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Mr. HUNTER. Did you have a-go right ahead. And guys, just jump in any time. Let's have a conversation. Go ahead, Ander, then Gene.

Mr. CRENSHAW. About on the same line in terms of the financing aspect that Hunter is getting to your proposal, let's say that $200 million ship that we spend $200 million a day and you pay us back $100 million, 50 percent of the costs over 20 years.

As has been pointed out, that is an outlay initially of $200 million. The thing is what you are getting to is there a better way that has to do with Mr. Saxton's question about financing to having one thought is similarly, you have a loan of $100 million that you pay back over 20 years and then the Federal Government out have as much money, if it is $8 billion so to add up front it is $4 billion.

I mean, there are a lot of ways—I guess you are beginning to think about that in terms of how we can help without outlaying great deals of money on the front end. It just has to do with financing.

În other words, if you had $100 million to start with, you go out and finance a ship with another $100 million and then you pay that back, say to the Federal Government a, that 50 percent of it is outlay and b, carrying costs for 20 years.

Those are the kinds of things, I think, we are looking for.

Mr. HUNTER. Thank you very much. Mr. Crenshaw has got a pretty good background in finances. It is good to have that talent on this panel, so I appreciate that.

Now, the one thing that this would do, though, I think it would meet Mr. Vortmann's concern or raise Mr. Vortmann's concern. You are going to have to have a lot of players in this. We would have to have a coordination with MSP and we would have to have some changes in Title XI. And as Mr. Vortmann says, the more changes and the more committees you involve, the more difficult it becomes to pass a package.

The best, the simplest package to pass is always cash up front. The only problem with that is cash up front.

Mr. Taylor.

Mr. TAYLOR. I am going to open this up to the panel. Mr. Vortmann, you mentioned that going back to your build and charter program, you said that you charted to commercial operators. Based on last week's hearings, I am of the belief that we have very few commercial operators left who are American citizens.

Is that accurate or no?

Mr. VORTMANN. There are certainly a declining number at a very rapid rate and our fear if left unchecked, it is going to go down to zero and we will have nothing but foreigners.

Mr. TAYLOR. Who is left and I am not being argumentative. For my information, who is left?

Mr. VORTMANN. There are-participating in the MSP program
right now, there are 10 U.S. operators.
Mr. TAYLOR. They are, off the top of your head?
Mr. VORTMANN. I am sorry?

Mr. TAYLOR. Off the top of your head, can you name some of them?

Mr. VORTMANN. American Ship Management, American International Car Carriers, First Ocean Bulk Carriers, First American

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Bulk Carriers, U.S. Ship Management, OSG, Central Gulf, Waterman.

Mr. TAYLOR. Okay. Waterman's

Mr. VORTMANN. They do not own those ships, but they operate them and they would be in a position, with the proper financing techniques, to step in the place of the foreign owners and own those ships themselves and continue to operate them as they do today.

Mr. TAYLOR. Okay. I will open this again, this one up to the panel, including our good friend, Mr. Johnston. Cargo preference. Where does it stand now? Is it 100 percent American? Do we carve out a certain niche that we allow to go foreign or is it 100 percent U.S.—those things that are ship cargo preference.

Mr. VORTMANN. There is a strong preference for cargo in a U.S. built ship, but that is not a very significant market in the sum total of things.

Mr. HUNTER. Rusty strokes his chin here as he contemplates his answer. I think, Gene, I think it is in a number of areas. For example, we talked the other day with people that deliver American aid. I think all American aid, in terms of food aid delivered to other continents is delivered, has to be delivered by American ships. Now, that is not a huge niche, but that is a little niche.

The agriculture community, as I know, has historically resisted cargo preference, because they think that gets their wheat to the docks in some foreign country a few cents more expensive per pound than if they shipped it on Third World ships.

Does anybody have-Mr. Johnston, do you have a fix on the scope of what cargo preference is now?

There is no U.S. built requirement, but it is U.S. operator requirement.


Mr. HUNTER. Okay. So, you are saying there is no—so, Gene, the answer is there is no U.S. bill requirement—U.S. bill preference or repair.

Mr. TAYLOR. Okay. Next question and I realize that this is strictly off the back of an envelope, but for my information, what would it cost to build a Panamax-sized container ship in America today.

Mr. VORTMANN. Do you want me to address that?

Mr. MCALEAR. I just contracted for two ships and the value to the maximum navigation line is $110 million each.

Mr. TAYLOR. Panamax costs

Mr. MCALEAR. Panamax is 2,600 TEU, container ships length overall is about 750 feet, 105 feet wide, 22 and a half knots, 32,000 horsepower slow speed diesel, 2,600 TEU container ship boxes. The ship is designed and will be capable of transit in between the West Coast and Hawaii for Hawaiian trade.

Mr. TAYLOR. Does anyone have a price estimate on a Panamax tanker?

Mr. VORTMANN. Panamax tanker?

Mr. TAYLOR. In the States, yes, because you mentioned in your testimony that there were no American built tankers in the

Mr. VORTMANN. Probably in range in the mid $80 million to $90 million.

Mr. MCALEAR. I would agree with that.

Mr. VORTMANN. In a U.S. yard. It would be less than half of that in a Korean or Chinese yard. That is the challenge.

Mr. TAYLOR. Let me open this up to you. We all know that, going back to what I said, we have had an exemption here, a little breaking the law there. The net result of this is, as you mentioned, we have a foreign fleet, a foreign-owned fleet.

What are the loopholes that need to be closed so that someone like a Waterman or someone like former Delta Lines can go back into business with U.S.-built, U.S.-flagged, U.S.-crewed fleet? What are the unfair advantages that we have unintentionally given away so that every one is now foreign-built, foreign-owned.

Mr. VORTMANN. I am not certain that we have given them away. The foreign governments have aggressively stepped into that vacuum over the last several decades to aggressively sponsor their shipbuilding industries. And initially, they did it with some very blatant subsidies.

Over time, as they generated volume and as they went out and brought market share, they have also, to their credit, applied intelligence and become very proficient at building ships so their productivity has improved dramatically. That makes it very difficult when you take their improved productivity that came with this volume and their low labor rates, it is virtually impossible that the American industry who has not had any volume over the last 20 years and therefore has not been able to continue to drive down the productivity curve. Plus, we have the disadvantage of much higher wages. There is no way you are going to get head to head pricing.

That vicious spiral has to be broken and the only way it can be broken is with government assistance. That is how they did it initially and in China, they are still doing it. In Europe, if you take the Spanish industry and the Italian industry, it is 100 percent owned by the government. And they will sit here and tell you they do not subsidize. They just lose hundreds of millions of dollars every year and their government fills up the coffers.

Mr. TAYLOR. Mr. Chairman, last question.
Mr. HUNTER. Go right ahead.

Mr. TAYLOR. A few years ago, again, the old Merchant Marine Committee which Mr. Hunter was a member and Mr. Day and Mr. Sisiski, we funded the medium speed ro-ros and a lot of them had been built, I actually visited the Red Cloud.

Going to your idea of a build and charter, what do you think would be the response on a demonstration program if we took a few of those vessels and made them available for charter. Would there be any market out there for those vessels at all?

Mr. VORTMANN. I am not certain. They would be a very difficult ship to be commercially viable. They are specifically designed for the military's needs with deck strengthening that the chairman spoke about but at some price it could have some material-commercial utility as car carriers, but they would not be an efficient ship.

There has to be a much more refined compromise between what the commercial operators need and what the military can use in a military emergency. Those ships were designed for prepositioning basically and the eight we have built are sitting out in Diego Garcia full of military equipment. So, they are very specialized ships. That would not be the best model.

But I think the idea of building charter is an excellent one and it gets back to your colleague's comments about creative financing, of how do we get around this up front nut of the government having to put this money in up front.

I think that is where the challenge is for us to come back with some very specific proposals of how to combine the different concepts we talked about today with the financing technique that you are not putting out all the money up front, but it is spread out over

20 years.

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Mr. HUNTER. Mr. McAlear, you had a comment on that.

Mr. McALEAR. I second what Mr. Vortmann said about the Large Medium Speed Roll On/Roll Offs (LMSRs). They would not be commercially viable vessels to charter to commercial operators. I think the combination has to be working with the commercial operators and working with DOD to have a compromise in controlling the cost of the ship.

The cost of the ship is labor and material and overhead. And the more material you put in it, the more it costs. So, the compromise would have to be to get a good commercially viable vessel that can be military useful.

Mr. HUNTER. Does anybody else have any questions they would like to follow up right now?

What I would like to do—we are going to go into this break here in a couple of days. We are going to be gone for a month. What I would like to do is to have some membership and I will ask Rusty to kind of organize this to have the folks that testified on the earlier panels with respect to the labor and the operators and now the builders to get together and work with our staff over the next two or three weeks and come up with some general concepts that we can all coalesce around, so we can find out at least if there is some show stoppers for one contingent or another and the things that we cannot agree on and maybe and for our members of our panel, I would like to ask you to engage as much as you want to on this.

So, if you have some ideas, especially in terms of the financing, how we can make this thing go, you are invited to do that. So, you might want to dedicate a staff member to sit in on these meetings.

Šo, Rusty, if you could cancel your vacation and get this thing done over the next couple of weeks. We need to do this. We need to come back in September with something more than the idea that we have to do something. So, are you gentlemen willing to do that, dedicate a few people to it?

The WITNESSES. Certainly. Sure. Very definitely.

Mr. HUNTER. Okay. Let's work this. We have also got a statement we would like to add. Mr. Allen's statement will be included in the record. Without objection.

We have a daunting challenge ahead of us here, but I think we have some ideas we can move on. I still see if we had a link between Title XI guarantees, military utility and signing up for the MSP program, I see some value there. I think it is going to be tough to wring $800 million a year out of the direct appropriations for this program, although that is not necessarily mission impossible.

So, Dick, we should not give up on that. Let's see what can be done there. So, let's engage on this. Mr. Thomas has said that he had a staff person he would assign to any discussions we had on this, because obviously tax implications are important.

So, we will try to include his staff member in this mix here.

Thank you very much for excellent testimony. We would like to be able to call on you for more—if we have questions or follow ups and get more facts, so if you could be available to do that, that would be excellent.

The WITNESSES. Thank you very much.

Mr. HUNTER. Thank you very much and the panel stands adjourned.

[Whereupon, at 10:29 a.m., the panel was adjourned.]

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