needed to enable the private sector to develop the human capital and physical infrastructure necessary to serve the interests of this great nation. We are quickly reaching a critical stage. The remaining U.S.-built vessels in our international fleet are approaching the end of their useful lives and the size of that fleet is shrinking every year. The only way to reverse this trend is to enact policies that enable and encourage newly constructed U.S.-flag vessels to compete in the international marketplace and replace aging vessels, including the single hull tank vessel fleet, in our domestic trades. Certainly, the Maritime Security Program should be a cornerstone of those policies, but MSP alone will not ensure the future of the U.S. maritime industry. Policies that enable American shipyards to reenter the large commercial shipbuilding market and maintain our capacity to repair large commercial and Navy ships are also important. In closing, Mr. Chairman, I want to express my appreciation to you and your staff for your unwavering support for the domestic shipyard industry and the maritime industry in general and to express my commitment to work with Congress, the Administration, vessel operators and maritime labor to enact realistic and comprehensive maritime policy aimed at promoting all segments of the industry. I will be happy to answer any questions. Statement of Ronald J. McAlear Kvaerner Philadelphia Shipyard, Inc. Mr. Chairman and Members of the Committee: Thank you for this opportunity to appear before you and the Subcommittee to present my thoughts regarding the reauthorization of the Maritime Security Program (MSP) and the need to continue and strengthen the provisions that exist in the current law to encourage U.S.-flag operators to build new vessels in the United States. I am Ron McAlear, and I am President and CEO of Kvaemer Philadelphia Shipyard (KPSI) the newest and most technologically advanced shipbuilding facility in the United States. We have been open for business for approximately two years and have completed an investment of over $400 million in public and private funds. We now employ over 900 trained and skilled workers and have just recently signed a contract for two 2600 TEU, ocean-going container vessels for Matson Navigation, a leading operator in the domestic non-contiguous trades. We are the only shipyard in the United States capable of building large vessels that is focused exclusively on commercial construction. We have no U.S. Navy work, have not sought that work, and at this time we currently do not have plans to construct Naval vessels. Therefore, our entire future, the investment we have made and the workforce we have created in the shipyard and throughout the Delaware River Valley Region of Pennsylvania, New Jersey and Delaware depends on our ability to attract and satisfy commercial customers. 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! |