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STATEMENT OF ROY G. BOWMAN, VICE PRESIDENT FOR GOV.

ERNMENT AFFAIRS, AMERICAN PRESIDENT LINES, EXECUTIVE VICE PRESIDENT, AMERICAN AUTOMAR INC.

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.

[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?
STATEMENT OF JOHN P. CLANCEY, CHAIRMAN OF THE

BOARD, MAERSK SEALAND 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

Thank you.

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. ČLANCEY. 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. CLANCEY. Yes.

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, "Attorney-client privilege, you are our customer and we give good service to our customers. And you cannot 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."

Mr. CLANCEY. Yes. But it is also true, Mr. Chairman, that we do not do business with the Iranian government. It is 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.

Mr. HUNTER. I understand.
Mr. CLANCEY. And so we
Mr. HUNTER. And Iraq is also a customer.
Mr. CLANCEY. We do not service Iraq.
Mr. HUNTER. Oh, you don't service Iraq?
Mr. CLANCEY. We do only from the Food For Oil —
Mr. HUNTER. Okay.

Mr. CLANCEY (continuing). Approved by NATO and some of the vessels have carried food out in return for oil.

Mr. HUNTER. Okay. Libya?
Mr. CLANCEY. A feeder that goes into Libya, yes.
Mr. HUNTER. Okay. Sudan?
Mr. CLANCEY. I do not believe so.
Mr. HUNTER. Okay.
Mr. CLANCEY. We may, on a spot basis, serve the Sudan.

Mr. 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?
Mr. KEEGAN. That is correct, sir.
Mr. HUNTER. Is that accurate?
Mr. CLANCEY. Well, what happens—you have a network-
Mr. HUNTER. I understand.
Mr. CLANCEY (continuing). Of 400 ships-
Mr. HUNTER. It sounds very, I mean, it sounds very realistic.

Mr. CLANCEY. 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 does not have an asset that has a mechanical problem or does not have the ability to lift-it does not have empty equipment-and he substituted a vessel in the network that is close by.

But it is also true the minute the issue was raised it did not happen. The vessel was unloaded and it went on its way.

Mr. HUNTER. Okay. Well, now, Mr. Keegan said that the American citizen refused to do it. Is that—which came first, the chicken or the egg, here?

Mr. CLANCEY. No, I think what happened is the operator-it might have been the captain-said, “We are not going to do this." And the 27-year-old who, I do not know where he is or what he is, but I know how we run the network, he said, “Well, I am sorry. Unload the vessel and go on your way,” not knowing that he was not forcing them to do it.

Mr. HUNTER. I understand. He was not looking at it-at the political aspect or the sensitivity of this. He simply said —

Mr. CLANCEY. He probably said

Mr. HUNTER [continuing). Cab number three is close to Oak Street.

Mr. CLANCEY. Exactly.

Mr. HUNTER. I am 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 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?

Mr. 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 is a U.S. flag vessel.”

Mr. HUNTER. So he went back to the American citizen, if you will.

Mr. KEEGAN. Correct. Yes.

Mr. HUNTER. Okay. Now, I guess my question is, then, if the American citizen had not been there, would you have then sent the ship to Iran?

Nr. CLANCEY. Since then, we have put in policy and procedures to prevent this. But I will not deny that, with 10,000 or 11,000 employees, someone does not make a mistake once in a while.

Mr. HUNTER. Well, I am not talking about a mistake. I am talking about policy.

Mr. CLANCEY. Policy is we would never do that.

Mr. HUNTER. As a matter of policy you would not use an American ship that is dedicated in the MSP program to this line?

Mr. CLANCEY. Absolutely not. And this is the only incident that I have ever heard of that in my entire career.

Mr. HUNTER. Okay.

Well, you know, I mean, these things happen. I mean, I can remember in Vietnam, 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 did not, as Mohammad Ali say, they did not 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 British Broadcasting Corporation (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 cannot accommodate two friends. And so my point was, simply, that you have—you are a

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