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November 12, ASM affiliate PCS purchased the MARAD RRF contracts previously held by APL with the approval of MARAD.

ASM controls these nine US Flag vessels through a bareboat charter agreement with Wilmington Trust Company, a US Citizen Trust and is considered the “desponent owner” under the law. As part of our responsibilities, ASM provides officers and crew including assignment and payroll, places all insurances for the vessels and their cargo, outfits and provisions the vessels, maintains the vessels in a seaworthy condition at all times, ensures regulatory and statutory compliance for the operation of the vessels, manages all hull, machinery, personnel & indemnity insurance claims, enforces crew discipline and compliance with collective bargaining agreements, provides emergency response and contingency plaming for the vessels operations, performs all purchasing functions and provides and/or contracts for husbanding (agency services) in all US ports. ASM then time charters the nine vessels to APL for commercial operation in the US trades with Asia. ASM assumed five of these MSP vessels under the US flag at the time of delivery and within one month “flagged in” to the US Flag the additional four MSP enrolled vessels at minimal cost and without service disruption.

In 1998, ASM“flagged in” to the US Flag three additional containerships to be used by APL in US Flag service. This exercise again was accomplished by ASM personnel at minimal cost and with out service interruption. Two of these vessels currently remain under the US Flag. Although these ships are not enrolled in MSP they are enrolled in VISA.

ASM is based in Walnut Creek, California. Much of the original shore side staff of approximately 35 were ex-APL employees made redundant by the sale of APL to Singapore based NOL as their jobs were focused on US Flag ship management for APL. ASM would now provide these management and operational functions for APL through their own experienced US employees. Over the last five years, the number of APL veterans has significantly diminished through attrition and retirement. These positions have been filled and expanded by qualified US citizens as the Company has grown. Today ASM and its affiliate PCS employ over 50 highly qualified and motivated shore based staff trained in the unique discipline of US Flag ship management. We are headquartered in Walnut Creek, Ca, with additional branch offices in New Orleans, La and Newport News, Va.

ASM maintains collective bargaining agreements with six maritime unions with which it has strong, close and lasting collective bargaining relationships. ASM is represented on all its contracted unions Taft-Hartley Benefit Plans, actively providing leadership and oversight to these key collective bargaining compensation components. ASM has worked aggressively with its contracted labor unions to expand job opportunities for American seafarers, pursuing successfully the LMSR operating contract with the Military Sealift Command and the successor MARAD RRF contract, effectively doubling ASM seafarer employment opportunities from November 1997 levels over a five year period. In addition, ASM has been a driving force in developing advanced training for American

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PREPARED TESTIMONY OF

JOSEPH T. "JAY" KEEGAN, PRESIDENT
AND CHIEF EXECUTIVE OFFICER OF U.S. SHIP MANAGEMENT INC.
BEFORE THE SPECIAL OVERSIGHT PANEL ON MERCHANT MARINE

COMMITTEE ON ARMED SERVICES
U.S. HOUSE OF REPRESENTATIVES

JULY 16, 2002

Mr. Chairman and Members of the Panel:

My name is Joseph T. “Jay” Keegan. I am President and Chief Executive Officer of U.S. Ship Management, Inc. (USSM), and pleased to be here today to provide brief testimony concerning the importance of maintaining the Section 2 citizenship policy of the Maritime Security Program. Congress may decide in the future to expand the number of ships that participate in the MSP. Congress may decide in the future to change the amount to be paid for each of these ships for their guaranteed readiness in the event of a national defense emergency. However, Congress should not now or in the future modify a well entrenched policy which limits eligibility in the MSP to American-flagged vessels, with American crews, and which, most importantly, are controlled by Americans citizens. Whatever limited exceptions that are provided in the law regarding priorities should, if they are to continue, certainly not be expanded.

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In 1999, A.P. Moller/Maersk of Denmark purchased the international business of Sea-Land Service, Inc. which had 19 U.S. flag vessels, 15 of which were enrolled in the MSP. Since Maersk could not qualify as a Section 2 citizen - Maersk entered into time charter contracts with my company for these vessels. My company has 42 dedicated and talented shoreside employees and 380 seagoing positions. We are headquartered in Charlotte, North Carolina and have offices in Edison, New Jersey and Long Beach, California. We are ISM certified by the American Bureau of Shipping for all nineteen vessels which we operate and for our shoreside operations. As an operator our company is in actual and legal control of the vessels. Simply put, we operate the vessels. This is consistent with traditional maritime law and practice. In fact, I understand that approximately half of A.P. Moller/Maersk's fleet is time-chartered and therefore operated by other foreign companies.

A.P. Moller/

Maersk is a $35 billion conglomerate headquartered in Copenhagen, Denmark, which is equivalent to 20% of Denmark's GDP.

We understand that legislation is being advocated by companies like Maersk which demeans companies like mine as “unjustified middle men” which increase Maersk's costs and add little value to the MSP. Simply because they have existing relationships with the Department of Defense, Maersk believes it is entitled to an exception or a change in the law which would eliminate or substantially modify the Section 2 citizenship policy. Their existing defense contracts required Maersk to sign Special Security Agreements (SSA's) which essentially provide that classified material

will not be made available to those who do not have appropriate security c.earances. However, this is not the same as citizenship. The agreement, in a vacuum, not to engage in unlawful, unauthorized sharing of sensitive material is not a guarantee which would preclude conflicts between a foreign company's commercial interests with our national security interests.

I will be happy to answer questions in more detail after my testimony. However, in summary there are several reasons which should cause Congress to conclude that the Section 2 citizenship policy is too critical to our national security to change.

A.P. Moller/Maersk has financial interests and conducts business in many countries, some of which could have strong policy conflicts with the United States. Commercial relationships between Maersk and such countries could present a clear conflict in the event of a national defense contingency. Will a foreign controlled company such as Maersk be primarily concerned about its commercial relationships wth such countries or will it primarily be concemed with our national security? Let's consider a hypothetical: if our government determines to deploy MSP enrolled ships to the Taiwan Straits in the event of a national security contingency, I can unequivocally represent to this Panel that my company will unhesitatingly and willingly do as asked However, please consider the factors which a company like Maersk, which does a huge amount of business with the Peoples Republic of China, would be forced to consider :r. the event of such a contingency. For example, I understand that Maersk has built more ships in China in recent years than any non-Chinese company. How would such a contingency affect relationships between Denmark and the Peoples Republic of China? More specifically, how would such a sealift impact the commercial relationship between Maersk and the Peoples Republic of China?

There is no good policy reason for our government to voluntarily inject even the slightest possibility of such a risk into the Maritime Security Program. When ships in the MSP are controlled and operated by United States citizens, our national security interests are paramount. The United States government cannot afford to be vulnerable to quandaries between a foreign owned company's commercial interests and our national interests. The citizenship policy guarantees to the DoD that the vessel will be available under any national defense contingency - including conflicts in which the United States may become involved that may or may not be internationally popular. The Section 2 policy is essentially a national security check and balance which should not be altered. Our companies are not shams. Our control of these ships is vital to our national security We provide real jobs to real people and provide exactly the type of protection intended by Section 2 to ensure our national security.

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Section 2 companies bear the “burdens” of citizenship and should at least continue to exclusively receive the “benefits” of priority in MSP participation. Foreign controlled companies are not subject to the full range of U.S. corporate taxes and are subject 10 substantially less U.S. regulation.

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