorization of MSP have overlooked the fact that the shipbuilding industry is a critical part of the maritime industry of the United States, that our industry strongly supported the original MSP legislation and that the current law contains provisions which give a preference for U.S.-built vessels participating in the MSP program. I would like to see that preference maintained in the reauthorization and certain incentives added to the law to encourage U.S.-flag operators to purchase qualified MSP vessels in the United States.

As you know, a lot of people criticize the U.S. shipbuilding industry as being inefficient, non-productive, behind the times, and they even suggest that the industry either die, or basically confine itself to Naval construction and smaller vessels of the types that Mr. Vinyard's shipyard constructs. The primary evidence cited to prove all these propositions is the disparity in prices between foreign-built vessels and those built in U.S. Shipyards. I believe that these same critics either don't know, or don't care about some of the realities of the world that we in the shipbuilding industry face in each and every day.

It is true that vessels cost more here. We pay higher wages than other shipbuilding nations (although the gap is narrowing); our regulatory requirements are far more burdensome than elsewhere; our tax structure imposes greater costs on U.S. businesses; and other nations subsidize their industry to a degree not available in the United States. In this way, however, shipbuilders are no different from the U.S. flag commercial vessel operators, whose costs are far above those of their foreign flag competitors. Everyone in the maritime industry faces the same problems of cost differentials and foreign subsidies.

This is not a new phenomenon, and the effects of these disparities have produced a decline in the U.S. share of world commercial shipbuilding from almost 10% in 1979 to 0.4% in 2001. Over the same period, total shipyard employment has been cut by close to 50%; and many shipyards with long histories and proud galleries of vessels constructed over the years are now out of business. Again, Mr. Chairman, not unlike what has occurred in the international liner trades.

The crucial differences between the U.S.-flag operators and U.S. shipbuilders are: (1) the degree of support rendered by foreign governments; (2) the fact that our industry has effectively been out of the commercial business since the abrupt termination of the Construction Differential Subsidy (CDS) program in the early 1980s; and (3) the inescapable fact that we cannot simply "re-flag" our shipyards in order to survive and continue in business. We either make it with our facilities or we don't. We have no other options!

I've been in the marine industry for over thirty years and in shipbuilding for twenty years, and I have been involved in marketing both commercial vessels and naval support vessels. I have associations with shipyards throughout the world and it has always struck me, as I observe the business practices of the shipyards in Japan, Korea, and China, that shipbuilders in those nations operate with the full confidence that their governments see the shipbuilding industries as a critical element of their industrial base. Public and private resources in all of these nations have been specifically allocated to support shipbuilding, and as a result over the last twenty years the market shares of the U.S., Europe and Asia have reversed. In 1979, Asia maintained a 38% share. By 2001 Asian Builders increased their share to 80% of all new vessel construction. Europe, despite its subsidy regimes, has declined from a 39% market share to 14% today. In that same period, we have seen China progress from a virtual non-entity in the shipbuilding world to one of the top three Asian players, now producing good vessels at extraordinarily competitive prices with Korea and Japan.

In my view, the pricing of ships in the world markets has very little relationship to the cost of producing the ship. In my work previously with Avondale Industries in New Orleans La., and now with Kvaerner, I have the ability to obtain accurate international pricing information on all of the components for vessels. In many areas, I am purchasing exactly the same materials as the shipyards in China, Korea and Japan. So I know what the parts of a vessel cost, and yet I see vessels being sold at prices that are well below my cost of materials.

Certainly I recognize that we need to improve our productivity. We in the U.S. have been working hard for a number of years to do that, and we have made progress to that end. All of us here have made tremendous capital investments in new technologies and processes. But how can anyone expect us to become "competitive' with foreign shipbuilders when faced with these impediments to fair competition, and when confronted with the reality that since 1981 we have built precious few commercial vessels in the United States? Our U.S.-flag international liner companies, which were our reliable partners and customers, have not placed an order for any vessels in the last twenty years in the United States. The last container ship ordered, prior to the two-ship Matson contract I signed on May 29 was in 1992, again by Matson, which is not an MSP recipient. The last Roll On/Roll Off vessels were constructed in the mid-1980s. NASSCO currently has the TOTE program, again a Jones Act operator which does not receive MSP.

MSP recipients have either run their existing vessels well past the normal operating lives of comparable vessels or purchased their vessels abroad. One thing that has not happened in the MSP program is any effort by MSP recipients to build new vessels in the United States. And as I look ahead, we in the shipbuilding industry don't have any assurance of consistent fleet replacement orders from U.S.-flag operators. Consequently we will not have the opportunity to further reduce costs through series construction.

We have the opportunity now, Mr. Chairman to give the U.S. shipbuilding industry a chance to approach U.S. operators as partners, to craft financial incentives that make


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