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legislative suggestions will be their commitment to pursue funding for a program in this upcoming fiscal year.

It is my goal, after working with and getting the agreement of the other members of the panel, to have a comprehensive legislative proposal ready for markup early next year and attach it to the fiscal year 2004 defense authorization bill. And before I recognize our witnesses, I would like to recognize, at this point, the distinguished ranking member of this panel, the Honorable Tom Allen of Maine, for any comments he might have.

[The prepared statement of Mr. Hunter can be found in the Appendix on page 205.]


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

General HANDY. Thank you, sir.

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

General Handy, it is a beautiful morning outside. Welcome.

General HANDY. Gorgeous, thank you.

Mr. HUNTER. And we look forward to your testimony.

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

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

[The prepared statement of General Handy can be found in the Appendix on page 208.]

General HANDY. Thank you very much. In the interest of time as well, I am ready for any questions.

Mr. HUNTER. Super. [Laughter.]

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

General HANDY. Right now

Mr. HUNTER. You may prefer to read your statement, really. [Laughter.]

STATEMENT OF GEN. JOHN W. HANDY, USAF, COMMANDER IN CHIEF, UNITED STATES TRANSPORTATION COMMAND General HANDY. The question, as we have discussed many times, and I will just run down the current MSP that we have. We have 47 vehicles-vessels-36 of which are break bulk; three tankersI am sorry, I am looking at the prepositioned fleet (PREPO). We have 11 Large Medium Speed Roll On/Roll Offs (LMSRs), eight fast sealift ships (FSS), 76 ready reserve fleet (RRF) vessels that are our total ship requirement.

We have another-we have 10 of those LMSRS currently in our possession. The eleventh one will be delivered in the February/ March timeframe of 2003.

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

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

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

Mr. HUNTER. Sure, yeah.

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

We feel fairly comfortable at today's 47. But that was derived by virtue of the amount of money in the original MSP authorization in 1996.

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

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

General HANDY. Questions.

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

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

The mix, I think, for what we have today, is certainly a-you know, suits us. I would not want to see it change dramatically in the downward side. I certainly could endorse increasing capability to get closer to the 60-ship number that we have targeted for you. Mr. HUNTER. Okay. Let me ask you-go to another question that is on our minds since we have been thinking of some creative ways to maintain the shipbuilding base in this country and the Title XI program. One idea was to give a—and we are contemplating this right now-to give a preference to applicants for Title XI who would sign up for the MSP program. Basically, it is analogous to becoming a reservist in exchange for a benefit upfront-that is, a loan guarantee on your construction.

What do you think about that?

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

Mr. HUNTER. So if you need money now to build something, and you would be willing to sign up for 20 years at no annual payment for MSP in return for loan guarantees for a particular building program and assuming that you are building a vessel that is militarily

useful, that would be something you think would be a good creative mechanism to use to make Title XI work, as well as provide MSP resources basically at no cost to the MSP program?

General HANDY. Sir, we would be

Mr. HUNTER. You understand what I am talking about?

General HANDY. Yes, sir. Sure do.

Mr. HUNTER. You are going to build a ship where you are trying to get a Title XI loan guarantee. And we say, "General Handy, that is good."

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

You would say, in return for this loan guarantee, for having some priority in the loan guarantee, "I am willing to commit this ship to 20 years in the MSP program." And if you average that out at what we project may be $3 million or so per year, that you are giving us a then-year benefit, if you will, to the U.S. Government, of $60 million. It is not a present value, but that is a then-year value. And that might be a strong inducement for the U.S. Government to give you the loan guarantee over another builder who is not willing to sign up for MSP. Now does that sound like a reasonable recruiting tool, if you will, for Title XI and for MSP?

General HANDY. Well, certainly

Mr. HUNTER. You understand what I am talking about?
General HANDY. Oh yes, sir. I clearly understand.

Mr. HUNTER. What do you think?

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

Mr. HUNTER. Okay.

Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

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

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

I am also informed that I have the same legal capability over documentation citizens and section 2 citizens with regards to exercising either MSP or Voluntary Intermodal Sealift Agreement (VISA) requirements. And so the way the arrangements are writ

ten, we do not feel, from our perspective, that there is reason to treat one any different from the other. And that has been proven over time.

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

[The information referred to can be found in the Appendix beginning on page 217.]

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

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

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

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

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

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

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

Mr. ALLEN. Okay, good. Thank you.

Thank you, Mr. Chairman.

Mr. HUNTER. Thank you.

Mr. Saxton.

Mr. SAXTON. General Handy, on the subject of section 2 and documentation citizens, in the last hearing, we had a lengthy discus

sion. And the basis of the discussion was that when you and TRANSCOM have a need for MSP ships, you have to be certain that they are going to be there. And to that extent, there was a long discussion about whether or not a situation without section 2 ownership, or section 2 organization, would permit us to be certain that they would be there.

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

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

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

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

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

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

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

General HANDY. You could see a scenario that, some time in the future, that might happen. I would prefer seeing a very strong capability for section 2, as well as documentation citizen within any reauthorized MSP. I would certainly favor the flexibility of going on the market and being able to deal with both types of companies. Mr. SAXTON. This is a fairly complicated issue. I understand that documentation citizens are defined as those companies that have 51 percent or more American stockholder, U.S. stockholder participation?

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

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

General Handy, I think he was asking about documentation citizens. Those can be 100 percent owned by foreign ownership, according to our-the stock of the particular company-according to

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