We certainly would enter the theatre of war, if there was a place we could put a ship in. And we have 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 has just spent a lot of time looking at it, and so have his prede

cessors.

Mr. SAXTON. So it gives you a level of flexibility that you feel you do not currently have?

Mr. CLANCEY. No, we have the flexibility and we are 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 would like to be able to operate the balance of our fleet as one company. And we think that it is the most efficient. And I think that history has demonstrated-albeit, we make one mistake and I will take the blame for it-that we have been responsive and we have been loyal.

Mr. SAXTON. Okay. I am trying to so you have ships that you cannot currently use in this

Mr. CLANCEY. We can use them, but we are getting to the point in time we have to reinvest.

We also feel that it is inefficient for someone that is operating ships for the government on one hand and the other makes a telephone call and says turn left or turn right. We think it would be much more efficient if we could just operate the ships ourselves.

I mean, it is our capital, it is our equipment, it is our terminals and we feel it is more efficient and more responsive if we could operate it.

It is similar to anyone building something and saying, "By the way, I am not allowed to operate that, so I will let my neighbor buy the truck and when I want to use it, I will tell them which way to go." A lot simpler to buy the truck yourself and drive it down the street.

Mr. SAXTON. Mr. Keegan, what is your take on

Mr. KEEGAN. Well, you know, the MSP program is there for control during national emergencies with U.S. citizens. And as I stated in my statement, it is there.

But the company Mr. Clancey 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 do not 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 is not something, you know, totally out of their day-to-day way that they do business.

But I think we are 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 is 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 do not 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 are made right here in the U.S. and the ships will go when they are asked.

Mr. CLANCEY. Congressman?

Mr. SAXTON. What kind of decisions-we will get right back to you, Mr. Clancey.

What kind of decisions are you concerned that might occur if the decisions are not made here in the U.S.?

Mr. KEEGAN. Well, you know, let's say there is a conflict in China and we are involved. And the U.S. Government says, "Okay, 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 do not know what the answer would be, as a Danish corporation.

And that is, 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.

Mr. SAXTON. And you would make the decision to make them move out of China?

Mr. KEEGAN. No, sir. I would make the decision to deploy my ships where the Department of Defense wanted them deployed. To our captain, we would say, "Hey, Afghanistan direct.'

Mr. SAXTON. Mr. Clancey, you wanted to say something a minute

ago.

Mr. CLANCEY. 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. Mr. SAXTON. Now, I am sorry-what are you reading from? Mr. CLANCEY. TRANSCOM's position.

Mr. SAXTON. And what gives TRANSCOM-why TRANSCOM feel that way?

does

Mr. CLANCEY. Because they have 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 Commanders in Chief (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 is 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.

Mr. SAXTON. Mr. Bowman.

Mr. BOWMAN. I would just like to add to the concept of the network and the infrastructure. I have a letter here from the general, the Military Traffic Management Command, to APL. It is dated June 26, 2002. And I will 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 is only half the job. And, in fact, the easiest part of the job.

[The information referred to can be found in the Appendix on page 103.]

Mr. SAXTON. Thank you, Mr. Chairman.

Mr. HUNTER. Yes. Thank you, Mr. Saxton.

Actually, Mr. Johnsen has been sitting here next to me making this same point, that the infrastructure 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

Mr. BOWMAN. Terminals throughout the world are controlled in different mixes. Some we own, some we have long-term contracts on. And I have heard others say, "Well, we can always rent a terminal." Not in the middle of an Afghanistan strike, you cannot.

The infrastructure is there the people are there they are on the ground, ready to serve. They know the locality. That is the dif ference.

Mr. HUNTER. Okay.

Mr. Allen.

Mr. ALLEN. Thank you, Mr. Chairman.

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 is the impact if you have the kind of legislative compromise proposal that is 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.

Mr. JOHNSEN. I will 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 Clancey 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.

Mr. ALLEN. Okay. Thank you.

Others?

Mr. Alario.

And then we will come back to Mr. Clancey.

Mr. 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 is a non-union, privately owned— many privately, small-owned corporations, which are in a militarily strategic and a national security zone of outer continental shelf (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.

Mr. ALLEN. Thank you.

Mr. Clancey.

Mr. CLANCEY. 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 have committed that to them.

Mr. ALLEN. I am sorry, I did not catch that last part. What did you say?

Mr. CLANCEY. That the compromise, as we have presented, by 90 percent of the ownership of the MSP fleet, would enhance the opportunities for labor.

Mr. ALLEN. Okay.

Mr. Keegan, I am looking for a note I made on something that you said. And I am trying to-I cannot seem to find it. I know I made the note. It is here somewhere.

But I guess 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?

Mr. 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 do not see a need for change. I think, you know, the reasons the MSP program was enacted and why it is running and how it is 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?"

Mr. ALLEN. Well, let me ask you, then

Mr. KEEGAN. Sure.

Mr. ALLEN [continuing]. 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 is no-I am really probing for

Mr. KEEGAN. Okay.

Mr. ALLEN [continuing]. What else you can add to that particular

answer.

Mr. 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 cannot 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 have seen it in the Gulf War. We have seen it in the recent Afghanistan conflict. I mean was Germany truly on our side? Did we get the overflight rights from Saudi Arabia like we needed?

And, let's face it, some of these companies, one for example, Denmark, is in the European Economic Community (EEC). That has to be guided by the EEC policy now. And does that match with U.S. priorities and U.S. statutes?

I am just saying that it is clear to operate this fleet, you need U.S. citizens to operate it. And I think it works well.

Mr. ALLEN. Mr. Bowman, do you want to respond to that?

Mr. BOWMAN. Yes. I would just like to respond to something Mr. Keegan said when he said that nothing changed since the MSP enactment. Seems to me that is absolutely incorrect. Everything