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berths is taken. Going out and leasing 50,000 pieces of equipment and putting it into a tracking system in-you would need 5,000 people to track the equipment. You need dispatchers. You need gate people. You need truck drivers. You need train drivers.

And certainly, the American railroads own the network. But, you know, it is our flat cars and our intermodal people that dispatch the trains and pull them back and forth in the United States. They just make the highway available to us.

Mr. ALLEN. That is fine.
Thank you all very much appreciate it.
Yield back, Mr. Chairman.
Mr. HUNTER. Thank you, Mr. Allen.

Just one question here, but it is a $64,000 question for everybody. Embedded in this so-called compromise is a $2.1 million to $3.5 million increase per ship. Why do you get—that is a pretty substantial increase.

What is your best one-sentence justification for that increase other than we all agreed it would be good? (Laughter.)

Mr. JOHNSEN. We are, Mr. Chairman, we are, all of us, competing day in and day out with foreign competition that have costs that are materially below the level. They do not have income taxes to the sailors. They do not have corporate taxes, et cetera.

And I can tell you that the difference, and we do not try to make it just. The difference is one thing and another, but the difference between our operating in an American environment and operating against a competitor is more than that; there is more than $3.5 million.

Mr. HUNTER. Okay. So you think it is one thing Rusty suggested is tax breaks for the crews might help to some degree.

Mr. JOHNSEN. That will help somewhat, yes. A tax break for the crew will help somewhat, a tax break for the corporations. the British, for instance, have just enacted a tonnage tax, which has helped get flags on the stern of the ship with the union jack, you know.

Mr. HUNTER. Okay.
Well, gentlemen, thank you so much.
Oh, Mr. Taylor has another question.
Mr. TAYLOR. Mr. Clancey, I have a question.
Mr. CLANCEY. Yes, sir?
Mr. TAYLOR. Is Maersk a corporation?
Mr. CLANCEY. Maersk, Inc. Is a corporation. And —
Mr. TAYLOR. Publicly traded?

Mr. CLANCEY [continuing]. AP Moller is a publicly traded company. It is two separate companies. In Denmark it is publicly traded. There is a thin float, about 10 percent.

Mr. TAYLOR. Okay. What would happen if the guys from Hutchinson showed up and offered substantially more money per share than the present owners?

Mr. CLANCEY. The owner, who owns 90 percent, would say, "How much do you want for your company?

Mr. TAYLOR. The reason I ask that, Mr. Clancey, I am aware of at least I was very much impressed in a dinner with some Norwegian container ship owners when they talked about, when they saw the rise of the fiddler, the fall of Norway that they shipped, they basically told all the ships to head for America.

But I am also aware, that around 1936, when Franco revolted against the Spanish Republic, that American oil tankers in route to Spain delivered their cargo to North Africa to help him instead of the Spanish government that paid for the—so there is historical precedence for guys you are counting on to switch sides on you, depending on who they think is going to win and where the money is.

I would hate to have our country as vulnerable as the Republic of Spain was in 1936.

I will just leave it at that.
Mr. CLANCEY. I am not familiar with that. I just know where
Mr. TAYLOR. It is in the history books.

Mr. CLANCEY [continuing). The sentiment of this company is, and also that Maersk Line, Limited is controlled by Americans. And the people from Denmark cannot tell that three-star admiral what to do.

Mr. BOWMAN. That is the problem. The devil is in the detail.

The company that runs the ships are American companies, in our case, headquartered in Delaware and right here in Washington. The boards are controlled by these independent American citizens. And even if the ultimate parent took the view that you suggest, it could not be done, with respect to the American flagships.

Mr. HUNTER. How about if the stockholders, though, have the ultimate vote on this.

Mr. BOWMAN. No, the board. In a corporate entity, the board controls the corporation. And the board, these independent directors cannot be replaced without the consent of the Department of Defense.

Mr. HUNTER. Well, now wait a second.
Mr. BOWMAN. That is what-

Mr. HUNTER. Wait a second, though. In the corporation, if a majority of your stockholders want to replace the board, can they replace them?

Mr. BOWMAN. No, because the Department of Defense says you may not replace the independent directors without the consent of the Department of Defense. There are other directors that are representative of the foreign owner. They can be replaced.

Mr. HUNTER. Well, they can if they want to jettison the program. Mr. CLANCEY. What do you mean?

Mr. HUNTER. If you have got a foreign owned corporation, that corporation has not for here, for now and forever vested its power irretrievably in the United States Department of Defense.

Mr. BOWMAN. As long as it is a defense contract, I guess.
Mr. HUNTER. Well, precisely.
Mr. BOWMAN. Yes.

Mr. HUNTER. Obviously, if you have decided to go with the enemy, I think we can presume you have probably broken the contract at that point, right? [Laughter.]

Mr. BOWMAN. But my point is that it would take a long time to get that done.

Mr. HUNTER. Okay. We will concur it would take a while to do that.

Mr. BOWMAN. Right.
Mr. HUNTER. We have got to go to this other panel.

Mr. BOWMAN. Yes, sir.
Mr. HUNTER. But just one last one real fast one here.

Mr. Keegan, do you agree with this idea that there is a lot of margin in this $10 million, or so, contract with Maersk?

Mr. KEEGAN. No sir, I do not think

Mr. HUNTER. Do you think most of it is cost and there is a small profit, but not a lot?

Mr. KEEGAN. There is a very—there is a small profit. And I can tell you what the profit is, if you would like that.

Mr. HUNTER. Go ahead.

Mr. KEEGAN. But Mr. Clancey would have to waive confidentiality for me to do that. We have a contract. That is okay? Mr. CLANCEY. Well, we are waiting for the courts to give us

Mr. HUNTER. We have got lots of congressmen that want to pick this contract up-extraordinary-congressmen. [Laughter.]

They are waiting anxiously to hear this.

Mr. KEEGAN. It is not-it is $216 per day, per ship. We are paid to manage those ships, the management fee.

Mr. HUNTER. Okay. So how much of that is—how much of the fee, roughly, in percentage, is profit?

Mr. KEEGAN. That is the profit, $1.5 million if you keep all the profit. The rest of it is for operation.

Mr. HUNTER. Okay.

Mr. KEEGAN. The rest of the money, $7 million, is—85 percent of that, sir, is for salaries.

Mr. HUNTER. So that must be, basically, those facts must have been put out when the initial negotiation took place

Mr. KEEGAN. Sure.

Mr. HUNTER (continuing). That ended up, that resulted in this agreement.

I take it, if we reauthorize MSP a new agreement, that that point, by the contracts own terms, has to be struck. Is that right?


Mr. HUNTER. If an MSP is—are you folks prepared to see that happen, Mr. Keegan?

Mr. KEEGAN. No, our company would be out of business, sir.
Mr. HUNTER. Well why is that?

Mr. KEEGAN. Well, there is a contract clause that says if a law changes, our company no longer exists. They can operate these ships.

Mr. HUNTER. Well, but what they would have to—but if we kept the requirement that you have got to have the American citizen, they would have to

Mr. KEEGAN. That is correct, sir.
Mr. HUNTER. They would have to maintain an American citizen.
Mr. CLANCEY. It could be a congressman.

Mr. HUNTER. You could tell Mr. Clancey all those mean things you said about him do not count. [Laughter.]

I am just kidding, Mr. Keegan. We have got to have a little humor in this business.

Mr. Clancey, what is your

Mr. CLANCEY. No, I just said that if that was the case, it could be an ex-congressman.

Mr. HUNTER. Yes. We have a lot of them waiting for this job. It is crazy. (Laughter.]

Well, just one last question, Mr. Clancey.
Mr. CLANCEY. Yes, sir.

Mr. HUNTER. Just a historic note. Was Maersk one of the suppliers of North Vietnam during the Vietnam War?

Mr. HUNTER. Are you sure of that?
Mr. CLANCEY. I was in Vietnam.
Mr. HUNTER. Okay.
Mr. CLANCEY. They were not there.

Mr. HUNTER. Well, I was in Vietnam, too, and I have no idea if they were or not. (Laughter.]

But who was—because I know Britain was supplying a lot of materiel at that time to the North, who was moving that stuff for them? Do you have any idea?

Mr. JOHNSEN. I can only tell you that we were there, but we were there with the American flag on the sterns, supplying you guys over there. And I was in two of the wars. I was supplying the third one.

Mr. HUNTER. Okay.

Mr. CLANCEY. I do not know. I just know that they did not-all I was concerned about was keeping my head down and making sure I ate every two or three days.

Mr. HUNTER. Okay. But you were supplying the American side, Maersk was?

Mr. CLANCEY. Sealand was.
Mr. HUNTER. Oh, Sealand?
Mr. HUNTER. Okay.
Mr. CLANCEY. We were very heavily involved.

Mr. HUNTER. What was Maersk—do you know, for a fact, whether Maersk was or was not involved in supplying North VietnamMaersk, not Sealand?

Mr. CLANCEY. I do not believe I could not swear to it -
Mr. HUNTER. Well, we will find out.

Mr. CLANCEY. But no, they were not. It is just something that the company would not do. But if I find something to the contrary, I will certainly let you know.

Mr. HUNTER. Okay. Thank you.

Well, gentlemen, thank you for letting us have a good candid exchange. That is the way we are able to get information and that is the American way. And it is great to have you all in this panel and have a good back and forth. We appreciate it.

We are now going to get our labor leaders up here, and we will have them contradict you.

Gentlemen, thank you for being with us, and we are going to continue with our hearing.

And Mr. Sacco, I understand you have been—I hope you have been well briefed by Mr. Turner to prepare you for this harsh panel here. We appreciate you being with us, sir.

Mr. Davis, Captain Rodriguez, Mr. McKay, and we look forward to hearing your perspective on MSP.

So Mr. Sacco, the floor is yours, sir.


Mr. Sacco. Thank you, Mr. Chairman and members of the panel.

My name is Michael Sacco and I am president of the Seafarers International Union (SIU). And I am pleased to submit this statement on behalf of the American Maritime Officers, the International Organization of Master, Mates, & Pilots (MMP), the Marine Engineers' Benevolent Association and my union, the Seafarers International Union of North America.

Our unions represent the American maritime workers employed aboard U.S. flag commercial vessels, including all the vessels, including all the vessels participating today in the Maritime Security Program

On the outset, I want to express my appreciation to you, Mr. Chairman, and to the members of the panel, for holding this hearing on the Maritime Security Program. This program is critically important to the workers we represent, and also to our ability to be able recruit, retain, qualified American mariners.

Without this program, U.S. flag vessels will leave the American registry and seafaring personnel will be forced to seek employment outside the industry. And when that happens, our country will face a shortage of seafaring personnel, posing a serious risk for the nation.

Our unions believe that the best long-term solution in guaranteeing that the United States will have American seafaring

personnel it needs is to develop a larger, more active and competitive commercial U.S. flag merchant marine.

We are convinced that this program could, with appropriate and practical changes, serve as an even greater source of employment for American mariners. Support to a greater degree, American military operations overseas and better protect U.S. economic interests from total domination from foreign-flag vessels and crews.

Thus we believe the Maritime Security Program should be extended for an additional period of at least 20 years.

This change would help create greater stability within the American maritime industry; provide an enormous boost to our outgoing efforts to recruit and retain men and women for service in the merchant Marine; and will give investors and lending institutions more confidence to provide funds necessary for the replacement of vessels and the expansion of the U.S. flag fleet.

In addition, the Congress and the administration should capitalize on the initial successes of the maritime program by expanding the size of the MSP fleet. Not only will a larger militarily-useful fleet ensure that the Department of Defense will have an even greater commercial sealift capability at its disposal to meet the sealift manpower and sustain the needs of our armed forces, but it would also provide a greater, much needed base for peace-time commercial employment for American mariners.

Furthermore, we believe the annual payment should be increased and should be subject to annual adjustments to reflect future infla

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