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

good business sense, and to support them to buy ships in the United States. While the National Shipbuilding Initiative was a worthwhile endeavor, we still haven't had a real

chance to build for our own citizens and that, in part, is why the shipbuilding industry is struggling as it is.

I am suggesting that you include in the MSP reauthorization a continuation and strengthening of the preference for U.S.-built vessels found in Section 652(0)(4) of the current law. Section 652(p) of the current law also contains a notice provision to U.S. shipbuilders before MSP operators can contract for new vessels in a foreign shipyard. I would urge you to retain this provision but modify it to require MSP operators to notify U.S. shipbuilders sufficiently far in advance of contracting with a foreign shipyard to give us an opportunity to put together a deal, but I would also ask you to consider strengthening the notice provision by including recently built vessels (e.g. less than two years old or under construction). At the very least, I believe MSP operators should be required to provide U.S. shipbuilders with a genuine opportunity to see if a deal can be made to work before they get a "green light" to purchase new vessels outside the country. In order to enforce this provision, I would suggest that MSP operators be required to certify to Marad which U.S. shipbuilders they have contacted, the dates of those contacts and the results of those contacts before Marad permits them to bring a foreign-built vessel into the MSP program.

I would also suggest that you consider coupling the U.S.-built preference with a larger MSP payment for a U.S.-built vessel to take into account the difference in capital costs between U.S. and foreign-built vessels. While the amount would have to be worked out

among your colleagues, and would be dependent on budgetary constraints, I would anticipate a differential of approximately $4-5 million per year, per U.S.-built vessel over the life of an MSP contract would create a financial inducement to purchase a vessel in the U.S.

It seems to me that if we combined the statutory preference for U.S.-built vessels, higher MSP payments for the U.S.-built vessel, Capital Construction Fund (CCF) tax benefits and Title XI guarantees this would significantly reduce the net cost of the vessel for the operator and would provide good jobs for American citizens and help to revitalize an important National Security industry.

I also believe that the CCF program should be opened to domestic operators who must build vessels in U.S. shipyards. The prohibition appears to me to be an historical anomaly that is restricting recapitalization of the domestic fleet, and possibly stifling the creation of a coastwise container service. Venture capital is scarce in the maritime world, and ships are expensive. Why not utilize a proven mechanism to allow the domestic operators to build up the funds necessary to re-build their fleets?

The Jones Act is indispensable to our survival as shipbuilders, as evidenced by the customers that all of us see as our “core” business. I know, Mr. Chairman, you are a strong supporter of the Jones Act, I thank you for that and I know you will prevent any weakening of its U.S.-build provisions from occurring.

Finally, the continual battle over funding for Title XI, which is the only federal program that supports all owners to build vessels in the U.S., must end. We need a Title XI program that operators know will be in existence over the next ten years, which is funded adequately, and on which they can depend as a stable source of financing.

Mr. Chairman, we are truly one industry, and I would urge you to approach this matter in a way that insures all parts of this industry; operators, builders and labor alike are supported. That is the way our country has operated for many years, the Merchant Marine Act of 1936 is explicit in citing shipyards along with labor and operators as coequal parts of the maritime industry and I see no reason why that should change today.

Thank you for your time and I will be happy to answer any questions you might have.