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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.

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 clearances 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 with 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 in. 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.

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 to substantially less U.S. regulation.

Equating foreign controlled "documentation citizens” with Section 2 citizens could be the first step in undermining the Jones Act.

The Merchant Marine Act of 1936 states that "it is necessary for the national defense and development of its foreign and domestic commerce that the United States have a merchant marine ... owned and operated under the United States flag by citizens of the United States". The Section 2 citizenship policy of the MSP is based on that foundation. It is a policy that has served our country well, and I would respectfully submit that it should not be modified.

Thank you for this opportunity to testify and I look forward to answering any questions which you or any other Panel Member may have.

STATEMENT OF

ERIK F. JOHNSEN
PRESIDENT, INTERNATIONAL SHIPHOLDING CORPORATION

BEFORE THE HOUSE ARMED SERVICES COMMITTEE
SPECIAL OVERSIGHT PANEL ON THE MERCHANT MARINE

1.REAUTHORIZATION OF THE MARITIME SECURITY PROGRAM (MSP)

July 16, 2002

Mr. Chairman and Members of the Panel:

As a United States owner and operator under section 2 of the Shipping Act, 1916, of commercial cargo vessels in the United States-flag fleet, I am particularly pleased to appear before you today to address the vital need for the reauthorization of the Maritime Security Program (MSP) to ensure the continued viability and survival of the U.S.-flag fleet.

I am Erik Johnsen, the President of International Shipholding Corporation (ISC). Through its principal U.S.-flag subsidiaries Central Gulf Lines, Inc. (Central Gulf) and Waterman Steamship Corporation (Waterman), ISC provides a wide range of oceangoing freight transportation through pure car/truck carrier services, roll-on roll-off, breakbulk, and domestic coastwise services. Central Gulf and Waterman collectively are among the largest participants in the current MSP program, having operated seven "active, militarily useful, privately-owned” U.S.-flag vessels under MSP operating agreements with the U.S. Maritime Administration (MarAd). Of particular importance to the Department of Defense and its critical military sealift needs, Central Gulf and Waterman operate several of the newest and largest roll-on/roll-off vessels in the U.S.-flag fleet under the MSP program. As a result of ramp capabilities and variable spacing of movable interior decks, these “RORO” vessels can accommodate a significant number of large military vehicles, including military trucks, HUMVEEs, military supply vehicles and many of the most modern tanks in the military's inventory, and can quickly transport large quantities of such equipment and other materiel where needed by U.S. armed forces around the world. Without the MSP program, Central Gulf and Waterman would not have been able to acquire such modern tonnage to significantly enhance the military sealift capacity of the U.S.-flag fleet.

Mr. Chairman, there is clearly a need for a strong U.S.-flag fleet to support our nation's armed forces in times of war or national emergencies. To that end, the MSP program has been a tremendous success. It has ensured the availability of at least 47 militarily-useful U.S.-flag cargo vessels to the U.S. Transportation Command (TRANSCOM) of the Department of Defense for sustained sealift capability to all points around the globe. Central Gulf, Waterman and other U.S.flag vessel operators, U.S. seafaring labor unions, MarAd, and TRANSCOM have all worked closely

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and cooperatively together to ensure, under the MSP program and the associated Voluntary Intermodal Sealift Agreement (VISA) program, that U.S.-flag cargo vessels are fully staffed and ready should they be called on a moment's notice to transport equipment and supplies to support the U.S. armed forces. Because this Maritime Security Fleet is readily available to the U.S. military, the Department of Defense has not been forced to duplicate this sealift capacity through the prohibitively expensive construction and operation of its own vessels.

Mr. Chairman, in a statement on the House floor last year, you expressed your own strong views on the importance of the MSP program to the national security and the maritime capability of the United States”. As you so correctly noted:

Without the MSP program, U.S.-flag vessel owners would have been forced to shift
their operations to foreign flags with foreign crews in order to remain internationally
competitive. This would have been detrimental to our national security interests. .....
Without the MSP the cost to the Department of Defense) would be substantial --
approximately $800 million annually would be required by DOD to provide similar
sealift and related system capacity on its own for the rapid and sustained deployment
of military vehicles, ammunition and other equipment and material.

Shortly before his departure last year as TRANSCOM's Commander-in-Chief, General Tony Robertson -- then the highest ranking military officer responsible for sea and air transportation of U.S. troops, equipment and supplies around the world-- reflected on the importance of the MSP program in his testimony before the Seapower Subcommittee of the Senate Armed Services Committee. In that testimony, he also shared your views by stating the following:

I am a strong supporter of the MSP... I will tell you if you ask me, I will sing out in
support of anything that increases the health and vitality of the U.S. flag fleet and
men and women who crew that flag fleet. So MSP has been a valuable, valuable
contributor to the health of that fleet.

Adding to this chorus of support, Maritime Administrator William Schubert stated the following in his testimony before your Panel just last month:

[T]he best way to protect our homeland and national security interests across the
globe is a strong U.S.-flag fleet manned by U.S. citizen mariners. If we did not have
the Jones Act, cargo preference, and the MSP and VISA programs, I can assure you
it is unlikely that ships would remain under the U.S.-flag, and the U.S.-citizen
mariner pool needed by the Department of Defense in times of national emergency
or war would disappear.

Mr. Chairman, I can assure you that Administrator Schubert is absolutely correct in his assessment of the state of the U.S.-flag fleet. Without the MSP and other federal maritime programs, our companies would be unable to compete against foreign-flag operators who benefit from

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