[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                               BEFORE THE

                            SUBCOMMITTEE ON

                                 OF THE

                              COMMITTEE ON
                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                             July 20, 2010


                       Printed for the use of the
             Committee on Transportation and Infrastructure

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                 JAMES L. OBERSTAR, Minnesota, Chairman

NICK J. RAHALL, II, West Virginia,   JOHN L. MICA, Florida
Vice Chair                           DON YOUNG, Alaska
PETER A. DeFAZIO, Oregon             THOMAS E. PETRI, Wisconsin
JERRY F. COSTELLO, Illinois          HOWARD COBLE, North Carolina
ELEANOR HOLMES NORTON, District of   JOHN J. DUNCAN, Jr., Tennessee
Columbia                             VERNON J. EHLERS, Michigan
JERROLD NADLER, New York             FRANK A. LoBIONDO, New Jersey
CORRINE BROWN, Florida               JERRY MORAN, Kansas
BOB FILNER, California               GARY G. MILLER, California
GENE TAYLOR, Mississippi             Carolina
ELIJAH E. CUMMINGS, Maryland         TIMOTHY V. JOHNSON, Illinois
LEONARD L. BOSWELL, Iowa             TODD RUSSELL PLATTS, Pennsylvania
TIM HOLDEN, Pennsylvania             SAM GRAVES, Missouri
BRIAN BAIRD, Washington              BILL SHUSTER, Pennsylvania
RICK LARSEN, Washington              JOHN BOOZMAN, Arkansas
TIMOTHY H. BISHOP, New York          Virginia
MICHAEL H. MICHAUD, Maine            JIM GERLACH, Pennsylvania
RUSS CARNAHAN, Missouri              MARIO DIAZ-BALART, Florida
GRACE F. NAPOLITANO, California      CHARLES W. DENT, Pennsylvania
DANIEL LIPINSKI, Illinois            CONNIE MACK, Florida
MAZIE K. HIRONO, Hawaii              LYNN A WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota           CANDICE S. MILLER, Michigan
HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma
MICHAEL A. ARCURI, New York          VERN BUCHANAN, Florida
HARRY E. MITCHELL, Arizona           BRETT GUTHRIE, Kentucky
CHRISTOPHER P. CARNEY, Pennsylvania  ANH ``JOSEPH'' CAO, Louisiana
JOHN J. HALL, New York               AARON SCHOCK, Illinois
STEVE KAGEN, Wisconsin               PETE OLSON, Texas
STEVE COHEN, Tennessee               TOM GRAVES, Georgia
PHIL HARE, Illinois




                 ELIJAH E. CUMMINGS, Maryland, Chairman

CORRINE BROWN, Florida               FRANK A. LoBIONDO, New Jersey
RICK LARSEN, Washington              DON YOUNG, Alaska
GENE TAYLOR, Mississippi             HOWARD COBLE, North Carolina
BRIAN BAIRD, Washington              VERNON J. EHLERS, Michigan
TIMOTHY H. BISHOP, New York          TODD RUSSELL PLATTS, Pennsylvania
STEVE KAGEN, Wisconsin               PETE OLSON, Texas
MICHAEL E. McMAHON, New York, Vice 
  (Ex Officio)




Summary of Subject Matter........................................    vi


Dumas, Michael R., Vice President and Chief Financial Officer, 
  Intermarine, LLC...............................................    14
Johnsen, Neils M., Chairman of the Board, Central Gulf Lines, 
  Inc. and Waterman Steamship Corporation........................    14
Keefe, Donald, President, Marine Engineer's Beneficial 
  Association, accompanied by Paul Doell Director of Legislative 
  Affairs, American Maritime Officers............................    14
Marcus, Captain Donald, Secretary-Treasurer, International 
  Organization of Masters, Mates, and Pilots.....................    14
Matsuda, David, Administrator, United States Maritime 
  Administration.................................................     4
Reinhart, John F., President and Cheif Executive Officer, Maersk 
  Line, Limited..................................................    14
Shapiro, Philip, President and Cheif Executive Officer, Liberty 
  Maritime Corporation...........................................    14
Turner, Terrence, Seafarer's International Union.................    00


Dumas, Michael R.................................................    41
Johnsen, Neils M.................................................    46
Keefe, Donald, Paul Doell and, Captain Donald Marcus.............    50
Matsuda, David...................................................    70
Reinhart, John F.................................................    74
Shapiro, Philip..................................................    77

                       SUBMISSIONS FOR THE RECORD

American Roll-on Roll-off Carrier, LLC, Raymond P. Ebeling, 
  Chairman and Cheif Executive Officer, written statement........    84




                         Tuesday, July 20, 2010

                  House of Representatives,
          Subcommittee on Coast Guard and Maritime 
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:00 a.m. in 
room 2167, Rayburn House Office Building, Honorable Elijah E. 
Cummings [Chairman of the Subcommittee] presiding.
    Mr. Cummings. The Subcommittee will come to order.
    In March, the Subcommittee convened to examine the 
availability of shipping services to carry U.S. exports. During 
my opening statement, I presented a few facts detailing the 
small size of the U.S.-flag fleet in the foreign trades. As I 
explained, the vast majority of U.S. trades move on foreign-
flagged vessels.
    During that hearing, I also noted that President Obama has 
called for a doubling of U.S. exports over the next five years, 
a goal that is challenged by our reliance on foreign-flagged 
vessels for our carrying capacity. Of particular concern is the 
fact that the testimony we heard in March made it clear that it 
is our level of imports, not exports, that determines the level 
of carrier services calling on the United States.
    Today, the Subcommittee convenes to consider in more detail 
the state of the U.S.-flag fleet in the foreign trade. We will 
assess the current economic realities faced by this fleet, 
including the difference in the costs of operating a vessel 
under the United States flag and under so-called open registry 
or flag of convenience.
    We will also assess the policy parameters that shape 
current U.S. policy toward a U.S.-flag foreign trade fleet. 
This discussion is intended to provide the current information 
necessary to inform future U.S. policy toward our foreign trade 
    As I detailed during our March hearing, according to a 
study produced in 2009 by IHS, Global Insight for the U.S. 
Maritime Administration, in 1975, there were 857 ocean-going 
U.S.-flag ships with a carrying capacity of more than 17.6 
million deadweight tons. Data provided to the Subcommittee by 
the Maritime Administration indicates that as of March 1, 2010, 
there were 94 U.S.-flag vessels regularly engaged in the 
foreign trade.
    Unfortunately, like many of the issues we examine in the 
Subcommittee, the decline of the U.S.-flag foreign trading 
fleet and the concomitant reduction in the percentage of U.S. 
trade carried on U.S. ships are not new issues. And yet nothing 
has been done to effectively reverse this unfortunate decline.
    Thus, a study of maritime subsidies issued by the 
Comptroller General in 1981 in response to a requests from the 
then-Merchant Marine and Fisheries Committee decried what was 
then a decline in the percentage of U.S. commercial cargo 
carried in U.S.-flag vessels from just over 10 percent in 1959 
to just over 4 percent in 1979. Not surprisingly, in the 
absence of a specific U.S. policy that could reverse this 
trend, the percent of U.S. trade carried in U.S.-flagged 
vessels has only continued to decline.
    Thus, the IHS study found that in 2009 less than 2 percent 
of U.S. foreign trade moved on U.S.-flag vessels. Those U.S.-
flag vessels that now participate in the foreign trade remain 
heavily dependent on subsidies. The specific details of the 
subsidies have changed over time, but their shared purpose of 
making it viable for vessels to operate in the U.S.-flag 
foreign trade fleet remains essentially unchanged.
    Thus, the Operating Differential Subsidy Program was 
replaced by the Maritime Security Program, which currently 
provides $174 million to support 60 vessels operating under the 
U.S. flag that agree to be available to meet U.S. military 
needs. The construction differential subsidy has been 
eliminated and now all of the vessels currently sailing under 
U.S. flag in the foreign trade were built overseas.
    According to the Maritime Administration, all of the 94 
U.S. vessels now regularly engaged in the foreign trade also 
participate in cargo preference programs which reserve 100 
percent of military cargoes, 100 percent of Export-Import Bank 
cargoes, 75 percent of government-impelled agricultural 
cargoes, and at least 50 percent of civilian agency cargoes for 
U.S.-flag vessels.
    MARAD has indicated that preference cargoes comprise nearly 
50 percent of the cargoes carried by U.S.-flag vessels in the 
foreign trade, and the carriage of such cargoes provided more 
than $1.35 billion in revenues to the United States-flag fleet 
in the foreign trade in fiscal year 2007, the most recent year 
for which data is available.
    Let me be clear about the picture of the United States-flag 
fleet that emerges from the current data. The U.S.-flag fleet 
is essential to meeting our military sealift need and carrying 
the bulk of our government-impelled cargoes, and the MSP 
program is essential to keeping our current U.S.-flag fleet 
    That said, the current U.S.-flag foreign trade fleet of 
just over 90 vessels is not carrying either the greater portion 
or even a substantial portion of our foreign trade. In fact, 
since the 1980's, the U.S.-flag fleet has been carrying what 
can only be described as an increasingly minuscule portion or 
our foreign trade.
    And this fact has serious implications both for our 
merchant marine and, indeed, for our Nation's economy. Over the 
past century as the flags of carrying capacity has continued 
its steep decline, there have been many voices warning that 
this decline constituted both a security risk and an economic 
risk. These risks remain real now.
    I again urge today that as we work to expand U.S. exports, 
we should also work to formulate a meaningful U.S. maritime 
policy that will revitalize our merchant marine and expand the 
percent of U.S. trade carried in U.S. ships. Formulation of 
such a policy will require a truly critical examination of 
decades of policy assumptions, as well as articulation of clear 
goals that acknowledge current realities and that meaningfully 
address current needs.
    We look forward to the testimony of Administrator of the 
Maritime Administration, Mr. David Matsuda, and let me take 
this opportunity to applaud his confirmation to the 
Administration's position by the Senate. Congratulations.
    MARAD is charged with promoting the United States merchant 
marine and administering the Maritime Security Program, Title 
XI program, the Cargo Preference Program and related programs 
that benefit the U.S.-flag fleet in foreign trade.
    We will also hear from representatives of carrier lines 
that operate U.S.-flag vessels and we will hear from the 
representatives of maritime labor organizations. We look 
forward to hearing from all of our witnesses on how current 
programs intended to support our U.S.-flag fleet can better 
serve the fleet.
    We are also particularly interested in identifying what can 
be done to expand the fleet and increase the percent of U.S. 
trade carried on U.S. vessels.
    With that, I yield to the distinguished Ranking Member, Mr. 
    Mr. LoBiondo. Thank you, Mr. Chairman.
    The United States of America has always and will always be 
a maritime Nation. From her earliest days and continuing 
through today, we have depended on waterborne transportation as 
the principal means to carry goods and cargo between the U.S. 
and ports overseas.
    According to the Department of Transportation, nearly 80 
percent of the volume of foreign trade enters and leaves the 
U.S. by ship and total volumes at our major ports are expected 
to rise in the coming years. While the volume and value of 
maritime trade has greatly increased in recent decades, the 
number of ocean-going vessels operating under the U.S. flag has 
    According to the U.S. Maritime Administration, there were 
88 U.S.-flag vessels operating in foreign trade at the end fo 
2008. The U.S. fleet now makes up less than 1 percent of the 
world fleet and nearly all commerce at U.S. ports arrives and 
departs on board a foreign-flag vessel.
    The U.S.-flag fleet is uniquely positioned and tasked with 
serving the economic and national security needs of our Nation. 
The domestic registry also provides stability and enhanced 
opportunities for U.S. merchant mariners and domestic 
shipyards. We have long recognized the importance of a strong 
U.S. fleet, shipbuilding industrial base, and merchant marine. 
I am concerned by the continued contraction of these important 
national resources.
    The Subcommittee has reviewed several issues that are 
impacting merchant mariners here and abroad. The first, changes 
in the Coast Guard s credentialing process, seems to be greatly 
improved. However, American mariners and vessels are still 
facing the seemingly ever-present threat of piracy in several 
parts of the world.
    I look forward to hearing from the witnesses thoughts on 
these and other issues affecting U.S. mariners. The U.S. fleet 
provides a critical service in supporting our military and 
economic interests, and I look forward to working with you, Mr. 
Chairman and Members of the Committee and the witnesses to 
examine ways to support the growth in the fleet in the future.
    Thank you.
    Mr. Cummings. Thank you very much.
    I ask unanimous consent that Congresswoman Mazie Hirono, a 
Member of the Committee on Transportation and Infrastructure, 
may sit with the Subcommittee on this dais today and 
participate in this hearing. And without objection it is so 
    Ms. Hirono, do you have an opening statement?
    Ms. Hirono. Thank you, Mr. Chairman. I appreciate your 
having this hearing because as you probably know, Hawaii is the 
most dependent on ships coming to Hawaii since over 80 percent 
of the goods that we use in Hawaii come to us via ships.
    So this is a very important topic for us, and as we focus 
on issues such as the Jones Act, I am very concerned about the 
future of U.S.-flag ships in this Country, particularly as it 
relates to Hawaii.
    Thank you very much, Mr. Chair.
    Mr. Cummings. Thank you very much.
    Mr. Ehlers?
    Mr. Ehlers. Thank you, Mr. Chairman, for holding this 
hearing. I continue to be very concerned about the state of the 
United States merchant fleet in foreign commerce. It is 
indicative of the problems that we have in many other areas, 
including for example automobiles which is vital to the State 
of Michigan. It is very difficult for us to compete 
internationally with the wage rates of other countries, and I 
suspect that is the base cause of much of the problem of the 
merchant fleet as well.
    So thank you for holding the hearing and I look forward to 
    Mr. Cummings. Thank you very much.
    We will now hear from the Honorable David Matsuda, the 
Administrator of the Maritime Administration.


    Mr. Matsuda. Thank you and good morning.
    Mr. Cummings. Good morning.
    Mr. Matsuda. Chairman Cummings, Ranking Member LoBiondo and 
Members of the Subcommittee, thank you for your invitation to 
testify on the state of the U.S. merchant fleet in foreign 
    Our national policy is to maintain a U.S.-flag merchant 
marine sufficient to carry our waterborne domestic commerce and 
a substantial part of our foreign commerce. Our Country's 
ability to respond to major military threats worldwide also 
relies on the availability and dependability of commercial 
merchant ships and skilled crew members. But U.S.-flag ships 
now carry less than 2 percent of our Nation s international 
trade. This is a major decline, even from the 58 percent 
carried in 1947, just six decades ago.
    Mr. Chairman, as the U.S.-flag fleet has declined, so has 
the number of jobs for mariners. We rely on the pool of skilled 
commercial merchant mariners to meet our needs to crew 
government-owned reserve ships when called upon. Also, with an 
aging workforce, we are at a crucial point where we need to be 
recruiting and training America s next generation of mariners.
    One method is by running a strong collegiate maritime 
program which includes the U.S. Merchant Marine Academy at 
Kings Point, New York, along with the six State maritime 
academies. Together, these schools produce a total of 700 
maritime officers and leaders annually.
    The Maritime Administration also works with 19 maritime 
high schools around the Nation to help introduce young men and 
women to careers in this vital industry. One includes the 
Maritime Industry Academy in Baltimore, Maryland, which I had 
the privilege of visiting earlier this year.
    Mr. Chairman, the U.S. merchant marine, including ships and 
crew, is among the safest, most secure and environmentally 
responsible in the world. However, U.S.-flag operators face 
serious competitive challenges because not all foreign 
registries require such standards of excellence as the U.S.
    Two programs administered by the Maritime Administration 
help create a more even playing field for U.S.-flag operators: 
the Maritime Security Program and the Cargo Preference Program. 
The Cargo Preference Program simply requires a preference for 
the use of U.S.-flag ships when the Federal Government pays for 
or otherwise finances a cargo shipment. The 16 million revenue 
tons of cargo shipped each year through this program help allow 
businesses to operate under the U.S. flag.
    Most of these carriers also participate in the Maritime 
Security Program. This program provides annual stipends to U.S. 
carriers in return for assured military access to their ships, 
crews and global infrastructure if needed.
    Our status as a trading Nation depends on our ability to 
transport via sea. Both imports and exports move smoothly 
through the global supply chain. While much of what moves 
through U.S. ports is import cargo, our Country also exported 
more than $1 trillion worth of manufactured goods in 2008. 
These exports supported more than 20 percent of all U.S. 
manufacturing jobs that year.
    President Obama has launched a National Export Initiative 
to double U.S. exports within five years. Having an efficient 
global transportation system, including maritime services, will 
help achieve that goal.
    In addition, maritime transportation itself is an export 
service. When a U.S.-flag ship is used, salaries and tax 
revenues remain in the U.S. economy and support U.S. jobs.
    Mr. Chairman, the U.S. merchant marine has enabled our 
Country to respond to every military conflict and crisis since 
our Nation s founding. In fact, of the five Federal service 
academies, only the U.S. Merchant Marine Academy is entitled to 
carry a battle flag. The school s students have been sent to 
serve aboard U.S. merchant ships in every conflict. Many have 
died in that service to our Country.
    Some of these conflicts have taught us valuable lessons 
about readiness and availability of ships and skilled crews. 
For instance, the government-owned fleet of 49 Ready Reserve 
Force ships that provides a relatively immediate capacity that 
our U.S.-flag commercial fleet cannot provide. This fleet has 
been used during surge conditions when a very large amount of 
cargo must be transported quickly overseas.
    Mr. Chairman, it is my hope that our discussion today will 
lay the groundwork for legislative initiatives and policies 
that will support a strong U.S. merchant marine. I will be 
pleased to answer any questions the Subcommittee may have.
    Thank you.
    Mr. Cummings. Thank you very much.
    I wanted to address an issue that several of the witnesses 
on our next panel will raise. Do cargo preference laws apply to 
cargoes financed with loan guarantees created by the Energy 
Policy Act and administered by the Department of Energy? And if 
not, why don't the cargo preference laws apply?
    Mr. Matsuda. Sir, I have to tell you that that is an issue 
we are looking at currently. We have asked the Secretary's 
General Counsel to work with us and the Department of Energy to 
ensure we have a consistent interpretation of the law.
    Mr. Cummings. Can you tell us what the nature of the issues 
are? Can you give us any idea of what you are trying to figure 
    Mr. Matsuda. We believe there may be a difference between 
the credit programs and other straight grants or loans that are 
given out, but that is something we are looking at very 
    Mr. Cummings. When do you expect to have that resolved?
    Mr. Matsuda. I hope soon, but I am happy to follow up with 
the General Counsel and get back to the Committee.
    Mr. Cummings. I know you have only been before this 
Committee once.
    Mr. Matsuda. Twice, I believe.
    Mr. Cummings. But we have a little thing about people 
getting back to us and holding their feet to the fire because 
we realize that if we don't do that, then sadly they just wait 
until the next Congress and then it gets lost in the hay.
    So I want you to give us a date when you expect that to be 
done. And because there are a lot of people that are concerned 
about this issue, and I have said it many times, in order for 
people in business to do business, what they need is answers 
one way or the other. And so I think that we are paying folks 
to do a job in government and government should be able to 
render opinions and resolve these kinds of issues.
    So I would ask that you try to give us a date within the 
next day or so, and then we will hold a hearing just for you to 
come back to tell us exactly what those policies are, what the 
answer to the question is because it is just that important. 
    And then we also want you to come back and let us know 
whether you think the Congress needs to clarify the law. That 
is another thing that I would like for you to come back to us 
    Since World War II, the size of the U.S.-flag fleet engaged 
in international trade has been in constant decline, as I think 
you just said. What initiatives are you taking to stem that 
decline? And further, what federally imposed requirements 
contribute to reducing the competitiveness of the U.S.-flag 
    Mr. Matsuda. Sir, on the question of what initiatives we 
are undertaking, we are using all available resources and 
programs that the Congress has provided to help make sure that 
we maintain a strong U.S. merchant marine. The two programs I 
talked about, the Maritime Security Program and Cargo 
Preference Program, are ones that we are actively engaged in 
and pushing to make sure that the law is enforced and that 
these funds are provided with a fully staffed program of 
vessels, all 60 vessels for the Maritime Security Program.
    Mr. Cummings. From what you can see, why do you think the 
decline has not been arrested? It is not like we are standing 
still. We are going backwards.
    Mr. Matsuda. I think, as I mentioned in my testimony, there 
are a number of factors, but probably the difference in 
regulatory standards that is required. The U.S. maintains 
standards to make sure ships are safe and that crews are 
trained and skilled and that they understand safety security 
requirements and environmental requirements to make sure that 
ships are operated both in an environmentally responsible 
manner and safe and secure manner.
    There are just many risks involved with the movement of 
these large vessels that need to be addressed.
    Mr. Cummings. Also, it sounds like is this a situation 
where you think that there will be a continued decline because 
right now, you are not giving me any confidence that it is 
going to get any better.
    Mr. Matsuda. I wish I could, sir, but much of it also 
depends on the state of the global economy. It is a global 
marketplace. Industry has been hurting the last couple of years 
by laying up ships. That makes it even more competitive for 
cargoes around the world.
    Mr. Cummings. The Merchant Marine Act of 1936 states that 
it is U.S. policy to foster the development and maintenance of 
a merchant marine that is sufficient to carry its domestic 
waterborne commerce and a substantial portion of the waterborne 
export and import foreign commerce of the United States.
    I assume that the substantial portion of waterborne export 
and import commerce is defined to be more than 1 percent or 2 
percent. And what would you say constitutes a substantial 
portion of the waterborne export and import commerce? What 
would you say? And what are you telling your staff? You are the 
    Mr. Matsuda. It would have to be at a minimum to satisfy 
what is needed to support our military. And I think that based 
on those requirements, we would like to see more, but we have a 
strong merchant marine. We would like to make it stronger.
    Mr. Cummings. I want to go back to something you said a few 
minutes ago. You were talking about the different standards. 
And all U.S. and foreign ships comply with IMO standards. Is 
that not correct?
    Mr. Matsuda. No. Some standards the U.S. has not adopted 
that IMO has passed. Other countries have varying standards. 
But for the most part, we work within the U.N.-sponsored IMO 
process. We work with our partners at the U.S. Coast Guard who 
take the lead, and the State Department, to make sure that the 
U.S.'s voice is heard in putting together these global 
    This is an industry that prefers to have an even playing 
field across the board, but that is not always the case.
    Mr. Cummings. So you are saying that there is no even 
playing field. Is that right?
    Mr. Matsuda. Currently, no.
    Mr. Cummings. And our standards are much higher. Is that 
    Mr. Matsuda. Well, yes.
    Mr. Cummings. And you seem like you had some hesitation 
there. Well, I assume they are higher because I take that the 
higher standards means that the costs may be a little higher, I 
guess. Is that a reasonable assumption?
    Mr. Matsuda. Yes.
    Mr. Cummings. But you seem like you were hesitating when I 
asked you were the standards higher.
    Mr. Matsuda. I was trying to think of some examples off the 
top of my head. But I believe security requirements, for 
instance, not many other countries require things like a TWIC 
card or some of the things that are required by the Department 
of Homeland Security in order to serve on a ship.
    As an example, I think there are many instances like that.
    Mr. Cummings. Can you give me something other than TWIC, 
because TWIC is really kind of new. This decline has been 
taking place for a while and I was just wondering if you can 
tell us.
    Mr. Matsuda. Not at the moment, but I am certain I can get 
back to you with some examples.
    Mr. Cummings. And TWIC is $132, right?
    Mr. Matsuda. That is right.
    Mr. Cummings. I am concerned that it seems like you are 
painting a picture, I didn't expect a rosy picture, but I 
didn't expect a picture of, it just seems like there is no way 
that we can begin to at least get to a neutral point to stave 
off some of this and move forward.
    Mr. Matsuda. Ideally, a consistent set of global standards 
as promulgated through the IMO would help ensure a level 
playing field. There are other laws that the U.S. has that 
wouldn't apply in other countries, for instance wage laws. Fair 
wage laws, there are many foreign mariners that don't make the 
kinds of wages that U.S. mariners do.
    Mr. Cummings. Mr. LoBiondo?
    Mr. LoBiondo. Thank you, Mr. Chairman.
    I would like to pick up where the Chairman has been on some 
of this and try to get in my head and understand a little bit 
better. We are not in a good position. The numbers are very 
low. There are global factors that impact decisions to flag 
vessels in the U.S. But do you or can you give us what factors 
would be within our control that maybe we haven't done that we 
could develop a plan and agenda, a timetable? Are there things 
that this Committee needs to do, that the Congress needs to do? 
What do the shippers say?
    Your agency, what role do they play? I mean, can you help 
me out here about developing something that gives us a handle 
to grab onto?
    Mr. Matsuda. Yes, sir. Our discussions with the carriers, 
and we talk to them quite a bit, have circled around what is 
needed to flag a ship under the U.S. And time and time again, 
they have told us that the difference between operating under a 
foreign flag and the U.S. flag can be made up with both the 
Maritime Security Program and the Cargo Preference Program.
    Right now, the Maritime Security Program is limited to 60 
vessels and it is fully staffed. The Cargo Preference Program 
is utilized as best we can to make sure that the remaining 
ships that are not in the MSP program can participate and have 
cargoes to make sure they fly U.S. flag.
    But you will notice the majority of U.S.-flag ships 
participate in these program, all of them in Cargo Preference 
and most of them in MSP.
    Mr. LoBiondo. Mr. Chairman, I am no sure whether you 
specifically asked this. I know you asked for some feedback, 
but did you ask for when our witness comes back for him to be 
providing us with a specific list or outline of 
recommendations? We have a high level of frustration. We 
understand what the numbers mean, but how do we get the numbers 
up and how do we develop a plan to get there? It seems like you 
all should be taking the point position and at least making the 
recommendations that could be real and acted on so we have an 
idea of what we have to do.
    Mr. Cummings. No, what we will do, Mr. LoBiondo, is we will 
put together a letter to Mr. Matsuda today where we will list 
the things that we want him to bring back at our next hearing. 
Because what we are about is trying to be effective and 
efficient with our time. And so if there are things that you 
want included in that, we will work together in drafting that 
letter and get it to you.
    Mr. LoBiondo. OK. Thank you, Mr. Chairman.
    Thank you, David.
    Mr. Matsuda. Thank you.
    Mr. Cummings. Mr. Taylor?
    Mr. Taylor. Mr. Chairman, I had the great pleasure of 
having Administrator Matsuda before the Seapower Subcommittee 
last week, so I am not going to take too much of his time, but 
I do want to ask you a related question.
    I am curious if anyone in your office has been tracking the 
availability of space on either ships under Military Sealift 
Command or any of the Federal operating subsidies as they 
return from either the Port of Karachi or Kuwait or Umm Qasr in 
Iraq. I am curious, what percentage of available cargo space is 
being utilized?
    And there is a reason for this. I have very grave concerns 
based on the amount of very expensive equipment and material we 
left behind in Panama when we shut down our bases there; what 
we left behind at Roosevelt Roads on U.S. territory. I have 
grave concerns that we are going to leave billions of dollars 
worth of equipment behind in Iraq out of concern that there may 
be some shipping cost to bring this stuff home.
    And I think we could start with taking a look at the 
available space. I may be dead wrong. Every one of those ships 
may be chock-a-block full and that would be great. But I do 
have concerns that there is unused space on those ships and 
that we are not making every effort to get the bulldozers, the 
generators, the fire trucks, all those things that the American 
taxpayers paid for, get them home and make them available for 
reuse for State and local governments.
    Could you comment on that? Have you given that any sort of 
a look-see so far?
    Mr. Matsuda. Congressman, we have been working with the 
U.S. Transportation Command on their plans for the draw-down in 
Iraq to make sure that there is sufficient capability to move 
these items. What I can do is offer to work with them to make 
sure that we get this information to you in a form you would 
like, and that is space and availability aboard the vessels 
leaving the Gulf due to the draw-down.
    On a related note, I can tell you that one major concern 
that we have heard from the U.S. industry has been that once 
this draw-down starts to complete or wind up, that the number 
of cargoes available under the Cargo Preference Program will 
drop significantly, and that it will contribute to an even more 
competitive environment. It is going to be a struggle, 
according to them, to maintain U.S.-flag status.
    Mr. Taylor. When do you think you could get back to me with 
that, Mr. Administrator? Could you do it in the next week?
    Mr. Matsuda. I will call General McNabb today.
    Mr. Taylor. OK. Thank you. Thank you very much.
    Thank you, Mr. Chairman.
    Again, that is a short-term opportunity, but I don't think 
we need to ever miss an opportunity to put our folks to work, 
particularly if it means our use of something that the 
taxpayers have already paid for.
    Thank you, Mr. Chairman.
    Mr. Cummings. Mr. Coble?
    Mr. Coble. Thank you, Mr. Chairman. I am sorry I am late. I 
had another meeting, my belated arrival.
    Good to have you, Mr. Matsuda.
    Sir, how does the reliance on foreign carriers affect U.S. 
economic and security interests? Specifically, how would a 
larger U.S.-flag better respond to the interests of U.S. 
consumers and exporters?
    Mr. Matsuda. I think with a larger U.S.-flag fleet we will 
have more of an ability to carry our goods and ensure that 
there wouldn't be, for instance, any refusal to do so based on 
a political or other geopolitical issues. For instance, around 
the world, this is not a perfect market. There are Israeli-flag 
ships that are denied access to Arab-owned country ports. There 
are other issues that come into play besides just can a ship 
service a particular port or not. It is not always as simple as 
will it take the money.
    Mr. Coble. Well, obviously we would be the beneficiary, 
would we not?
    Mr. Matsuda. Absolutely.
    Mr. Coble. The Maritime Security Program, Mr. Matsuda, 
provides a subsidy of $2.9 million per ship for the 60 vessels 
now in the program. How is the basis of the subsidy calculated?
    Mr. Matsuda. That was the amount authorized by Congress and 
the amount that has been appropriated each year of the program. 
I will note that in the fiscal year 2011 bill, the President 
has proposed full funding for the program.
    Mr. Coble. OK. I thank you.
    Thank you, Mr. Chairman. I yield back.
    Mr. Cummings. Thank you very much.
    Ms. Hirono?
    Ms. Hirono. Thank you.
    Mr. Matsuda, you said that you had talked with carriers who 
say that what is needed to better level the playing field for 
our shippers can be done through the existing programs, which 
are the Cargo Preference Program and the Maritime Security 
Program. Do you have some very specific suggestions as to how 
we can strengthen both of these programs, I take it, in 
response to what the carriers are saying needs to be done?
    Mr. Matsuda. Madam, the Administration doesn't have any 
positions about either growing the program other than fully 
funding what is currently available. But I do know that just 
the economic model that I am talking about, that is what we 
have heard from the carriers is effective in meeting that 
operating differential between the foreign and U.S. flag. It is 
making it up with an MSP payment plus the availability of 
preference cargoes.
    I think it might be fairly logical to draw the conclusion 
that if you grow the program, there may be more interest in 
taking advantage of it.
    Ms. Hirono. If we are not fully funding these programs, to 
what percent are we funding either or both of these programs?
    Mr. Matsuda. We are fully funding these programs to the 
extent authorized and appropriated.
    Ms. Hirono. So then I am confused then. We just want to 
continue the funding at the level that it has been funded?
    Mr. Matsuda. That is what the President has proposed for 
fiscal year 2011.
    Ms. Hirono. Although I am sure the carriers would say that 
we should put more money into these programs.
    Mr. Matsuda. That is something they might have to tell you, 
yes, on the next panel.
    Ms. Hirono. OK. You mentioned that of the U.S.-flag ships, 
12 of them are Jones Act-qualified. Are these 12 also part of 
the 60 Maritime Security Program ships?
    Mr. Matsuda. I don't believe so. I believe these are 
vessels participating in the cargo preference program that 
usually operate in the Jones Act trade, but they are not full-
time participants in the foreign commerce, but we listed them 
anyway because they do participate.
    Ms. Hirono. As I mentioned in my earlier brief remarks, 
Hawaii is very much dependent on shipping. Our ships are Jones 
Act-qualified ships. The argument has been made, and I 
certainly make this argument, that for a place like Hawaii 
which is the most vulnerable to shipping disruptions, would you 
say that having a Jones Act carrier would be the carriers that 
bring our goods to Hawaii, that we are very concerned about 
shipping interruptions, and would a Jones Act ship be much 
better able to ensure that Hawaii could get uninterrupted 
shipping service?
    Mr. Matsuda. I can tell you that the Federal Government 
dealing with a Jones Act carrier, you have quite a bit of 
jurisdiction over them. You are talking about U.S. crews, U.S.-
built ships. That can give you some assurance about the quality 
of the ship and the expertise and skill of the crews.
    I can tell you that this pool of mariners that is sustained 
by the Jones Act also contributes to the same pool that we 
utilize in times of surge capability like I mentioned for 
crewing the Ready Reserve Fleet.
    Ms. Hirono. There are those who argue that Hawaii should 
get an exemption from the Jones Act. And if that were to be the 
case, then foreign-flag ships are now bringing goods to Hawaii. 
Is there any way that we can ensure ourselves that these ships 
that are supported by countries that provide a lot of 
subsidies, et cetera, whatever is happening in those countries. 
Can we be assured that these ships will continue to bring goods 
to Hawaii if they were not Jones Act ships?
    Mr. Matsuda. I don't believe so. I think you would be in a 
situation where, just like any other Jones Act or foreign 
carrier, it is a commercial marketplace. They can choose to do 
it or not. But we find that the Jones Act ships that do 
participate in the trade are usually very pleased with the 
ability to compete in that trade.
    Ms. Hirono. Thank you.
    Thank you, Mr. Chairman.
    Mr. Cummings. Thank you.
    Do we have goals? Have you set goals for your department?
    Mr. Matsuda. Absolutely, sir.
    Mr. Cummings. And what are they?
    Mr. Matsuda. They are number one to make sure that we 
maintain a strong U.S. merchant marine. Like I mentioned, that 
includes both the availability of vessels, as well as skilled 
crews. And that is something that many of our programs help 
    Second, our work is focused also on making sure that there 
is an efficient national freight transportation system. 
Maritime is a big part of that, and we want to make sure that 
what comes off a ship is available to get into a port and 
through the surface transportation system as smoothly as 
    I have noticed over the years a major disconnect between 
this industry and the remainder of the national freight 
transportation system. That is something that want to make sure 
that our national policies reflect a smoother and better 
    Mr. Cummings. What about numbers? I am sure you want to 
increase the size of the U.S.-flag fleet. Is that right?
    Mr. Matsuda. That would certainly provide more resources 
for us to use when we need.
    Mr. Cummings. And when you get together with your staff, do 
you say we want to increase the numbers to a certain amount? Or 
do you just kind of say let's do the best we can with what we 
    The reason why I am asking that is that I am trying to 
figure out how will you measure your progress and how will you 
measure what at the end of your tenure when we look back, what 
will we say? You know, you say, OK, this is what I am going to 
try to do, and then I want to see what you did.
    Mr. Matsuda. Sir, we use every available tool to the 
Maritime Administration.
    Mr. Cummings. Can you share what those numbers might be, 
because a lot of people are very interested. They want to be 
measuring with you. They want to be on the sidelines with their 
rulers and yard sticks trying to figure out whether you are 
making first downs.
    Mr. Matsuda. Yes, sir. Like I said, with the Maritime 
Security Program, making sure that if we hadn t gotten this 
money out the door and gotten these contracts in place, that is 
something that would be harmful to the U.S. merchant marine. 
But making sure that it is fully staffed up, that folks can 
participate in it, is something that we maintain.
    We keep a strong communications with the U.S. military to 
make sure that the ships entering this program are ones that 
they will find militarily useful and that they need in their 
mix of sealift capabilities. So making sure that we have that 
in place is something that we will continue to do.
    With the Cargo Preference Program, ensuring that there is a 
clear understanding among all of the shipper agencies which 
cargoes are subject to the law is something that we are doing. 
These are the types of things that, again, help feed into the 
merchant marine, growing it.
    Like I mentioned in the statement, making sure that have a 
pool of skilled mariners, especially the next generation, is 
something that we are focused on as well, and that requires a 
strong collegiate high school program to let folks know what it 
is like to work on a ship, to be in this industry.
    So these are all things that we are doing. I am happy to 
provide you with some proposed metrics.
    Mr. Cummings. Yes, at our next hearing, would you do that 
for me as another way at the beginning of your tenure it would 
be very helpful. We will include that in our letter to you, 
which we will have to you within the next 24 hours so we can 
get started on that.
    Just one other thing. There are a number of questions that 
I did not get to, but I do want to ask you about this. Going 
back to your testimony before the Seapower Subcommittee of the 
House Armed Services Committee, which is of course headed by 
Congressman Taylor, you spoke about building ships for the 
marine highway or short-sea shipping trades that are militarily 
useful. Has MARAD conducted an analysis to determine what the 
costs of building such ships to meet military specifications 
might be, compared with building ships for strictly commercial 
    Mr. Matsuda. I can tell you, we are currently working with 
the military to help take what has already been done, the state 
of the art. There has been a number of initiatives to look at 
the markets for designing a militarily useful marine highway 
ship, and we would like to make sure that we get an independent 
look at these and truly understand what is the potential for 
designing and building a ship that is both militarily useful 
and can compete commercially in the Jones Act trade.
    I can tell you that there is probably not a major 
difference in cost between these two ships, from what we have 
seen early on, and that the military requirements are generally 
limited to certain features aboard the ship like for a roll-on/
roll-off ships they would want to make sure that the decks and 
the ramp are sturdy enough to handle heavy-load equipment which 
may not be moving commercially. So there is probably not a 
large difference, but we are fully engaged with the military 
and we will be working with them closely to understand just 
what their needs are.
    Mr. Cummings. Like I said, I will submit other questions.
    Mr. LoBiondo did you have anything else?
    All right. Thank you very much.
    Mr. Matsuda. Thank you sir.
    Mr. Cummings. Our second panel should come forward.
    Mr. Neil M. Johnsen, the Chairman of the Board of Central 
Gulf Lines and Waterman Steamship Corporation; Mr. Michael F. 
Dumas, Vice President and Chief Financial Officer of 
Intermarine LLC; Mr. John F. Reinhart, President and CEO of 
Maersk Line, Limited; and Mr. Philip Shapiro, President and 
CEO, Liberty Maritime Corporation; and Mr. Donald Keefe, 
President, Marine Engineers Beneficial Association, who will 
also have at the table Mr. Paul Doell, Director of Legislative 
Affairs, American Maritime Officers; Captain Donald Marcus, 
Secretary-Treasurer, International Organization of Masters, 
Mates, and Pilots; and Mr. Terrence Turner, Seafarer s 
International Union.
    You may be seated. Thank you all for being here, and we 
will now hear from Mr. Neil Johnsen, the Chairman of the Board 
of Central Gulf Lines.

                      INTERNATIONAL UNION

    Mr. Johnsen. Good morning.
    Mr. Cummings. Good morning.
    Mr. Johnsen. Chairman Cummings, Congressman LoBiondo and 
other Members of the Committee, as the Chairman of Central Gulf 
Lines and Waterman Steamship Corporation, I appreciate the 
opportunity you have provided today to address the U.S.-flag 
merchant marine s ability to compete with foreign-flag vessels 
in international commerce.
    Central Gulf and Waterman are both American-owned United 
States citizen companies, and as such are commonly referred to 
as Section 2 citizens. Central Gulf and Waterman currently 
operate 13 U.S.-flag commercial vessels in the international 
and domestic trades that provide a wide range of ocean-going 
commercial freight transportation services, including pure car/
truck carrier and domestic coast-wide services.
    Central Gulf and Waterman have also provided from their 
inception sealift support to the Department of Defense for its 
global military operations. Our U.S.-flag vessels and the 
dedicated crews that serve on those vessels willingly and 
without hesitation have delivered and will continue to deliver 
vital military equipment, supplies and other material into war 
zones and other hostile areas in direct support of DOD 
    Mr. Chairman, at your hearing in March, you observed that 
you would certainly hope that as we work to expand U.S. 
exports, we also work to formulate a meaningful maritime 
policy. We agree with your observation and we therefore 
recommend several specific initiatives.
    At the outset, I would like to address a program that you 
mentioned that continues to serve its intended purpose, the 
Maritime Security Program. MSP is the most cost-effective means 
to ensure that DOD has the access it requires to commercial 
U.S.-flag shipping and merchant mariners for the Nation s 
economic and military security. MSP was established in 1996 and 
originally provided for 47 U.S.-flag commercial vessels.
    Subsequently, due to the success of this program, the 
strong support of Congress, and our partners at the Departments 
of Transportation and Defense, the program was reauthorized and 
expanded to 60 ships in 2005. With that expansion, Congress 
specifically provided that priority must be given to Section 2 
citizen/American-owned companies for vessels enrolled in MSP. 
As Section 2 citizen companies, Central Gulf and Waterman 
strongly supported that priority requirement and I urge 
Congress to continue providing priorities in this respect.
    Of the 60 vessels in MSP, Central Gulf has enrolled four 
state of the art pure car/truck carriers and Waterman has 
enrolled two such vessels and two self-sustaining container 
vessels. These Central Gulf and Waterman vessels include some 
of the newest and largest roll-on/roll-off vessels in the U.S.-
flag fleet.
    Mr. Chairman, we are pleased the House of Representatives 
has demonstrated its continuing support for MSP by voting in 
this Congress to extend the program. We look forward to working 
with you and other Members to ensure that the extended program 
provides for priority participation of Section 2 citizen 
companies; to ensure that the program payments equalize 
operating costs of U.S.-flag vessels with foreign-flag vessels; 
and to provide for a continued full complement of U.S.-flag 
vessels in the program that are required to support the 
national and economic security of the United States.
    I must note that as a complement to MSP, DOD must continue 
to abide by its longstanding commercial-first policy to provide 
military cargo to privately owned U.S.-flag vessels when they 
are available, in lieu of government-owned or controlled 
vessels. This policy has resulted in military cargo to support 
the U.S.-flag fleet.
    If MSP is reauthorized and funded at a level to equalize 
the operating costs of U.S.-flag and foreign vessels, it will 
be necessary to continue our efforts to remove trade barriers 
and hurdles that exclude or limit U.S.-flag companies access to 
certain international markets.
    Over the last 20 years, we have on a limited basis, with 
the help of Congress, the Maritime Administration and the 
Federal Maritime Commission, the Department of Commerce, and 
the U.S. Trade Representative, gained access to certain markets 
for U.S.-flag vessels. With an adequately reauthorized MSP, I 
am sure that all of my colleagues in the U.S. merchant marine 
are prepared to compete effectively in the world market, but we 
must have access to markets which are not currently fully open 
to us.
    We stand to work collaboratively with the Trade 
Representative in a sustained effort to promote increased U.S.-
flag participation in the carriage of goods to and from the 
United States.
    Additionally, Mr. Chairman, U.S.-flag vessels operating in 
international trade are forced to compete with foreign-flag 
vessels whose owners pay little or no taxes. While the tax 
climate for U.S. vessels has improved through Congressional 
enactment of the tonnage tax, we recommend two additional 
    First, we recommend adoption of legislation that would put 
our American mariners on an equal tax footing with other U.S. 
citizens working outside the United States by allowing them to 
be treated for tax purposes like American expatriates, with the 
first $80,000 of their income is not subject to U.S. tax.
    Second, we also recommend that changes be made to the 
Capital Construction Fund Program that would incentivize U.S.-
flag shipowners to repair their ships in U.S. shipyards. 
Congressman Artur Davis and Charles Boustany have introduced 
legislation that would allow funds to be withdrawn on a tax-
free basis from CCF to be used for maintenance and repair of 
U.S.-flag vessels in U.S. shipyards.
    Mr. Cummings. I am going to have to ask that you wrap up 
because we have let you go two minutes above, and all of it is 
very, very interesting, but we have the statement, your full 
    Mr. Johnsen. OK, thank you. Just in closing, I would like 
to reiterate the importance of the various cargo preference 
programs that were mentioned by the Maritime Administrator and 
to say that they are an important component as well.
    Thank you very much, Mr. Chairman.
    Mr. Cummings. Thank you. Thank you very much.
    Mr. Dumas?
    Mr. Dumas. Good morning, Chairman Cummings and other 
distinguished Members of the Committee.
    Mr. Cummings. Good morning.
    Mr. Dumas. Thank you for the invitation to discuss the 
state of the U.S. merchant fleet in foreign commerce.
    I am Mike Dumas, the Vice President and Chief Financial 
Officer of Intermarine, a U.S.-owned and operated Section 2 
U.S.-flag company.
    Intermarine specializes in the ocean transportation of 
great bulk and project cargo that is oversized, over-
dimensional, non-containerized and uses multi-purpose vessels 
that have self-sustaining heavylift up to 400 metric tons.
    The project and breakbulk industry is a specialized and 
often complex trade and Intermarine is its largest U.S.-based 
project participant.
    Intermarine currently has three heavylift vessels, the 
Ocean Atlas Titan and Charger, and a fourth heavylift vessel, 
the Ocean Crescent, is in the final stages of U.S.-flag 
    The Atlas and the Titan both participate in the Maritime 
Security Program and the Voluntary Intermodal Sealift 
Agreement. We are the only heavylift vessels enrolled in these 
programs. Our U.S.-flag vessels are crewed by U.S. union 
mariners with whom we have a long and very good, strong 
partnership. Altogether, Intermarine supports hundreds of good 
jobs for U.S. citizens, merchant mariners, stevedores, 
administrative office and technical personnel, as well as the 
many ancillary jobs supported by our operation.
    Mr. Chairman, concerning the purpose of this hearing, you 
correctly chronicled the decline of the U.S.-flag fleet, both 
in the overall number of U.S.-flag vessels and in the volume of 
cargo carried by these vessels. You correctly noted, too, the 
real economic and security risk that attends such a decline.
    Intermarine is committed to remaining a commercially viable 
U.S.-flag carrier. I would briefly like to highlight what we 
might do collectively to overcome the challenges facing the 
U.S.-flag industry.
    Number one, and as mentioned several times I am sure by 
many of my colleagues, ensure reauthorization and full funding 
of the Maritime Security Program. MSP provides support for some 
60 vessels enrolled in the U.S.-flag registry, including two of 
the Intermarine U.S.-flag vessels. Ensuring that MSP will 
remain fully funded through 2015 and reauthorized thereafter 
provides U.S.-flag participants with some relief from the high 
cost of operating such vessels.
    To fully support U.S. exports in the U.S.-flag fleet, we 
would encourage consideration of a reauthorized MSP program 
reasonably modified to provide for, one, priority participation 
by Section 2 citizens; and two, an extended contract period to 
provide enhanced business stability for MSP participants.
    MSP provides mission-critical capacity for our military and 
helps to employ thousands of professional and very dedicated 
U.S. seamen. The MSP is an asset multiplier for the U.S. 
Government and its support helps sustain U.S. industry that is 
not simply a luxury, but a necessity to the national and 
economic security of the United States.
    A second highlight: protect and vigorously enforce cargo 
preference laws, extremely important. Cargo preference laws are 
critical to the continuing viability of the U.S.-flag fleet. 
Without protection and vigorous enforcement of our cargo 
preference laws, U.S.-flag carriers simply will not be able to 
compete with their foreign counterparts who enjoy advantages on 
the tax side, operating costs, and safety. Cargo preference 
laws ensure the continuing viability of the U.S.-flag fleet, 
and this is far too important to this Country.
    Third highlight: support the role of U.S. carriers in the 
National Export Initiative. The interests of U.S.-flag carriers 
must be represented in the President's National Export 
Initiative. Though it is indeed unfortunate that the Secretary 
of the Department of Transportation was not included as a 
member of the Export Initiative, U.S.-flag carriers should be 
given a voice in that critical initiative and we stand ready to 
    Additionally, Intermarine is also eager to continue working 
closely in a public-private partnership with MARAD, Ex-Im Bank 
and shippers to ensure adequate U.S.-flag vessel capacity to 
help promote U.S. Ex-Im Bank.
    Finally, fourth highlight: leverage the strength of U.S.-
flag carriers in support of TRANSCOM. Intermarine's heavylift 
vessels are well suited to support DOD missions for TRANSCOM, 
and by obvious extension, support the security and safety of 
the United States. Perhaps no better example of the vital role 
Intermarine vessels play in support of national security 
occurred in 2004 when our Ocean Atlas was urgently asked by the 
Department of State to divert to Tripoli, Libya. The Atlas was 
the first American vessel to call on that country in many 
years. In Libya, the vessel loaded sensitive cargoes that was 
then safely and securely transported to the United States. This 
mission is a reminder of the forceful importance of having a 
U.S.-owned and controlled Section 2 U.S.-flag fleet.
    Mr. Chairman, the nexus between maintaining a viable U.S.-
flag fleet and ensuring U.S. security is very real. If we are 
able to remain competitive, if we can continue to move U.S. 
exports and create U.S. jobs, then U.S.-flag carriers can 
continue to support this Country's economic and security 
    Thank you once again, Mr. Chairman, for the opportunity to 
speak with you today.
    Mr. Cummings. Thank you. Thank you very much.
    Mr. Reinhart?
    Mr. Reinhart. Thank you, Mr. Chairman.
    Mr. Cummings. Thank you.
    Mr. Reinhart. Members of the Committee, I am John Reinhart, 
President and CEO of Maersk Line, Limited, a U.S. company based 
in Norfolk, Virginia.
    Our company is managed by U.S. citizens, employs thousands 
of U.S. merchant mariners, and has over 200 shoreside 
employees. We pay taxes in the United States and we are one of 
the largest owners and operators of U.S.-flag in international 
trade. We are part of the A.P. Moller-Maersk Group, and 
international transportation and energy company.
    I appreciate the opportunity to testify before you today 
about the state of the U.S. merchant marine operating in 
international commerce. We applaud the Committee for its 
commitment to a strong U.S. merchant marine which is critical 
to both the U.S. economic and national security.
    As your Committee knows, the global maritime industry, like 
all industries, has faced an unprecedented economic difficult 
time over the last few years. In the wake of that challenge, 
Maersk Line, Limited continued to provide critical services 
with U.S. merchant vessels to the military over the last few 
years, delivering cargo to Iraq, Afghanistan and humanitarian 
aid to Africa.
    The success of our business is based on our ability to 
provide competitive international transportation services to 
our customers. The foundation is the U.S. laws that you have as 
the Congress put them forward, designed to ensure that we 
stayed strong and economically viable.
    The Maritime Security Act, the cargo preference laws, the 
tonnage tax regime and other U.S.-flag programs Congress has 
enacted has stopped the rapid decline, but still more needs to 
be done. I would like to give you a few highlights of what our 
company has done in the last 10 years.
    We own, operate and charter 33 vessels that are enrolled in 
government sealift readiness today. We only had four doing this 
10 years ago. We have modernized nearly our entire fleet, 
investing $1.6 billion in new assets under U.S. flag in the 
last 10 years. We continue to work with DOD to match their 
requirements with U.S. assets. We have 24 container ships. We 
have added four Ro/Ro ships. We have included three tankers. We 
have tried to adapt our fleet to meet the requirements of the 
    Since 2008, during this economic time, we have added seven 
vessels that have increased employment for U.S. merchant 
mariners by 240 slots or billets, providing employment for 
almost 600 mariners. We train more than 200 cadets every year 
on our fleet from the academies to provide for a workforce for 
the future.
    The programs that Congress has enacted to support the U.S. 
flag have been working and have delivered value to the U.S. 
military. They have been maintaining privately owned, 
commercially viable U.S. vessels in the fleet.
    One fact that demonstrates this success is that between 
2002 and 2008, 60 percent of the cargo to Iraq and Afghanistan 
were carried on commercial vessels like we all represent, 
compared to 21 percent during Desert Storm.
    As the Committee considers future opportunities to 
strengthen the U.S. flag and the merchant marine industry in 
foreign commerce, please remember that it is not just the ocean 
transportation that our customers look for. They look for 
global capability and door to door capacity to deliver cargo 
efficiently from any point to any other point. That is what 
companies like ours practice and do. It is part of our DNA.
    As we look at Afghanistan, we have delivered cargo 
thousands of miles over land after we have taken it on the 
ships, going across Latvia, Russia, Uzbekistan, Georgia, 
Armenia, Azerbaijan, as addition to the gateway in Pakistan. So 
we have had to do more than just operate ships to be 
competitive in the global marketplace.
    As an American company with American citizens, we are proud 
to serve our Nation. We recognize that the U.S. Government 
services are a key part of our business. Because we utilize our 
commercial solutions, we are able to compete on a cost basis 
and find opportunities to eliminate the cost differential that 
exists in the U.S. flag. Only 2 percent of the trade goes to on 
U.S.-flag ships and more needs to be done. We need to avoid 
complacency and aggressively protect and preserve the programs 
that you have so wisely put in place, the Maritime Security 
Program, the cargo preference laws, the tonnage tax, as we look 
for more.
    There are other opportunities for development and we look 
to those opportunities for development in the energy field to 
help grow employment and deliver new U.S. vessels.
    In closing, let me reiterate my company's commitment to our 
Nation s sealift capacity, the requirements that you provide, 
and the honor it is to serve. Every day, our colleagues, 
mariners and partners feel pride in serving the U.S. flag, 
developing the U.S. merchant marine, and serving our Nation.
    This is a brief part of my testimony, sir, and I look 
forward to your questions.
    Mr. Cummings. Thank you very much.
    Mr. Shapiro?
    Mr. Shapiro. Thank you, Mr. Chairman, Chairman Oberstar, 
Mr. LoBiondo, Mr. Taylor, Members of the Committee. Thank you 
for the opportunity to testify on the importance and status of 
the foreign trading U.S.-flag fleet.
    With your permission, sir, I would like to submit my 
written statement for the record.
    Mr. Cummings. Without objection, so ordered. As a matter of 
fact, we will have all of your written statements submitted as 
a part of the record. Thank you all.
    Mr. Shapiro. Thank you.
    Liberty's fleet consists of nine U.S.-flag vessels, six 
modern large bulk carriers, and three large roll-on/roll-off 
vessels built in 2005, 2009 and 2010. All of our vessels are 
engaged in the carriage of military cargoes and/or food aid 
preference cargoes primarily today to Africa.
    Let me take a moment, Chairman Cummings, to thank you and 
Mr. LoBiondo and Mr. Taylor, as well as the Members of your 
Committee for your outstanding leadership on the piracy issue. 
The entire U.S.-flag industry, both operators and our labor 
partners alike, deeply appreciate your concern and involvement.
    Two weeks ago, this Committee reported a bill, H.R. 5629, 
that seeks, among other things, to Americanize U.S. waters. The 
purpose of the bill is to help ensure safe operations in 
drilling and other activities and goes well beyond the 
requirements of the Jones Act. This is a bold step.
    Bold thinking is also needed to sustain and expand the 
U.S.-flag fleet engaged in the foreign trade. Our existing 
programs, particularly the Maritime Security Program and the 
Cargo Preference Program have worked well to stabilize and 
maintain a modern militarily useful fleet. These programs must 
be sustained if the U.S. is to maintain this essential 
    As you have noted, Mr. Chairman, these programs, however, 
can and must be improved and new ideas are needed to maintain 
and grow a vibrant U.S.-flag fleet. None of us can rest on our 
laurels. More aggressive action is needed.
    First, the Maritime Security Program should be reauthorized 
and expanded. We at Liberty have committed over $170 million in 
private capital to build two brand new roll-on/roll-off vessels 
to serve the needs of our armed forces. These are ultra-modern 
vessels, the newest in the U.S.-flag fleet, ordered, by the 
way, when the U.S. Transportation Command announced a need for 
more Ro/Ros. Yet there are no available MSP agreements to cover 
these vessels. We respectfully urge Congress to consider 
expanding MSP when it is reauthorized to ensure that DOD has 
the sealift capability it needs.
    Second, MSP originally intended as a U.S. citizen program, 
has become nothing short of a foreign-dominated program. When 
started in 1997, four of the 47 agreements were held by a 
foreign company. Today, all but 11 of the 60 agreements are 
effectively controlled by foreign citizens or companies. This 
foreign dominance is a threat, in our opinion, to the national 
security of our Country and unhealthy for the long-term 
viability of the U.S. merchant marine. We respectfully request 
that Congress alter the balance to ensure that a majority of 
this program is reserved to U.S. citizens.
    Third, when MSP was reauthorized in 2005, most of the 
agreements were grandfathered. In other words, they are re-
awarded to the same carriers which had agreements in the prior 
program. This has resulted over time in the DOD not always 
having the vessel mix that it needs. We urge Congress to 
provide for more open competition in the award of MSP 
agreements when it is reauthorized.
    Fourth, I would like to spend the balance of my time 
discussing cargo preference, which represents the common sense 
notion that when our U.S. Government ships cargo, at least some 
of it should go in U.S.-flag vessels. It is not an exaggeration 
at all to say that without cargo preference, we would have no 
U.S.-flag fleet engaged in foreign commerce today.
    It is therefore vital to the U.S.-flag merchant marine and 
to U.S. national security that our cargo preference laws are 
followed by the various government agencies that ship cargo. 
Toward that end, the Maritime Administration plays a vital role 
in making sure that contracting officers in other agencies are 
aware of their responsibilities and that the law is enforced 
when necessary.
    We urge Congress to be active in its oversight of MARAD and 
its cargo preference role. MARAD needs Congressional support to 
get the job done, and maybe on occasion, with all due respect 
to my friend Administrator Matsuda, a nudge or two to be a 
little bit more aggressive in enforcing the law.
    Thank you again, sir, for the opportunity to testify. 
Chairman Cummings and Members of the Subcommittee, we 
appreciate your attention to our industry. We could not have 
better support than what you are trying to provide us.
    With that, I would be pleased to answer any questions.
    Mr. Cummings. Just one quick observation. Sometimes it is 
good for the person who testifies first to stick around to hear 
from you all. In other words, Mr. Matsuda left. I am sorry he 
did, but I want to make sure that he gets copies of your 
testimony, if you don't mind. He needs to hear some of this. 
All right?
    Mr. Shapiro. Thank you, sir.
    Mr. Cummings. Mr. Keefe?
    Mr. Keefe. Mr. Chairman, Members of the Subcommittee, my 
name is Don Keefe. I am the President of the Marine Engineers 
Beneficial Association. I am presenting this statement on 
behalf of the MEBA, as well as the American Maritime Officers, 
the International Organization of Masters, Mates, and Pilots, 
and the Seafarers International Union.
    Together, we represent the overwhelming majority of 
licensed and unlicensed American merchant mariners working 
aboard United States-flag vessels operating in our Nation s 
foreign and domestic shipping trades.
    We appreciate this opportunity to present our views on the 
state of the United States merchant fleet in foreign commerce. 
History has shown that our Nation must have the U.S.-flag 
commercial vessels and United States citizen crews necessary to 
support our troops and protect our American economic interests. 
We believe that the best way to do so is for Congress and the 
Administration to support, enforce and fund existing maritime 
programs and to enact new programs that will enable our 
merchant marine to operate more competitively.
    One such program is the Maritime Security Program. MSP 
helps retain U.S.-flag vessels and their U.S. citizen crews for 
our Country, more specifically for the use of the Department of 
Defense in time of war and other international emergencies. To 
ensure the continued availability of the MSP fleet, Congress 
should continue to approve funding for this program at the 
Congressionally authorized level of $174 million for fiscal 
year 2011, $186 million in fiscal years 2012 and 2013. This 
fund helps U.S.-flag vessels compete against foreign-flag, 
foreign-crewed vessels for the carriage of cargo in foreign 
    Unlike U.S.-flag vessels, foreign vessels operate in what 
is essentially a tax-free environment beyond the reach of many 
U.S. Government-imposed requirements that are applicable to 
U.S.-flag vessel operations.
    It is equally important that U.S.-flag shipping 
requirements under the Cargo Preference Program be fully funded 
and implemented in compliance with the law. For example, the 
existing Food for Peace Program not only serves U.S. 
humanitarian and foreign aid objectives, but provides a 
significant return to the American taxpayer by creating and 
maintaining American jobs for the maritime and agricultural-
related service and supply industries.
    The U.S.-flag shipping requirements that cover the shipment 
of Food for Peace and other food aid cargoes help provide an 
important base of cargo to support U.S.-flag vessels operations 
to help vessel operators keep their vessels under our flag. 
Proposals to replace the existing Food for Peace Program with a 
program that simply provides cash to other nations to purchase 
foreign agricultural commodities in foreign shipping services 
should be rejected.
    All federally funded cargo should be transported in 
compliance with the existing cargo preference laws. The 
National Defense Authorization Act of 2009 gives the Maritime 
Administration great authority to implement the cargo 
preference laws and this statute and MARAD's authority should 
not be subverted.
    We believe that changes should be made in our tax laws in 
order to promote the growth of the industry, preserve and 
create jobs, and help reduce the disparity in tax treatment 
that gives foreign-flag vessels and their crews a significant 
economic advantage over U.S.-flag vessels and their U.S. crews.
    For example, one such change in the tax code that could 
improve the competitive position of U.S.-flag vessels and 
increase the employment of American mariners is to extend the 
existing foreign source income exclusion to American merchant 
mariners working aboard commercial vessels operating in the 
foreign trade. At present, section 911 of the tax code allows 
every U.S. citizen working outside the United States, except 
for American mariners, to exclude up to $80,000 in income from 
their Federal tax.
    A report prepared by the Maritime Administration, released 
on January 7, 2009, noted that most major nations either do not 
tax or sharply reduce taxes on the income of their mariners in 
international shipping. Other nations do this to help reduce 
operating costs for their flag vessel operations. The United 
States should do the same.
    In addition, Congress should enact legislation to eliminate 
the double taxation of waterborne commerce moving between 
American ports under the harbor maintenance tax in order to 
enable creation of a short sea shipping marine highway system 
in the United States.
    Also, Congress should support the Title XI Ship 
Construction Loan Guarantee Program and appropriate the funds 
necessary to assist shipping companies to obtain the commercial 
financing they need to build, upgrade and expand their fleets 
in the American shipyards.
    Finally, there is one other major area of U.S. maritime 
policy we would like to raise. The full enforcement of the 
Jones Act helps to guarantee that our Nation will have the 
domestic shipyard mobilization base and the American merchant 
mariners available to support the Department of Defense 
requirements. Equally important, the full implementation and 
enforcement of the Jones Act means that the waterborne 
transportation of American domestic commerce will not fall 
under the control of foreign shipping interests, but will 
instead remain under the control of American companies and 
American crews.
    American crews, unlike foreign mariners, are subject to 
U.S. Government-imposed background and security checks as a 
means to guard against maritime-related terrorist incidents.
    In conclusion, if Congress and the Administration believe, 
as we do, that the economic and military security of the United 
States is best served when our country has a strong competitive 
U.S.-flag shipping capability, there are a number of important 
and innovative steps that can be taken to achieve this 
objective. We have raised what we consider to be some of the 
most important immediate steps that should be considered. We 
look forward to working with you, Mr. Chairman, and your 
Subcommittee on these and other essential maritime initiatives.
    Thank you.
    Mr. Cummings. Thank you very much.
    We are pleased that we also have Mr. Paul Doell, the 
Director of Legislative Affairs, the American Maritime 
Officers; and Captain Donald Marcus, Secretary-Treasurer, 
International Organization of Masters, Mates, and Pilots; and 
Mr. Terrence Turner of the Seafarers International Union, here 
for questions, to answer questions. They will not be providing 
    Is that understood? Very well.
    Let me just ask a few questions.
    Mr. Shapiro, what percentage of the cargoes carried by your 
U.S.-flag vessels are comprised of cargo preference cargoes?
    Mr. Shapiro. Mr. Chairman, today we would probably be in 
the 80 percent range, about 75 percent to 80 percent. In prior 
years, we have been 100 percent. In 2007 and 2008, when there 
was an explosion in the foreign shipping market, some of our 
ships traded there and we actually went as low as 50 percent to 
60 percent. But we are clearly dependent on U.S. Government 
programs to support the U.S.-flag fleet.
    Mr. Cummings. So you would be pretty much out of business 
if it weren't for the preferences.
    Mr. Shapiro. Well, we would be out of business as a U.S.-
flag company. I mean, the alternative that everyone faces at 
this table who's operating ships is if you take the U.S. flag 
off and put a foreign crew on, you can compete internationally 
around the world without all the unfunded mandates that are 
placed on U.S.-flag vessels.
    We have chosen to be U.S. because we are not only 
patriotic, but believe that it is our duty to support a U.S. 
merchant fleet that can sustain our military and national 
    Mr. Cummings. We appreciate that very much.
    You wrote in our testimony that today all but 11 MSP 
agreements are effectively controlled by foreign citizens. What 
do you mean by this, particularly given that MARAD has reported 
that more than 11 vessels participating in the MSP program are 
controlled by Section 2 companies?
    Mr. Shapiro. My understanding is that in 2006 after the 
renewal of MSP, well, let's go back to 1996. In 1996, there was 
a very strong Section 2 requirement which was enforced 
vigorously by the Maritime Administration. It mandated that 
those companies that have foreign ownership connections, of 
which there are many, had to hire U.S. citizen-qualified 
shipping people to actually be the intermediary between them 
and the U.S. Government.
    In the renewal of the program in 2004, which became 
effective in 2005, I believe, they changed that requirement to 
allow foreign companies that had a special security agreement 
with the United States to qualify as an alternative to Section 
2 citizenship.
    What ended up happening was foreign-based companies were 
buying up other American-based companies that were in the 
program so much so that I believe Congress in 2006 intervened 
and said if there is a transfer of an MSP agreement from a non-
citizen, priority should be given to a Section 2 citizen in 
having it awarded.
    Well, the intent of Congress was great. Unfortunately, the 
enforcement by the Maritime Administration was somewhat lacking 
because they found people who had really never operated ships 
acted as owners of companies on behalf of foreign companies and 
they became the Section 2 citizens.
    So for instance, you have someone who was at one time a 
U.S. Government government relations person who all of a sudden 
dropped his position, became owners of an American Section 2 
citizen, even he had no employees and no people that were 
working for him, and he acted as the intermediary between the 
foreign company.
    So I again would urge this Committee to direct the Maritime 
Administration to tighten up these requirements so that Section 
2 U.S. citizens can participate in this program in a 
substantial manner, not just a minuscule manner.
    Mr. Cummings. Thank you. That was very helpful.
    Mr. Reinhart, what advantages are there to operating under 
the U.S. flag? Is cost the only factor that discourages 
operators from choosing the U.S. flag?
    Mr. Reinhart. Thank you, Mr. Chairman.
    As far as cost, all global trade is really driven by being 
in the right place at the right time and providing a service at 
the right cost. If the cargo isn't mandated to go on U.S. flag, 
a lot of those U.S. manufacturers that build or export, they do 
not look to put their cargo on a U.S.-flag ship, so cost drives 
them to whatever is the most efficient export or import vessel 
    Mr. Cummings. And the development of the tonnage tax was an 
attempt by Congress to help level the playing field in terms of 
costs for U.S.-flag operators. How many of you have elected to 
pay tax under the tonnage tax system? And what has been your 
experience with the system?
    Anybody. Let me start with Mr. Dumas, since he hasn't 
answered yet, and we will get to others.
    Mr. Dumas?
    Mr. Dumas. Mr. Chairman, we do pay under the tonnage tax. 
We elected to go under the tonnage tax immediately after it 
became available to us. We pay a nominal amount. I think it is 
$7,000 or $8,000 a year under the tonnage tax for our four 
ships. That allows us to keep our profits inside of the 
company, which then helps us to grow our business. We started 
off with one ship in 2002 and we are just adding our fourth 
ship this year.
    Without that tonnage tax, we would not be able to hold our 
profits within our company and expand our fleet.
    Mr. Cummings. As the others answer that same question, I 
want to know, do you think the tonnage tax system can be 
improved? And if so, how would you want to see it improved?
    Mr. Shapiro?
    Mr. Shapiro. We opted as well, Mr. Chairman, for the 
tonnage tax. I don't know that it can really be improved. The 
benefit is there just from the creation of the tonnage tax. But 
if I could just divert back one second about the cost of 
operating U.S. flag?
    Mr. Cummings. Please.
    Mr. Shapiro. Our seamen pay taxes. Their families pay 
taxes. When we are competing in the international trade, you 
asked me what percentage we carried of U.S. Government cargo 
versus commercial cargo. We are at an $11,000 a day 
disadvantage to a foreign-flag ship, foreign operating costs. 
The math is very simple. And the $2.9 million, I would point 
out, under the MSP program, switching hats from food aid to 
military, the $2.9 million doesn't cover the full differential. 
Without the Cargo Preference Program cargoes being added to 
that $2.9 million, there is no way that anyone can sail a ship 
and make any money.
    So the support we need from the Congress or from our 
Administration is vast support, but the benefit is you get a 
merchant marine that can ensure your economic security as well 
as your national security at a fraction of the cost that it 
would cost the government to build these and own these ships 
    Mr. Cummings. Mr. Reinhart?
    Mr. Reinhart. Thank you, Mr. Chairman.
    As I mention in my testimony, we have increased our fleet 
from four to 33 ships owned. The tonnage tax was a big driver 
in us being able to effectively deploy the capital and 
modernize our fleet. So it is an important step.
    But as Philip and some of the other folks on the panel have 
said, it is not enough by itself. We do need cargo preference. 
We do need the Maritime Security Program and other initiatives 
to offset the adverse cost of running a U.S.-flag ship in the 
international trades.
    Mr. Cummings. Mr. Johnsen, did you have a response to that? 
And then I will move on to Mr. Keefe.
    Mr. Johnsen. Thank you very much.
    I would like to just reiterate the fact that, and I said 
this in my testimony, that it is important that the Maritime 
Security Program be adequately funded. What I was alluding to 
there is that there should be more money in the program.
    Mr. Taylor asked an interesting question of the Maritime 
Administrator about back haul cargo from Kuwait. That leads 
into a very important consideration. The Department of 
Defense's requirements are often very much surge requirements, 
and they need many more vessels than they need on a more 
routine basis when they have a surge. So that says to us that 
it is important that we have the DOD priority, but we have to 
have an adequately funded Maritime Security Program in order to 
have the vessels available to DOD.
    When the operations changed in the Middle East from a surge 
of sending cargo over to now the retrograde operation, many of 
us operating in that program rearranged our transportation 
capability. Unfortunately, I think we have a reality that DOD 
is having a difficult time getting the cargo out because, to 
answer your question, I know what our ships are doing and I 
know what other people s ships are doing, and they are not 
    So it is a question of continuing to work with DOD to 
ensure that we have a flow of cargo that matches the 
retrograde. Because we have the capability there to do it, but 
we do need initiatives. We do need to have the Trade 
Representative and all of our other agencies support 
utilization of U.S.-flag ships. If they cut us free and they 
don't help us, there will be a serious impact.
    Mr. Cummings. Mr. LoBiondo?
    Mr. LoBiondo. Mr. Chairman, out of deference to Mr. 
Oberstar, I will yield to Mr. Oberstar.
    Mr. Oberstar. You are very kind to do so, Mr. LoBiondo. I 
will withhold at this time, except to make this one brief 
    Thirty-five years ago, my first year in Congress, Tom 
Downing, Chairman of the Merchant Marine Subcommittee, Member 
from Virginia, held hearings similar to this over a five-month 
period to evaluate the Merchant Marine Act of 1970 to see where 
we stood with the status of the merchant fleet.
    You and Mr. Cummings have now launched the second era of 
hearings on the value to the United States of the merchant 
fleet, and I hope that this will be an in-depth and continuing 
series of hearings to shine a bright light on the very 
important area of merchant shipping that goes too often ignored 
in our panoply of transportation issues in this Country. Much 
more attention is paid to aviation, to highways, to transit to 
intercity high speed passenger rail.
    This Country was founded by the water. Our citizenry lived 
on or near the water at the very beginnings of this Nation. 
Seventy-five percent of the population of this Country still 
lives along the water's edge. There are only two major cities 
that are not located along a body of water. Most of our major 
cities were ports before they were cities.
    This hearing today and the series that I expect we will 
continue to have will continue to focus that light on this 
maritime heritage of the United States and the importance of 
maritime to the future of this Country.
    Thank you for yielding.
    Mr. LoBiondo. Thank you, Mr. Chairman.
    Talking about the shortage of merchant mariners, for Mr. 
Turner, to what degree is there a shortage of merchant mariners 
available to work aboard U.S.-flag vessels?
    Mr. Turner. Mr. LoBiondo, there is a worldwide shortage. We 
with Seafarers do our best and do our due diligence in 
supplying the best trained mariners that this Country can 
provide. I don't have a percentage for you, but we will stand 
ready, as my boss Mr. Sacco says, when the balloons go up and 
the bell rings, we will be there.
    Mr. LoBiondo. Can you identify any particular segments of 
the maritime community that are experiencing more of a shortage 
than others?
    Mr. Turner. I think I would have to defer to the Officers 
Unions on this. I can only speak relative to our unlicensed.
    Mr. LoBiondo. I think I and probably the Committee would be 
interested in knowing if you have any ideas of how the Federal 
Government could support industry efforts to attract and retain 
qualified merchant mariners to work aboard U.S.-flag vessels.
    Mr. Turner. Our industry is a well kept secret, quite 
frankly. What Mr. Oberstar has referred to is we kind of fly 
under the radar. One of the things that we do in terms of 
getting our message out, we go to various Members of Congress 
in their Congressional districts and basically recruit from 
those areas. We would be very interested from any Member of 
Congress who has a jobs need, we would be glad to basically 
come into your district, explain to your constituents exactly 
what we do, and recruit them into the industry.
    Mr. LoBiondo. Thank you.
    Any of the other panel members, are you experiencing 
difficulty being able to hire folks for your vessels?
    Mr. Marcus. Yes, sir, on behalf of Masters, Mates and 
Pilots, thank you for the opportunity to be here and thank you 
for your vigorous support of the merchant marine.
    I would have to say that regarding licensed deck officers, 
it is a function of availability of jobs. As the Administrator 
stated, there are 700 licensed officers graduating from State 
and Federal academy every year. If the suitable and attractive 
opportunities are there, people will fill the jobs. It is a 
function of supply and demand. And right now, from the position 
of our union, there is a lack of jobs and we have Third Mates, 
qualified personnel, that can't get employment, can't get 
steady employment, or that the range of employment is simply 
not attractive.
    So I think it is a function really worldwide of the 
attractiveness of the job. If there are good jobs, people show 
up. If there are not enough jobs and if they are not good jobs, 
people don't show up.
    So I think the shortage, at least in terms of the U.S. 
officers, is somewhat of a red herring. I believe it is a 
function of the quality of the opportunity.
    Mr. LoBiondo. Anybody else care to comment?
    Mr. Keefe. Yes. I agree with Don from Masters, Mates and 
Pilots. When I mentioned in my testimony about a Federal tax 
incentive, it is very, very competitive when we are going to 
our partners, our companies to try to talk with them to bring a 
foreign flag under the American flag, when our competition in 
the foreign market, they are getting national health care 
already. They are getting national pensions. They are not 
paying taxes into what they earn on the vessel.
    The costs at one time I believe it was about a 30 percent 
differential and could have even been more with the Euro up and 
down. I believe at one time we looked at it, it was about 30 
    Some of our employers, we have partnered with them. We have 
had to take 20 percent pay cuts to make it competitive for them 
to bring foreign vessels under the American flag.
    Mr. LoBiondo. Thank you.
    Mr. Cummings. Thank you very much.
    Mr. Oberstar?
    Mr. Taylor?
    Mr. Taylor. I would like to open this up to the pane, going 
back to, again, I realize it is short term, but walk me through 
how your firms are compensated for bringing a cargo home from 
Iraq. I have to believe the crew size doesn't vary if you have 
a partially full ship. I have to believe you are traveling in 
ballast so your tonnage really doesn't vary, so therefore the 
amount of fuel you are going to use doesn't vary.
    Are you compensated by the trip? Are you compensated by the 
piece of equipment? Are you compensated by the actual tonnage 
of the cargo that you are carrying? If you could walk me 
through that.
    Mr. Reinhart. Yes, sir, Mr. Taylor.
    Firstly, there are rates on file with TRANSCOM.
    Mr. Taylor. Could you speak up a little bit, sir?
    Mr. Reinhart. Yes, sir.
    TRANSCOM has rates on file to move cargo from any port to 
another port, so most of the cargo would move under USC 06. 
Then there can be unit moves or one time only rates put on file 
to bring the cargo back from the Middle East. But since we are 
still delivering on networks with our liner vessels and our Ro/
Ro vessels, we are providing that mostly under our USC 06 
    Mr. Taylor. Again, walk a civilian through this.
    Mr. Reinhart. Well, to be a member of the Maritime Security 
    Mr. Taylor. No, I am familiar with that.
    Mr. Reinhart. OK, sir.
    Mr. Taylor. If your vessel is coming over, if you have a 
heavylift vessel or a reinforced deck Ro/Ro, that is returning 
home at 60 percent capacity, do you still bill the Nation the 
same as if you were full? Or does the Nation get a 60 percent 
bill of what a full cargo would have cost the Nation?
    Mr. Reinhart. If I may, sir, the rates are unit rates. We 
aren't charging for the full vessel. We are charging for the 
rates on the piece portion.
    Mr. Taylor. By square foot and tonnage or tonnage or what?
    Mr. Reinhart. Yes, sir.
    Mr. Taylor. Square foot and tonnage?
    Mr. Reinhart. Weight, ton or container.
    Mr. Shapiro. Mr. Taylor, all of us are subject to the 
universal services contract. When he says USC 06, that is what 
it is.
    Mr. Taylor. Thank you.
    Mr. Shapiro. We have submitted thousands of rates, 
literally thousands of rates for the movement of different 
pieces of material and cargo from points all over the world, 
not just to the United States. It could be repositioning 
someplace else. Those are analyzed and accepted by the 
Department of Defense. If they think your rate is too high for 
something, before you get approved for that universal services 
contract, they come back to you and say you are not approved on 
this rate, this rate, this rate or this trip, this trip, this 
    So before you ever even put this vessel in the water to go 
pick up cargo, you have been approved already on all these 
rates by the DOD.
    Mr. Taylor. And Mr. Shapiro, I hate to cut you short, but I 
am going to.
    Mr. Shapiro. OK.
    Mr. Taylor. Walk me through, if you could very quickly, a 
typical vessel sailing right now, coming back from Iraq. What 
is your typical capacity?
    Mr. Shapiro. I can do that, sir.
    Mr. Taylor. What percentage of capacity are you traveling 
    Mr. Shapiro. We have 580,000 square feet of cargo space on 
a 12-deck roll-on/roll-off vessel. OK? We are carrying about 30 
percent to 40 percent cargo in that coming back, no more than 
40 percent. And we are paid on a unit move by pieces of 
equipment. We don't charge for the full ship. We get whatever 
we have been approved for on an item by item basis.
    Mr. Taylor. Is that fairly universal? Is that a fairly 
universal percentage?
    Mr. Shapiro. On the Ro/Ro, sir, yes. On the containers, it 
could be even less on the container ships.
    Mr. Taylor. Sir?
    Mr. Johnsen. That is correct.
    Mr. Taylor. Again, going back to the old penny-wise 
analogy, I have serious concerns that we are leaving billions 
of dollars of equipment behind that is going to end up on the 
black market, that is going to make some Iraqi wealthy, because 
we are trying to save millions of dollars in shipping costs.
    Have any of you gone to both the Sealift Command or 
TRANSCOM and said, look, I am making this trip anyway; I am 
willing to work with you on a negotiated rate for additional 
tonnage to come home.
    Have you done that? And if you haven t, why not?
    Mr. Johnsen. We have done that.
    Mr. Taylor. You have.
    Mr. Johnsen. Yes.
    Mr. Taylor. And what has been their response, sir?
    Mr. Johnsen. We have had one instance where they did work 
with us and they helped us get back. But we have had in the 
last 60 days, we have had multiple instances where we have held 
ships waiting for cargo. We have a ship sitting now that has 
already been sitting for two or three weeks. We get no 
compensation for that, obviously.
    Mr. Taylor. It is sitting in Kuwait?
    Mr. Johnsen. It has been sitting in the Arabian Gulf. And 
prior to that, the last ship that we loaded coming back had 
waited for two weeks. So it is a question of the cargo volume 
is obviously there and I think your concern is very legitimate 
about getting it moved out, but the cargo is not flowing to 
match the vessel s capability.
    So as Mr. Shapiro said and as Mr. Reinhart said, we get 
paid for every measurement ton of cargo that we carry and that 
is all.
    Mr. Taylor. Mr. Chairman, if you would afford me the luxury 
of one last question for the record?
    If each of your firms could get back to me, when leaving 
Kuwait or Umm Qasr, what percentage of the tonnage is being 
forwarded to, say, Karachi for redeployment to Afghanistan? And 
what percentage is being returned to a CONUS port, leaving the 
Iraqi theater?
    Thank you very much for indulging me, Mr. Chairman.
    Mr. Cummings. Thank you very much.
    Mr. Kagen?
    Ms. Richardson?
    Ms. Richardson. Thank you, Mr. Chairman.
    Thank you, all of you, for being here today.
    My first question is for the entire panel. Were any of you 
invited to participate in the President s Export Commission?
    Mr. Shapiro. No.
    Ms. Richardson. Did any of you know about it before his 
    Mr. Shapiro. No.
    Ms. Richardson. OK. If you were able to participate in that 
Commission, and the President is expecting that we are going to 
increase exports, and many of us on this Committee, we serve 
not only on Coast Guard and Maritime, but also on Highways and 
Roads, and we have a real question of whether we would be able 
to support that demand.
    If you were able to say something to that Commission, what 
would it be? And why don't I start off here with some of our 
labor representatives and friends, Mr. Turner and Captain 
    Mr. Marcus. I can answer that question, at least for our 
organization. It would be that we would welcome some bilateral 
trade agreements. It would seem to me that these countries 
value the United States market. They are exporting goods into 
our Country. We want to export good out of our Country. It 
would seem to me that bilateral trade agreements would be 
reasonable. It is a subject that doesn't get much play, but it 
would certainly seem reasonable from our perspective.
    Thank you.
    Ms. Richardson. Actually, it is getting quite a lot of play 
right now, the one they are looking at with Korea and some 
others. So it is interesting that you have that point.
    Mr. Keefe, did you want to add anything to that of what you 
would like to recommend to the Commission?
    Mr. Keefe. I agree with everything that Don said. It is all 
about creating jobs. It is a way to create jobs and we are all 
behind it.
    Ms. Richardson. What can we do, though, to ensure that 
there are job and that they are U.S.-flag ships that are 
gaining the benefit of the Export Commission and not foreign-
flag ships?
    Mr. Keefe. What I had mentioned earlier in my testimony, 
you weren't here, was I had mentioned tax incentives, Federal 
tax incentives.
    Mr. Shapiro. I would say, Ms. Richardson, that cargo is the 
key element to a vibrant U.S. merchant marine and a vibrant 
economy. If there is cargo required to be carried on ships, 
ships will be built, jobs will be created, and an American 
presence overseas with exports will manifest itself.
    So cargo that moves either by government mandate or by 
bilateral agreement, it all comes down to one thing: you need 
something to put in the ship in order to build the ship and to 
employ people.
    Ms. Richardson. OK.
    Mr. Reinhart, the President of Maersk, which is a large 
carrier down in my district, the Port of Long Beach and Los 
Angeles, what things would you want to share with that 
    Mr. Reinhart. We have talked about the cargo to create the 
jobs, but there has to be incentive for that cargo to go on a 
U.S.-flag hull. There has to be some reason to put it on a U.S. 
hull. If we go back before 2008, cargo continued to grow coming 
in and out of this Country, but the portion of it on a U.S.-
flag vessel has dropped to 2 percent. So there has to be 
something to incentivize that cargo to move on the U.S. flag; 
also, cargo preference enforcement on the U.S. flags.
    Ms. Richardson. Mr. Keefe, we briefly had something there. 
In your statement, you talked about that if Congress and the 
Administration does not take steps to attract and retain more 
vessels for U.S. producers and shippers of U.S. commodities, we 
can find ourselves hostage to foreign shipping interests. That 
obviously is something dangerous to us all.
    I was recently in the Gulf twice and I think us not having 
our own systems in place in readiness to be able to move as we 
need is definitely short-sighted. Other than the tax 
incentives, is there anything else that you had a specific 
direction to?
    I do see the MSP program and us continuing that, but was 
there anything else further that you wanted to add?
    Mr. Keefe. Yes. What was discussed earlier, capital 
construction fund. There was the tonnage tax, the harbor 
maintenance tax, the Title XI that I had mentioned earlier 
about capital construction, again with Title XI building ships. 
Under that, there was when the companies are bringing their 
vessels into the U.S. to have repaired, there could be a tax 
break on having repairs done in the yards over here in the U.S. 
That is about it.
    Ms. Richardson. OK.
    Lastly, Mr. Turner, with you representing the Seafarers, we 
have them represented down in my district in the two ports 
there. I know we just finished looking through some 
negotiations with ILWU. Are there outstanding labor infractions 
that we should be aware of?
    Mr. Turner. Relative to the SIU, I don't believe there is 
anything outstanding. You do reference the ILWU, and there is a 
problem there. We are aware of that and are working with our 
brothers and sisters along those lines, but we have no 
infractions or complaints to this point.
    Ms. Richardson. Thank you, gentlemen, for all your 
    Mr. Cummings. Mr. Oberstar?
    Mr. Oberstar. Thank you.
    We are now, as I observed earlier, we are observing the 
40th anniversary of the Merchant Marine Act of 1970. And I 
applaud Chairman Cummings for initiating this hearing and I 
expect a follow-on set of hearings that will further explore 
the status and the health of the American merchant marine.
    And Mr. LoBiondo, thank you also for your constancy and 
participation, and Mr. Taylor, who has been a watchdog on the 
Jones Act and the American shipbuilding sector.
    But I would just observe that that set of hearings I 
referenced earlier with Chairman Downing was a great learning 
experience. It provided for me a foundational experience for my 
engagement in international shipping and the entire maritime 
interest of the United States.
    And I will just make a personal observation. When I was 
elected in 1974, we went through the Committee selection 
process. Of course, I wanted to be on the then-Public Works 
Committee because I had been its Administrator. I started my 
service on the Hill as Clerk of the Subcommittee on Rivers and 
Harbors. We didn't have fancy titles in those days, Clerk, like 
sit in the corner, kid, and learn something.
    I worked then for my predecessor, John Blatnik, who later 
was Chairman of this Committee. And I set about the task of 
learning. The first act of the first Congress came from the 
Committee on Rivers and Harbors in September, 1789, to 
establish and maintain a lighthouse at Hampton Roads, Virginia.
    The second act of the first Congress came from the 
Subcommittee on Rivers and Harbors to establish and maintain a 
lighthouse at Cape Henry on the entrance to Chesapeake Bay. And 
the third act of the first Congress, from the Committee on 
Rivers and Harbors, was to establish the Revenue Cutter Service 
to exact duties on cargoes coming into the United States with 
which to pay the debts of the Revolutionary War.
    The founders of this Country, the framers of the 
Constitution, the first legislators understood the importance 
of maritime, understood the vital necessity of safety in 
maritime by establishing lighthouses.
    In fact, as a further parallel, in 1927 when the first 
night flight was established in commercial aviation by one of 
those early airmail pilots flying from Kansas City to Chicago, 
he asked farmers along the route to light bonfires at night 
because there was no night navigation. And when it proved 
successful and he was able to fly, at each checkpoint the 
bonfires were lit, within a year the U.S. Lighthouse Service 
established lighthouses with million candle power beams fired 
up through arrows pointing to the next lighthouse. That served 
as air navigation.
    If you look today at air traffic control towers, they are 
patterned after lighthouses, with the same sequence of entry. 
And the point where air traffic controllers operate is called 
the cab. That is what a lighthouse is called, the cab.
    America owes so much to maritime history, to the movement 
of goods and to the safety at sea that it is a tragedy that we 
have allowed this vital interest to deteriorate. And those who 
have access, and everybody does, to our Committee briefing 
reports, look on page four, Global Policies in Support of 
Shipbuilding and Vessel Operations.
    There are 15 different categories of aids to shipbuilding; 
aid to vessel operations, that other countries with panache 
employ to support their fleet, without apology. And we go 
around wringing our hands, oh, my goodness, the subsidy was 
going to pay for this; oh, my God, we can't do this; we have to 
operate by Marquess of Queensberry rules in international 
maritime trade while the other countries are using black belt 
karate against us.
    Parenthetically, Mr. Taylor is a black belt Karate 
champion. So that is why we turn him loose.
    So look at the state of the American fleet. In 1948, at the 
end of the war, two years after the end of the war, we had 
5,500 U.S.-flag merchant vessels; 25 million dead weight tons 
of shipping. We were number one in the world. The fleets of 
Europe, Japan, Korea, all the rest, they had been bombed, 
torpedoed, sunk, exploded in the war. We were moving the world 
s goods.
    When I came to Congress, we had 800 ships in the American-
flag fleet. We were eighth. That was dead last. The Far East 
shipping company of the Russians had 2,500 vessels. They were 
number one, FESCO, Far East Shipping Company. The Polish and 
Baltic Atlantic fleet were number two.
    That has changed. Now, you have COSCO, which has nearly as 
much dead weight tonnage of shipping as the entire United 
States did in 1948. And they are the ones that are moving the 
Wal-Mart containers and the Target containers and Home Depot 
and all the rest. All are moving, that constant flow of goods. 
It was Maersk that launched the first 6,000-container vessel, 
and then the second, 6,600, the Regina Maersk and the Sally 
    And now you have the race for who can have more containers 
onboard a vessel. Maersk went to 10,000. COSCO went to 11,000. 
Maersk went to 13,000 and COSCO is catching up. And now you 
have a 16,000-container vessel, I think, Mr. Reinhart, in the 
works. And so the race is on and has been on for a long time.
    Who s being left behind in the race? U.S. shipyards, the 
U.S. merchant fleet, U.S. mariners. Those are good jobs. Those 
are good decent jobs that require a lot of skill. And we should 
not sit back, wring our hands, and say, oh, my goodness, we 
have to play by the international rules while operating 
subsidies, construction subsidies, restructuring aid, financing 
program, cargo preference requirements and so on are all being 
employed by the leading maritime nations of the world.
    They are not sitting back and taking second place. So we 
have got to move the ball ahead.
    Mr. Keefe, thank you for referencing my 2001 bill. I didn't 
think anybody remembered these things anymore, but you did, and 
you quoted exactly from my statement.
    But the second part of it, the first part was the tonnage 
tax. The second part is excluding up to $80,000 in income. I 
didn't pull that out of thin air. That was an Eisenhower 
Administration initiative as part of his initiative to generate 
more international trade for U.S. companies, to allow employees 
of International Business Machines and Control Data and other 
high-tech companies to locate overseas and be exempted from 
U.S. income tax if they stay for 18 months or longer, so that 
they would establish relationships with foreign companies and 
foreign governments and benefit U.S. trade.
    When you are on a ship, you are overseas. You are out of a 
U.S. port. You are out there for a very long period of time. We 
ought to have the same treatment for our merchant mariners, and 
we were very close to getting that done in the Tax Act of 2004. 
I will give credit to then-Chairman Bill Thomas, who saw the 
wisdom of this proposal, concurred with it, and was attempting 
to win support from the previous Administration and from the 
Senate. The only thing they could reach agreement on was the 
tonnage tax. So we ought to recapture that second piece and 
provide benefit for mariners. The harbor maintenance tax, it is 
double taxation. It hurts us on the Great Lakes in competition 
with Canadians. Canadian vessels are outside the harbor 
maintenance tax and so they are capturing a good deal of the 
cross-border trade. And we ought not to let that continue and I 
expect that when we get our water resources bill ready for 
Floor action, we will include the repeal or modification of the 
harbor maintenance tax.
    Now, Mr. Shapiro and Mr. Reinhart, you have referred to 
unfunded mandates, construction standards and a host of other 
things. We have had the Title XI Construction Loan Guarantee 
Program and the Operating Differential Subsidy Program, and 
they didn't work for one reason or another. We spent $10 
billion or $11 billion on those programs over a number of years 
and our fleet kept going down.
    There are obstacles, no question about it, but Mr. Keefe 
had some very thoughtful suggestions: approve applications 
subject to appropriations; an expedited review process for 
MARAD; the Capital Construction Fund to allow companies to 
accumulate their fund, but expand that fund to use some of it 
for maintenance and repair.
    We are doing that in the transit program now for smaller 
metropolitan areas. Those 250,000 or less population can use, 
the transit agencies, can use some of their capital account for 
operating and maintenance needs. If the principal applies 
there, we could apply it here to maritime as well.
    So I want Mr. Shapiro and Mr. Reinhart, and perhaps others 
who want to chime in on it, to give us your thoughts about how 
we can deal with these, in particular these construction loan 
guarantee and other aids to maritime.
    Mr. Shapiro. Mr. Oberstar, it would be my pleasure to 
address that.
    Firstly, I think we can all look back on the failure of the 
ODS system. The operating differential subsidy system was set 
up in a way that it didn't encourage the owner or operator at 
the time, and this program has been expired now for 15 year, 16 
years. It did not encourage the owner or operator to be 
efficient in its management of the vessel because the overtime 
cost above the foreign cost was paid for by the U.S. 
    That, in fact, was exactly what we addresed, and I was one 
of four industry people put on Secretary Pena s Working Group 
on Maritime Subsidy Reform that came up with the MSP program. 
We took a fixed amount, $2.9 million now, which we know doesn't 
give you parity with the foreigners, but it gave you a strong 
enough footing that with the carriage of cargo preference, you 
could bridge that difference. And that is what we have done.
    So I think the failure of the ODS system was corrected in 
the MSP system when it was put together, number one.
    With regard to shipyards, every one of us supports U.S. 
shipyards to the extent we can and we would like to have a 
vibrant shipbuilding industry in the United States. Our problem 
is that we are competing with foreign-built ships in the 
foreign commerce of the United States, not in the domestic 
commerce of the United States.
    So unless the government can provide a subsidy to the 
shipyard, which gives you a foreign capital cost equivalent, 
you can't compete. And I think that is precisely why the CDS 
program failed is that it was at 42 percent at the time; 42 
percent of the cost of the ship was paid to the shipyard.
    Today, it is 200 percent differential. So you would have to 
pay for a $50 million ship overseas, you would end up paying 
today $150 million for that same ship because of the subsidies 
that the foreign governments put in place to promote their own 
domestic shipyards.
    So all of us will support legislation that takes care of 
American shipyards. Unfortunately, it has to be the government 
that does it, not the shipping companies. The shipping 
companies can't sustain that kind of capital burden, the 
foreign trading shipping company.
    Mr. Oberstar. And I think the Chairman will understand in 
Baltimore, we had a vibrant shipbuilding industry and Mr. 
Cummings grew up in Baltimore. He knows the city. He knows its 
connection to the waterway, and you worked there. I didn't know 
    Mr. Shapiro. Mr. Oberstar, my wife is from Baltimore and I 
went to Sparrows Point Shipyard and Key Highway. When I first 
got into this business, all of the vessels of the company I 
started with were being repaired at Key Highway or built at 
Sparrows Point. So I am well aware of what has taken place 
    Mr. Oberstar. All right. Let s go.
    Mr. Reinhart?
    Mr. Reinhart. Thank you, Mr. Oberstar.
    Philip defined the ODS pretty well. We did not participate 
in ODS. We have been in the Maritime Security Program as 
    On the construction, the viability of the U.S. yards is a 
challenge just like the viability of the shipping yards in all 
of the developed nations. We would like to see it vibrant, but 
that would be more of a government responsibility.
    In international trade, the differential has grown so far 
that we brought in the ships from the international marketplace 
to trade internationally. Maersk is a domestic or documentation 
citizen company, so we do not participate in the coast-wide or 
the Jones Act trades, which is another strong area that 
supports our shipyards here in the United States.
    Mr. Oberstar. Any others have comments about how we can 
close this gap? If it is a 200 percent differential today, that 
is a stunning gap in competition. Well, they do pay their 
workers less. They have lower cost of materials, but all those 
are government-subsidized.
    I know how the Japanese do that. I know their tax 
structure. I know how the Bank of Japan intervenes in providing 
financing to shipbuilding, steel manufacturing to their high-
tech industry. They are unabashed about it. They don't 
apologize to anyone. They just go ahead and do it and then they 
take the markets away from us.
    Mr. Shapiro. And the Korean and Chinese yards are even more 
subsidized thank the Japanese yards.
    Mr. Oberstar. Sure.
    Mr. Shapiro. But they are subsidized by their governments.
    Mr. Oberstar. Mr. Keefe, do you have any further expansion 
on your well thought out observations?
    Mr. Keefe. Yes, sir. What I should have said to Ms. 
Richardson is that when you asked me about the different 
things, the enforcement of the cargo preference. I should have 
probably keyed on that. We have these laws set up. What we have 
to do is enforce what we have set up.
    I can go back 40 years ago, way before my time, the 
president of my union, his name was Jesse Calhoun, and he was 
at that point--do you remember him?
    Mr. Oberstar. I remember him well.
    Mr. Keefe. At that point in time, he was testifying about 
the U.S. merchant jobs going overseas to foreign flag, U.S. 
flag going foreign flag. And then in the labor movement, a lot 
of his counterparts, presidents in the labor movement, listened 
to him, but now 40 years later, most of those presidents, if 
they were still around, would realize what he was pointing out 
basically the warning signal that most of our jobs have gone 
overseas in all sectors of labor.
    So it is very, very difficult once you have lost that 
workforce, it is very difficult to bring it back. Through these 
programs, whether it be Maritime Security Program, Cargo 
Preference Program, any type of tax incentive-type program, 
that is what keeps us alive because otherwise we are going to 
die on the vine here.
    I am sitting up here with two other officer unions and one 
unlicensed union, and if you add the three of us together, just 
the officer unions here, I would be willing to bet that we are 
probably 15,000 strong today. That is our membership. But I 
think the unlicensed is probably three times that. But when we 
are looked at in a business world on cost, it is very, very 
difficult for U.S. labor to compete with foreign labor. And 
that is why we need these programs and that is why we need 
these incentives to keep going.
    Mr. Oberstar. Thank you.
    That really raises the last issue I want to explore, and 
that is ship registers. We have seen and we are witnessing now 
the danger of foreign ship registers. The spill in the Gulf, 
B.P. built or ordered built the drilling ship in South Korea, 
350 some million dollars. They registered it in the great 
maritime trading nation of the Republic of the Marshall 
Islands, which registered it in a ship register maintained by a 
foreign entity in Reston, Virginia.
    The oversight of the safety and maintenance of that vessel 
is done by the U.S. Coast Guard under international 
regulations, which are far less stringent than U.S. 
regulations. If that were a U.S. vessel, the Coast Guard would 
spend two to three weeks on an inspection, whereas it is only 
six to seven or eight hours because it is an international 
    So why would B.P., a foreign-flag operator, register a 
vessel in the Marshall Islands? Why would Transocean, a Swiss 
company which has the drilling operations onboard that vessel, 
why would they engage in operations in the exclusive economic 
zone of the United States as foreign operators? Because all of 
their costs are vastly less than if they were registered in the 
United States.
    So we reported a bill from this Committee. I hope we can 
bring it to the House Floor this week, I am expecting some go-
ahead sign from our House leadership, that will require those 
vessels and those drilling operations to be U.S. flag. And Mr. 
Taylor's amendment would require them to be U.S.-built, and Mr. 
Cummings flag requirement as well, the Chairman of this 
Subcommittee. We had whole bipartisan support for those 
provisions when we moved the bill in this Committee.
    And there are objections raised that, oh, you will be in 
violation of the World Trading Organization. Well, I said fine. 
So are all these other 25 companies. Let someone bring suit. By 
the 10 years it takes to prosecute a complaint in the WTO, we 
will have ships built. We will have them operating U.S. flag. 
We will be having U.S. seafarers on board those vessels. And 
the U.S. will benefit.
    That is our exclusive economic zone and we shouldn't have 
this slipshod operation. But I just want to point out that 
various countries now have established second registers, 
international registers. The Norwegians registered on their 
international ship register must fly the Norwegian flag; must 
employ Norwegian ship masters. They can employ mariners from 
other countries, but those mariners are subject to Norwegian 
law and collective bargaining agreements.
    Suppose we did the same thing for the United States? What 
would you shipowners think about that? And Mr. Keefe, what 
would you think about that?
    Mr. Keefe. I went overseas for an ITF meeting and I 
happened to be speaking with some of my counterparts from 
Brazil, Australia, what have you, and I happened to speak to 
some management people before I went over to Sweden. It was 
over in Stockholm. And at one point, we came this close of 
signing an agreement. It was over the Isle of Man. And thank 
God I didn't because when I walked into this meeting over in 
Stockholm, I started expressing that I was going to go ahead 
and sign a contract. And the Australian says with a very strong 
accent, he says: Have you ever heard of cabotage laws? I said 
yes I have. And he said: Well, we have them, too.
    And then he said, well, let me introduce you to the 
Brazilian man. So I go over and see the Brazilian 
representative. He says: Oh, you want to sign a contract with 
so and so? He says, well, you are going to join our union. And 
I am looking at him. Each country, that I am unaware, they have 
their own laws, whether it be cabotage; whether they have 
certain periods of you have to have all Brazilians, say, on a 
rig for 30 days, and then after that they extend it 15 or 14, 
    I don't know the particulars, but what I was educated going 
overseas is that most of these countries, even if I was to 
sign, say, a contract outside of the U.S. is that they have 
their own restrictions, if you will, whether it be union or 
what have you, organizations that keep you from going in there.
    Mr. Shapiro. Mr. Oberstar, with regard to open registries, 
I could tell you I would be opposed. This Country is in an 
economic recession. We are coming out of probably our most 
vulnerable point in the last 40 years, 50 years, maybe longer. 
We need jobs for Americans and we need jobs for people, and I 
don't think we ought to set standards to hire foreigners to 
fill those positions. We ought to train Americans to do them.
    Mr. Oberstar. Mr. Reinhart?
    Mr. Reinhart. A second registry would be a registry light. 
I think we have a good registry. We just have to enforce the 
U.S.-flag rules and encourage employment for the U.S. merchant 
marine. Other shipowners can put their flags under these other 
registries. I don't see a need for a second registry in the 
United States. We just have to strengthen the one we have.
    Mr. Oberstar. Strengthen the one we have. Good advice, good 
counsel, I am for it.
    And I thank my colleagues on the Committee for your 
forbearance. I know I went on, but I will just close by 
observing that when I had Committee selection, or when 
Committee selection came up in 1974, I of course first chose 
the Committee on Public Works, as it was called then. And then 
the Merchant Marine and Fisheries Committee, because my father 
had told me when I graduated from high school, he said I want 
you to advance your education. I want you to realize your 
dreams. Mine was to serve in the U.S. merchant fleet, but I 
couldn't. As the oldest of eight children, I had to go out and 
work and support the family.
    And when I called and told him that I had gotten on the 
Merchant Marine and Fisheries Committee in his honor, this 
tough underground iron ore miner of 40 years cried over the 
phone. I am still here pursuing that dream of his.
    Mr. Cummings. Mr. Chairman, thank you very, very much.
    Mr. LoBiondo, did you have anything else?
    Any other Members of the Committee?
    Ms. Richardson?
    Ms. Richardson. I just had a couple of questions I didn't 
get to ask to Mr. Johnsen and any of the other operators. The 
subsidy programs that came before the MSP program have been 
viewed to be too restrictive. For instance, operators were not 
able to deploy their ships quickly enough to take advantage of 
opportunities in different trades. They had to build their 
ships in a U.S. yard even though the U.S. construction subsidy 
often didn't cover the full cost differential of building the 
vessel in the U.S. shipyard compared to a foreign shipyard.
    Does the current subsidy program allow enough room for 
innovation? And does the current system allow you enough 
latitude to compete in the way that you would like?
    Mr. Johnsen. The current MSP program is a big improvement 
over the predecessor programs. It does allow flexibility, and I 
think Mr. Shapiro alluded to that earlier. That has been an 
important step.
    The next step is to make sure that it is properly funded. 
If we have the proper funding, we will compete internationally 
and we will innovate. We have a record of having done that in 
the past.
    Ms. Richardson. OK.
    And Mr. Shapiro and Mr. Reinhart, chapter 553 of Title 46, 
U.S. Code, contains our cargo preference laws which you guys 
have just been discussing in the last couple minutes. Section 
55-305 requires that ships that are foreign-built or rebuilt 
outside of the U.S. must be documented under the law for three 
    Given that all the vessels receiving the MSP program 
funding were built in foreign shipyards and that they carry 
some of the cargo preference, is it time to repeal that rule in 
your opinion?
    Mr. Shapiro. Not in my opinion. I think they are two 
separate trades. The MSP vessels which serve the military have 
access to carry preference cargoes, but there is a limitation 
on certain amounts of cargoes that they can carry. There is a 
bulk trading fleet which is under U.S. flag which was built 
under Section 615 of the Merchant Marine Act, which was an 
amendment to the 1936 Act, which permitted vessels built with 
national defense features and military approval to be built 
overseas and bought into the U.S. flag right away without 
waiting three years to re-flag.
    There is an excess tonnage today to carry food aid cargo. 
Most of us who have food aid business are sitting waiting for 
the government to ship some. We keep hearing it is coming, but 
it is certainly not coming the way it has been in other years.
    The MSP program has access to the program, but it is a 
limited access based on the commodity, the type of shipment 
that is being moved.
    Mr. Reinhart. If I may make one quick comment on your 
earlier question and then answer this. The flexibility under 
the current MSP program has worked quite well and the success 
is proven by satisfying the military s requirement. And that 
did include a lot of U.S.-flag operators that are documentation 
citizens, not Section 2. There have been a lot of requests 
today to strengthen the Section 2 requirements as we go 
forward. That would be a risk to the flexibility of that 
program. It has worked quite well with international operators.
    Secondly, on the three-year rule and cargo preference, if 
we are to expand the fleet and grow the business that comes 
under cargo preference, we may have to find some ways to work 
with the three-year rule that does not limit the protection in 
the marketplace so it stays stable. But if we are going to go 
from 94 ships to 150 ships because we are going to expand the 
programs, you are going to have find some legislative language 
that will bring those ships in without causing instability in 
the marketplace.
    Ms. Richardson. OK.
    And then my last question, I have one minute for my labor 
friends to the left of me. We had quite a lot of stimulus money 
that was provided, $787 billion to be exact. Were any of those 
funds being able to utilize for job training and to incentivize 
and help us in your arena in terms of the workers? Any of you 
can respond.
    Mr. Keefe. We haven't received any. I should take that 
back. I think we received a very, very, very small amount and 
it was down at our training school. We brought in a community 
college that received some of the stimulus to put a few 
students through our school down in Eastern Maryland, but we 
directly didn't receive anything.
    Mr. Doell. I believe with the officers unions, we didn't 
get any in AMO, but we train our own people. We have our own 
training program, as do the MEBA and the Masters, Mates and 
Pilots. So I think as far as the licensed unions are concerned, 
I would say no.
    Mr. Marcus. On behalf of MMP, I would agree with Mr. Keefe 
and Mr. Doell. Masters, Mates and Pilots has not received any, 
and to my knowledge the U.S.-flag merchant marine as a whole 
has not seen any of this funding in terms of building merchant 
marine programs, be it training or any other program.
    Mr. Turner. I concur with the Captain. SIU, nothing, and 
the industry as a whole, literally nothing.
    Ms. Richardson. OK.
    Thank you, gentlemen, for all your testimony.
    Mr. Cummings. I want to thank all of you for your 
participation. It has been extremely helpful.
    This hearing is now at an end. Thank you.
    [Whereupon, at 12:20 p.m., the Subcommittee was adjourned.]