[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]





                               BEFORE THE

                            SUBCOMMITTEE ON

                                 OF THE

                              COMMITTEE ON
                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                           SEPTEMBER 10, 2014


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             Committee on Transportation and Infrastructure

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                  BILL SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska                    NICK J. RAHALL, II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         ELEANOR HOLMES NORTON, District of 
JOHN J. DUNCAN, Jr., Tennessee,          Columbia
  Vice Chair                         JERROLD NADLER, New York
JOHN L. MICA, Florida                CORRINE BROWN, Florida
GARY G. MILLER, California           ELIJAH E. CUMMINGS, Maryland
SAM GRAVES, Missouri                 RICK LARSEN, Washington
CANDICE S. MILLER, Michigan          TIMOTHY H. BISHOP, New York
DUNCAN HUNTER, California            MICHAEL H. MICHAUD, Maine
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
BLAKE FARENTHOLD, Texas              TIMOTHY J. WALZ, Minnesota
LARRY BUCSHON, Indiana               STEVE COHEN, Tennessee
BOB GIBBS, Ohio                      ALBIO SIRES, New Jersey
PATRICK MEEHAN, Pennsylvania         DONNA F. EDWARDS, Maryland
RICHARD L. HANNA, New York           JOHN GARAMENDI, California
DANIEL WEBSTER, Florida              ANDRE CARSON, Indiana
STEVE SOUTHERLAND, II, Florida       JANICE HAHN, California
JEFF DENHAM, California              RICHARD M. NOLAN, Minnesota
REID J. RIBBLE, Wisconsin            ANN KIRKPATRICK, Arizona
THOMAS MASSIE, Kentucky              DINA TITUS, Nevada
STEVE DAINES, Montana                SEAN PATRICK MALONEY, New York
TOM RICE, South Carolina             ELIZABETH H. ESTY, Connecticut
MARKWAYNE MULLIN, Oklahoma           LOIS FRANKEL, Florida
ROGER WILLIAMS, Texas                CHERI BUSTOS, Illinois
MARK MEADOWS, North Carolina
SCOTT PERRY, Pennsylvania
MARK SANFORD, South Carolina
                                ------                                7

        Subcommittee on Coast Guard and Maritime Transportation

                  DUNCAN HUNTER, California, Chairman
DON YOUNG, Alaska                    JOHN GARAMENDI, California
HOWARD COBLE, North Carolina         ELIJAH E. CUMMINGS, Maryland
FRANK A. LoBIONDO, New Jersey        RICK LARSEN, Washington
PATRICK MEEHAN, Pennsylvania         TIMOTHY H. BISHOP, New York
  Vice Chair                         CORRINE BROWN, Florida
TOM RICE, South Carolina             JANICE HAHN, California
MARK SANFORD, South Carolina         NICK J. RAHALL, II, West Virginia
DAVID W. JOLLY, Florida                (Ex Officio)
BILL SHUSTER, Pennsylvania (Ex 


Summary of Subject Matter........................................    iv


Mark Tabbutt, chairman, Saltchuk Resources, on behalf of the 
  American Maritime Partnership..................................     3
Niels M. Johnsen, chairman, Central Gulf Lines, Inc. and Waterman 
  Steamship Corporation, on behalf of USA Maritime...............     3
Don Marcus, president, International Organization of Masters, 
  Mates and Pilots, on behalf of American Maritime Officers, 
  Marine Engineers' Beneficial Association, Marine Firemen's 
  Union, Sailors' Union of the Pacific, and Seafarers 
  International Union............................................     3
Matthew Paxton, president, Shipbuilders Council of America.......     3

                              BY WITNESSES

Mark Tabbutt:

    Prepared statement...........................................    25
    Answers to questions for the record issued by Hon. John 
      Garamendi, a Representative in Congress from the State of 
      California.................................................    34
Niels M. Johnsen:

    Prepared statement...........................................    37
    Answers to questions for the record issued by Hon. John 
      Garamendi, a Representative in Congress from the State of 
      California.................................................    46
Don Marcus:

    Prepared statement...........................................    50
    Answers to questions for the record issued by Hon. John 
      Garamendi, a Representative in Congress from the State of 
      California.................................................    63
Matthew Paxton:

    Prepared statement...........................................    67

                       SUBMISSIONS FOR THE RECORD

Hon. John Garamendi, a Representative in Congress from the State 
  of California, submission of the following articles and 
  supplemental material:

    ``China Pushes to Build Its Own Ships to Deliver Gas,'' 
      Reuters, August 5, 2014....................................    72
    Moyoun Jin, ``South Korea to Support Shipbuilding Industry,'' 
      IHS Maritime 360, August 18, 2014..........................    74
    ``GAIL to Buy One-Third of LNG Ships From Indian 
      Shipbuilders,'' The Economic Times, July 30, 2014..........    75
    ``The Global LNG Fleet Needs to Grow by 225 Vessels by the 
      End of 2020. How are Foreign Governments Supporting Their 
      Shipbuilding Industries?" Memo from staff of Hon. John 
      Garamendi..................................................    77
    MarEx ``China to Modernize Shipping Industry,'' Reuters, 
      September 3, 2014..........................................    78
    ``China Publishes First `White List' of 51 Shipyards,'' 
      Reuters, September 4, 2014.................................    79
    Questions for the record for Matthew Paxton, president, 
      Shipbuilders Council of America............................    80



                     WEDNESDAY, SEPTEMBER 10, 2014

                  House of Representatives,
          Subcommittee on Coast Guard and Maritime 
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:40 a.m., in 
Room 2167, Rayburn House Office Building, Hon. Duncan Hunter 
(Chairman of the subcommittee) presiding.
    Mr. Hunter. The subcommittee will come to order.
    Good morning. The subcommittee is meeting today to review 
issues impacting the U.S. merchant marine, the important role 
it plays in our economy and national security and ways we can 
work together to strengthen and expand the merchant marine.
    The U.S. maritime industry currently employs more than 
260,000 Americans, providing nearly $29 billion in annual 
wages. There are more than 40,000 commercial vessels currently 
flying the American flag.
    The vast majority of these vessels are engaged in domestic 
commerce, moving over 100 million passengers and $400 billion 
worth of goods between ports in the U.S. on an annual basis. 
Each year the U.S. maritime industry accounts for over $100 
billion in economic output.
    Beyond the important contributions to our economy, a 
healthy merchant marine is vital to our national security. 
Throughout our history, our Nation has relied on U.S.-flag 
commercial vessels crewed by American merchant mariners to 
carry troops, weapons, and supplies to the battlefield.
    During Operations Enduring Freedom and Iraqi Freedom, U.S.-
flag commercial vessels transported 63 percent of all military 
cargoes moved to Afghanistan and Iraq. Unfortunately, over the 
last 35 years, the number of U.S.-flag vessels sailing in the 
international trade has dropped from 850 to less than 90. Less 
than 2 percent of the world's tonnage now moves on U.S.-flag 
    In the same period, we have lost over 300 shipyards and 
thousands of jobs for American mariners. For the sake of our 
national and economic security, we need to reverse this trend. 
We cannot rely on foreign vessels and crews to provide for our 
national security.
    It is critical that we maintain a robust fleet of U.S.-flag 
vessels to carry critical supplies to the battlefield, a large 
cadre of skilled American mariners to man those vessels, and a 
strong shipyard industrial base to ensure we have the 
capability to build and replenish our naval forces in time of 
    I know the new Maritime Administrator is hard at work on a 
national maritime strategy that will hopefully include 
recommendations to strengthen the merchant marine. As soon as 
the strategy is complete, I look forward to calling him before 
the subcommittee to present it.
    In the meantime, representatives of maritime industry and 
labor have been working on a similar proposal at the request of 
Ranking Member Garamendi and myself. I look forward to hearing 
about the proposal today as well as other recommendations our 
witnesses may have.
    If we want to grow our economy and remain a world power 
capable of defending ourselves and our allies, we must work 
together to strengthen our merchant marine.
    I thank the witnesses for appearing today and look forward 
to working with them. I thank the witnesses--I already put 
    And, with that, I yield to Ranking Member Garamendi.
    Mr. Garamendi. Chairman Hunter, thank you.
    I am downright excited about this hearing. I am excited 
about the potential that we have to really strengthen our 
maritime industry and to build the American economy and provide 
a significant number of jobs.
    The status of the U.S. merchant marine could not be a 
better topic for us to take up in the waning days in the 113th 
Congress. We have got a stretch run. Maybe we can get something 
done in the last couple of months of this session.
    Our merchant marine has been a fundamental element of our 
national defense and a key industry in our national economy 
since the founding of this Republic more than 230 years ago.
    Unfortunately, recent history over the past five decades 
has not been very kind to our maritime industry. For example, 
the number of vessels serving the U.S. international trade has 
shrunk from 850 in the mid-1980s to roughly 90 vessels in 2014.
    Since 1983, the United States has lost approximately 300 
shipyards and only 10 shipyards are capable now of building 
large naval vessels and oceangoing commercial ships. Such 
losses are very disturbing.
    Nevertheless, despite the setbacks of the recent past and 
the ongoing challenges, a strong maritime foundation endures, 
especially in coastwide trade that has remained protected under 
the Jones Act.
    I am convinced now more than ever that, with purposeful 
cooperation and action, our merchant marine can again flourish 
and resume its standing as a vital contributor to our national 
defense and economic might.
    Progress has been made. We have successfully fought off 
ill-advised waivers of the Jones Act. We have rallied and 
beaten back some of the worst proposals to rewrite our cargo 
preference laws.
    We have also succeeded in reauthorizing and fully funding 
the Maritime Security Program to ensure that the Pentagon 
retains the sealift capability it needs to move our military 
quickly, efficiently, and securely.
    But just as sure, real challenges remain. We need to 
recapitalize our Ready Reserve Fleet, to modernize our sealift 
vessels, and provide new job opportunities for our shipyards.
    We need to better utilize existing financial assistance 
programs, such as Title XI of the Maritime Loan Guarantee 
Program, to again demonstrate that the Federal Government is a 
willing partner in the maritime industry.
    We should note that our competitors around the world are 
more than willing and, in fact, are doing significant support 
to their--for their maritime industry.
    And perhaps most important, we must take advantage of the 
recent emergence of a U.S. LNG export trade to ensure that the 
export of this strategic national resource does not more than 
merely increase the profits of the energy exporters, but also 
directly benefits our merchant marine and the expansion of our 
domestic shipbuilding industry.
    To that end, in this hearing, I want to hear the views of 
our witnesses on this emerging LNG trade and, also, seek their 
comments on legislation recently introduced by Chairman Hunter 
and myself, H.R. 5270, the Growing American Shipping Act, or 
GAS Act. I like that.
    Thank you very much.
    Mr. Hunter. I thank the ranking member.
    The witnesses today are Mr. Mark Tabbutt, chairman of 
Saltchuk Resources, on behalf of the American Maritime 
Partnership; Mr. Niels Johnsen, chairman of Central Gulf Lines, 
on behalf of USA Maritime; Captain Don Marcus, president of the 
International Organization of Masters, Mates and Pilots, on 
behalf of maritime labor organizations; and Mr. Matthew Paxton, 
president of the Shipbuilders Council of America.


    Mr. Hunter. Mr. Tabbutt, you are recognized for your 
    Mr. Tabbutt. Good morning, Chairman Hunter, Ranking Member 
Garamendi, and members of this subcommittee.
    My name is Mark Tabbutt, and I am here today on behalf of 
the American Maritime Partnership. We represent all segments of 
our industry--shipping companies, ship construction and repair 
yards--and our industry's skilled workforce.
    I am also the chairman of the board of Saltchuk, which is a 
family of transportation companies. We employ 7,500 people and 
have operations in the United States, stretching from the U.S. 
Virgin Islands to Barrow, Alaska.
    In our domestic shipping operations, we currently carry 
one-third of all general cargo that moves to Alaska and about 
30 percent of all general cargo carried to Puerto Rico.
    In Hawaii, we provide a lifeline to the islands by 
transporting significant amounts of general cargo, moving on 
the water between the islands. We are a privately owned second-
generation family business.
    My testimony today comes on behalf of the American domestic 
maritime industry. That is the shipping industry that operates 
exclusively between points within the United States. Of the 
total U.S.-flag fleet, the overwhelming majority operates 
within the Jones Act, the business of transporting cargo by 
water from one U.S. port to another.
    I want to thank this subcommittee for its consistent 
support of the Jones Act. Certainty in Government policy is the 
principle and critical ingredient in the success of the 
domestic maritime industry. Without it, the investment picture 
and growth profile I am about to describe could not take place.
    I also want to thank you, Chairman Hunter and 
Representative Garamendi, for your leadership, exploring ways 
to expand the U.S. fleet in all trades.
    I am happy to report that this industry is experiencing an 
extraordinary renaissance. Our industry is investing billions 
to construct new state-of-the-art vessels in shipyards across 
the land and serving our customers with modern fuel and cost-
efficient vessels.
    The largest sector of our domestic marine transportation 
industry supports our energy infrastructure with the movement 
of crude, refined petroleum products and chemicals. This sector 
has seen dramatic growth as a result of the shale oil 
    But the growth is not limited to the energy sector. Our 
company and others like us are building large modern container 
ships to serve the noncontiguous areas of the United States. I 
have provided much more detail about these ships in my written 
    We are seeing growth in the offshore supply business as the 
Gulf of Mexico oil industry rebounds. The inland trades remain 
strong. We have inland shipyards that are building and 
launching an average of one new barge every single day of the 
    My written testimony includes a long list of large vessels 
under construction and under contract to be built in the 
future. I would add that these vessels feature cutting-edge 
technologies, like engines that will burn natural gas as a 
fuel, breaking new ground not only in the United States, but, 
also, as the first of their kind in the world. This is American 
ingenuity at its best.
    In fact, while we have the best trained maritime workforce 
in the world, our industry is growing so fast that, at times, 
it has been difficult to hire all the skilled personnel that we 
need. To help address that situation, our industry recently 
launched a major initiative to hire veterans for jobs in the 
domestic maritime industry.
    We had 400 veterans at our Military2Maritime job fair last 
week in Houston, and a similar number attended earlier this 
year at an event in Jacksonville. Our industry has always hired 
veterans, especially from the sea services, but we are ramping 
up that effort today. We love hiring veterans.
    This spike in commercial vessel construction is coming at a 
time when military ship construction in the United States is 
sharply declining due to deep Federal budget cuts. As such, the 
expansion in commercial work helps keep shipping--shipyards 
operating and the technical expertise fully subscribed. 
Shipbuilding is critical to our Nation's defense industrial 
base, and commercial vessel construction has helped fill the 
gaps caused by the cutbacks in military ship construction.
    It is a very good time to be a part of our industry. Our 
industry's contributions to American's economic, national, and 
homeland security have never been greater. We deeply appreciate 
this subcommittee's support for the Jones Act, and we thank you 
for understanding the need for certainty in legal and 
regulatory framework that is the foundation of our industry.
    Thank you.
    Mr. Hunter. Thank you.
    Mr. Johnsen.
    Mr. Johnsen. Thank you, Mr. Chairman.
    I am Niels M. Johnsen, chairman of Central Gulf Lines and 
Waterman Steamship Corporation, U.S.-owned section 2 citizen 
companies that, together with their affiliates, operate 16 U.S. 
commercial vessels.
    I am testifying on behalf----
    Mr. Hunter. Would you mind pulling--would you mind pulling 
the mic a little bit closer? You can move the whole thing over. 
Thank you.
    Mr. Johnsen. I am testifying today on behalf of USA 
Maritime and its member companies, a coalition representing all 
the privately owned U.S.-flag oceangoing vessels operating in 
foreign trade.
    I will highlight the present challenges confronting the 
merchant marine and suggest ways in which Congress and the 
administration can provide much needed support to our industry.
    Mr. Chairman, the Congress and the administration have to 
answer a simple question: Do we want a robust U.S.-flag 
merchant marine to support our national and economic security 
for the rest of this century and beyond? The simple answer is 
yes. The maritime industry strongly believes that the only 
answer to this question is yes.
    To achieve this objective, the Federal Government must act 
quickly to develop a comprehensive national maritime strategy, 
absent which, we fear, the decline of our industry will only 
    In July, the Maritime Administration advised Congress that 
the number of U.S.-flag vessels in international trade had 
decreased by 18 percent between 2008 and 2013, from 101 vessels 
to 84 vessels, and that a further decline is anticipated. This 
has been caused by a sharp decline in military cargo, food aid, 
and other Government cargoes moving on U.S.-flag vessels.
    History has proven that the United States depends heavily 
upon the U.S.-flag merchant marine to support our Nation's 
military and economic security. U.S.-flag vessels provided 
direct support to DOD during World War II, the Korean war, the 
Vietnam war, Operation Desert Shield Storm, Operation Enduring 
Freedom in Afghanistan, and Operation Iraqi Freedom.
    U.S.-flag vessels carried more than 90 percent of the war 
materiel to forward-operating bases during the Afghanistan and 
Iraqi conflicts.
    While the U.S.-flag fleet is in decline, challenges on the 
world stage multiply rapidly. In the past few months, we have 
witnessed the emergence of the Islamic State of Iraq and Syria, 
significant turmoil in Libya, Israel and the Ukraine, and 
several provocative actions by China.
    We cannot predict when the American military will be called 
upon to respond to these or other conflicts, but our military 
must be ready to answer the call when it inevitably comes, 
including the strategic sealift support provided to DOD by 
U.S.-flag merchant marine.
    We are pleased to recommend several specific initiatives 
that can lay the foundation for a new maritime strategy. First, 
a strong, fully funded Maritime Security Program must be a key 
component of any future maritime policy.
    MSP provides a privately owned U.S.-flag fleet of 60 
militarily useful commercial vessels to support the sustainment 
of U.S. forces throughout the world. Under this program, U.S. 
carriers commit their vessels and their global logistics 
network of ports, rail, trucking, and infrastructure to support 
American troops and to maintain America's readiness.
    The capital cost to DOD to replicate this fleet would be 
$13 billion, and it would cost another $52 billion to replicate 
the worldwide intermodal system that has been developed by the 
MSP participants.
    In 2012, the Congress reaffirmed its support for the MSP by 
reauthorizing this program through 2025. In his fiscal year 
2015 budget, the President requested a fully authorized annual 
amount of $186 million for MSP.
    While the Senate recommended funding at this level, the 
House bill, unfortunately, recommended only $166 million, a $20 
million cut that, if enacted, would undoubtedly result in a 
reduction of the MSP fleet and a further decline in the U.S. 
merchant marine.
    So our most immediate request is for Congress--and we know 
this is in process--to fully fund the MSP in fiscal year 2015 
at the authorized level of $186 million.
    Once that is accomplished, we need to address the 
appropriate level of funding required to sustain the MSP fleet 
in future years. It is critically important that the level of 
support for MSP vessels be adjusted to achieve commercial 
viability and a more level playing field for MSP vessels.
    When the MSP was created, Congress sought to incentivize 
shipowners to document modern vessels under the U.S. flag and 
enroll those vessels in the MSP with the full cooperation of 
the Coast Guard.
    For 15 years, the Coast Guard adhered to the original 
intent of Congress by working closely with MSP carriers to 
expedite the documentation of dozens of modern vessels.
    Unfortunately, the Coast Guard recently issued guidance 
that alters this longstanding cooperative approach. NVIC 01-13 
requires vessels entering the MSP to comply with more costly 
standards that exceed international standards routinely 
accepted by the Coast Guard.
    USA Maritime urges this subcommittee to request the Coast 
Guard to revoke this NVIC and return to the prior practice that 
has worked so effectively since the inception of the MSP.
    In addition to MSP, it is critically important for U.S.-
flag vessels to have access to a broad array of Government 
cargo. We strongly support cargo preference requirements for 
the transportation of Government-impelled cargo.
    The three most important cargo preference statutes are the 
Cargo Preference Act of 1904, Public Resolution 17, and the 
Cargo Preference Act of 1954, requiring that at least 50 
percent of all Government cargoes and 75 percent of all food 
aid cargoes be transported on U.S.-flag vessels.
    Unfortunately, the food aid percentage was reduced in 2012 
from 75 percent to 50 percent, which very negatively impacts 
the U.S.-flag fleet. We strongly support the provision that you 
and Congressman Garamendi included in the Coast Guard bill to 
restore the U.S.-flag share of food aid cargoes to the 75-
percent level.
    Unfortunately, the volume of military and food aid cargoes 
has declined precipitously in recent years. This dwindling 
cargo base has put pressure on MSP carriers and will lead to 
additional shrinkage of the U.S.-flag fleet unless action is 
taken by Congress to address insufficient MSP funding levels 
and otherwise assist in increasing the available pool of 
Government cargoes for U.S.-flag vessels. We urge MarAd to 
redouble its efforts to enforce the cargo preference laws and 
ensure that all Federal agencies comply with all such 
    Mr. Chairman, we support the additional cargo preference 
enforcement language that your subcommittee has included in the 
Coast Guard bill that, again, clarifies that MarAd has the 
responsibility to determine if a Federal program is subject to 
cargo preference.
    Another challenge for U.S.-flag carriers is that numerous 
countries continue to erect barriers that exclude or limit the 
ability of U.S.-flag vessels to access those markets. A new 
maritime strategy should include provisions designed to 
eliminate unfair anticompetitive practices of our trading 
    We are ready to work with all facets of the Federal 
Government, particularly the trade representative, in a 
sustained effort to eliminate those barriers wherever they 
    In conclusion, Mr. Chairman, the state of the U.S. merchant 
marine is precarious. Our industry is in the midst of a perfect 
storm: dwindling U.S. military cargoes, a precipitous drop in 
food aid cargoes, escalating costs and regulations from the 
Coast Guard and other agencies, and intense low-cost foreign 
    A national maritime strategy that addresses these issues in 
a comprehensive way must be developed immediately. It must 
preserve an enhanced Maritime Security Program, reinforce and 
expand existing U.S.-flag cargo preference requirements, and 
strengthen commercial opportunities for U.S.-flag vessels with 
our trading partners.
    Thank you, Mr. Chairman.
    Mr. Hunter. Thank you.
    Mr.--Captain Marcus.
    Captain Marcus. Thank you, Chairman Hunter, Ranking Member 
Garamendi, and members of the subcommittee.
    I am Don Marcus, president of the International 
Organization of Masters, Mates and Pilots and a professional 
mariner, having been employed as third mate through master 
aboard U.S.-flag commercial vessels engaged in foreign trade.
    I am speaking on behalf of Masters, Mates and Pilots, the 
American Maritime Officers, the Marine Engineers' Beneficial 
Association, the Marine Firemen's Union, the Sailors' Union of 
the Pacific, and Seafarers International Union.
    Our organizations represent the men and women who supply 
our military overseas. We also ensure that the seaborne trade 
that our economy depends upon is not carried exclusively in the 
hands of foreign vessels with foreign crews. ``In peace and 
war'' is the motto of the U.S. merchant marine.
    The critical need for our industry has been recognized in 
every conflict during our Nation's history. I am proud to say, 
as was pointed out earlier, that 90 percent of the military 
supplies carried to our troops in Afghanistan and Iraq were 
carried by American labor. Despite the indisputable need for a 
strong American maritime industry, the U.S. merchant marine is 
in jeopardy.
    The declaration of policy of the Merchant Marine Act of 
1936 states, ``It is necessary for the defense and the 
development of its foreign and domestic commerce that the 
United States shall have a merchant marine sufficient to carry 
a substantial portion of its waterborne export and import 
foreign commerce of the United States.'' This policy objective 
is not being met.
    U.S.-flag commercial vessels and their American citizen 
crews are subject to a variety of Federal rules, regulations, 
and tax obligations that are not applicable to our foreign-flag 
    As a result, there has been a disastrous decline in the 
share of U.S. foreign trade carried by U.S.-flag commercial 
vessels, the number of U.S. vessels engaged in foreign trade 
has declined, and there has been a loss an of jobs and 
employment security for American mariners.
    It must be emphasized that it takes many years for an 
individual to gain the experience and sea time necessary to 
obtain U.S. Coast Guard-issued licenses and credentials. Our 
young people will not be encouraged to enter an industry that 
has been abandoned by our policymakers and that promises no 
    Our Government, U.S.-flag shipping companies, and America's 
maritime labor organizations must work together to modify 
existing programs and create new programs and opportunities 
that will increase the amount of cargo, the number of vessels, 
and the employment opportunities in the American merchant 
    For example, as stated earlier today, the Maritime Security 
Program is a key component of our military security. It is 
critical that Congress appropriate the full $186 million that 
has been authorized.
    The current $20 million funding shortfall may cost as many 
as seven ships in the U.S. 60-ship fleet if not rectified. 
Considering the cost of replacement of this program, it makes 
no sense to begin the process of gutting our sealift 
    Another key component of maritime strategy is the cargo 
preference statutes. These provide U.S. cargo baselines and a 
number of advantages and protection for our U.S.-flag foreign 
    Congress must direct that Maritime Administration enforce 
the U.S.-flag shipping requirements and report on MarAd's 
enforcement activities. Congress must restore the U.S. flag of 
P.L. 480 Food for Peace cargoes to the 75-percent level.
    It would be far better to streamline the P.L. 480 program 
rather than replace it with a cash handout program that gives 
cash to third parties. Cash handouts do not guarantee that the 
needy of the world will receive more food. The generosity of 
American taxpayers should be tangible and transparent if the 
U.S. constituency that supports foreign aid is to be sustained.
    On another matter pertaining to the competitiveness of the 
U.S. maritime industry, the Merchant Marine Act of 1920 sets 
out the legal remedy available in the event a seaman is killed 
or injured aboard ship. Congress should work with maritime 
labor and management to determine whether an alternative remedy 
should be available.
    Our maritime union strongly supports H.R. 5270, the Growing 
American Shipping Act, which encourages the use of LNG U.S.-
flag vessels. We urge Congress to allow foreign-built LNG 
vessels to be documented under the U.S. flag in order to engage 
in our international export trade, provided that they meet 
standards for vessels--international standards for vessels 
entering U.S. waters.
    Also, extending the provisions of the Internal Revenue 
Code's foreign-source income exclusion to American mariners 
working aboard LNG export vessels would also be a means of 
reducing the competitive advantage of foreign-flag LNG 
    American labor salutes you all. We thank you for your 
legislative support and your commitment to the U.S. merchant 
marine. A healthy U.S. merchant marine will safeguard our 
country's military economic and homeland security. American 
labor stands ready to work with you to achieve these 
    Thank you.
    Mr. Hunter. Thanks, Captain.
    Mr. Paxton.
    Mr. Paxton. Thank you. And good morning.
    On behalf of the Shipbuilders Council of America, I would 
like to thank Chairman Hunter, Ranking Member Garamendi, and 
members of the subcommittee for the opportunity to provide a 
brief overview of the domestic commercial shipbuilding 
industry, some recent market trends, and issues facing the 
    The shipyard industry is a vital component of any robust 
merchant marine. And today I am pleased to inform the committee 
that the state of America's commercial shipyard industry is the 
strongest it has been in decades.
    Today the American shipyard industry represents a strong 
manufacturing sector contributing hundreds of thousands of jobs 
and billions of dollars to the economy. According to a recent 
report by the U.S. Maritime Administration, the shipyard 
industry supports over 400,000 jobs in all 50 States, 
representing nearly $24 billion in labor income and contributes 
over $36 billion to the GDP.
    In fact, when explaining the economic impact of our 
industry, it is important to point out that, on average, over 
the past 4 years, American shipyards have delivered 
approximately 1,300 ships per year.
    Moreover, shipyards have a big impact on the local 
communities and the country at large. With over 300 facilities 
located in 27 States and a supplier base that provides economic 
impacts in all 435 congressional districts, each direct job 
leads to another 2.7 jobs nationally. The men and women who are 
employed by the shipyard industry are highly skilled. And, in 
2011, the average labor income per job was approximately 
$73,000 a year. The salary is 45 percent higher than the 
national average for the private-sector economy.
    Much of the growth of the commercial shipyard sectors has 
been in response to the country's oil and natural gas 
revolution. The result has been a boom for shipyards who are 
currently building out 19--that is options included--large 
crude and petroleum product carriers, representing millions of 
barrels of new capacity for coastwise transportation.
    At the same time, U.S. shipyards currently have seven--
including options--large container ships on order to serve the 
noncontiguous trades. All of these vessels and several of the 
petroleum product carriers will be powered by liquefied natural 
gas or will be LNG-conversion-ready.
    In fact, the world's first LNG-powered container ships are 
going to be built out in San Diego at General Dynamics NASSCO, 
which is a huge feather in the cap of the shipyard industry.
    Shipbuilding and ship repair associated with the offshore 
oil and gas sector in the Gulf of Mexico is equally important. 
With roughly 4,000 offshore oil and gas platforms in the Gulf 
of Mexico, there has been steady shipbuilding and repair 
contracts for this sector for many years now.
    In 2013, shipyards entered into 111 contracts for offshore 
oil and gas support vessels. As a result of this strong order 
book, the U.S. is now a leader in offshore workboat 
shipbuilding, so much so, we now build for international 
markets exporting these vessels to work worldwide.
    Finally, the industry continues a steady stream of building 
tugboats, ferries, inland barges, patrol and fireboats, as well 
as other craft. All of these vessels provide important merchant 
mariner jobs, which contribute the eyes and ears of the 
waterfront and waterways, a true national security success 
    Commercial vessel construction represents billions of 
dollars in investments each year, underscoring the importance 
of maintaining the Jones Act. Each dollar invested in new 
commercial vessel construction is done so with the 
understanding that the Jones Act is the law of the land. So it 
is absolutely critical that any attempts to undermine the law 
are not entertained, which includes unnecessary waivers.
    Before closing, I do want to mention another challenge. The 
shipbuilding industry, like so many other manufacturing 
sectors, faces an aging workforce. Attracting a younger 
generation towards a career path inside the shipyard industry 
must begin in our high schools, trade schools, and community 
colleges. SCA has recently set up a workforce development 
committee to begin to address this issue. We look forward to 
discussing the workforce development in any future national 
maritime strategy.
    Today the state of commercial shipbuilding is strong 
relative to past decades. However, SCA is looking ahead for new 
market opportunities, those opportunities such as the ones I 
know you guys are working on in H.R. 5270.
    SCA sincerely appreciates this committee's support of the 
Jones Act and efforts to grow the industry. SCA also 
appreciates this committee's efforts to raise the visibility of 
the domestic maritime industry as a whole by advancing the 
conversation for a national maritime policy. We look forward to 
continuing to work with you in these discussions.
    Thank you very much. And I look forward to any questions 
you might have.
    Mr. Hunter. OK. Thank you.
    Thank you all again for being here.
    I guess the first thing I would say is you can look around 
you, at least on the Republican side, and you can see the 
impact that this subcommittee--or that these issues have in 
    If you go to a Subcommittee on Aviation hearing, a 
Subcommittee on Highways and Transit hearing, or a Subcommittee 
on Railroads, Pipelines, and Hazardous Materials hearing, you 
have a lot more people there. You have a lot more Members up 
here listening. I would say, number one, that is on the ranking 
member and I, but it is also on you. And I think this is a 
great starting point for that.
    I would ask, too, that--after this, that the type of 
coalition that you have--that you are right now in the position 
paper that you come up with, that it doesn't kind of disband 
and go off with the wind. I think you need to stay more engaged 
and get more engaged so that you have Members sitting up here 
listening and caring about what your issues are.
    Because right now those other three subcommittees that I 
mentioned, they just dwarf you. Even though, in terms of 
economic output and in terms of districts that you touch and 
people that you employ and the actual industrial strength that 
you guys bring, it is not reflected, I don't think, by Members 
showing up here and listening to what you have to say.
    So I would encourage more of this. And we will work 
together, John and I will, with you to make sure that, when you 
come up here in 6 months, you have some more interested Members 
of Congress listening and learning. Because right now that is 
just not reflected.
    Number one, I guess the first question, Mr. Tabbutt--in 
fact, I will ask all of you.
    My first question is: Can you talk about the Ex-Im Bank, 
the Export-Import Bank, and what it does for you, if anything. 
I am just curious. That is to anybody that wants to answer 
    Mr. Johnsen. The Export-Import Bank is very important to 
international trading, U.S.-flag vessels, because it provides 
the cargo base that is required by Ex-Im Bank regulation.
    So if the Ex-Im Bank goes away, that will be a further 
degradation of the cargo base that I referred to in my remarks 
that is so critical and you will see--unfortunately, you will 
see vessels moving out of U.S. flag if that happens.
    I can't tell you how many it would be at this point because 
it depends on the cargo base, ultimately, but it is an 
extremely critical issue to the U.S.-flag merchant marine.
    Captain Marcus. Yes, Mr. Chairman. I would just like to 
follow up on Mr. Johnsen and reiterate that the Ex-Im Bank is 
important. Some 50 percent of the Ex-Im Bank exports go aboard 
U.S.-flag vessels, project cargo being a big component of that.
    Our particular organization, Masters, Mates and Pilots, has 
at least two ships running right now that are dependent on 
project cargo, one of which is with Waterman/Central Gulf.
    So we feel very strongly that destruction of this program 
as far as U.S. shipping would be negative and, of course, it 
would be a negative for the U.S. economy and jobs, generally. 
Jobs are the concern of labor, and these are an important 
source of jobs for us.
    Thank you.
    Mr. Hunter. Thank you.
    Next question. I am just watching Congressman Ed Royce, who 
is chairman of the Foreign Affairs Committee. He has got his 
eye out on cargo preference. I think it was his--he had a bill 
on the floor that tried to cut cargo preference even more.
    And last year--I think it was the Under Secretary of 
Defense, Frank Kendall, wrote a letter in response to 
Congressman Royce's question about cargo preference, and 
Kendall's response, the U.S. Department of Defense's response, 
was, ``You can lower cargo preference and it will not have an 
impact in any way on the military's capability to move goods 
and services.''
    Have you seen that--the response?
    Captain Marcus. Yes, sir. I remember reading that with 
dismay, quite frankly. Because if you take away cargo, people 
don't operate ships. And this is an important stream of cargo, 
and to say that this is not an important source of cargo is 
    Plus, the ships need to run to keep men and women employed 
in the industry. If you start reducing cargo, you could, of 
course, put ships in reserve status. You could have a bunch of 
gray hulls sitting around, but you won't have the manpower to 
operate the ships.
    So to say that this would not affect or impact the 
Department of Defense, I have to disagree heartily. Manpower is 
critical and, if you don't have trained crew, you won't have 
ships operating under U.S. flag when you need them.
    Thank you.
    Mr. Hunter. Captain, let me ask you one more question, 
    Have you and the Department of Defense come together on a 
number of merchant mariners that are in the pool--in the work 
pool, basically?
    Captain Marcus. Well, we have had----
    Mr. Hunter. Do you agree on that?
    Captain Marcus. We have had discussions and sent numbers to 
USTRANSCOM and MarAd regarding how many deep-sea mariners there 
are in the industry. So, yes, we have an understanding of the 
approximate number that are available. And USTRANSCOM, of 
course, in terms of number of ships, has been very outspoken on 
the need for the 60-ship maritime security fleet.
    Mr. Hunter. Thank you.
    Mr. Tabbutt, one last question here. We hear about Jones 
Act waivers all the time and whether or not the waivers are 
actually--whether they are needed, whether there aren't 
American ships--American-flag vessels available.
    We have heard that sometimes there are--and we actually 
know this to be the case sometimes--and still U.S. Government 
agencies go with foreign flag.
    So, in your opinion, why is this happening? And do you 
think that there is an organized effort to basically water down 
the Jones Act simply by waiving it all the time?
    Mr. Tabbutt. First of all, the American Maritime 
Partnership works with anybody requesting a waiver of the Jones 
Act and, when there is no capacity, it does not exist, the 
American Maritime Partnership position is it will not object to 
a waiver.
    The--today the biggest voice that you have just expressed 
is on the--on domestic movement of crude and the--and the 
shipyards are building at record pace the number of tankers.
    The industry is responding, and there is a backlog of 
orders to get--to meet the demand that has come up. And if--if 
there is a demand for a vessel that--in the Jones Act that 
doesn't exist, there are dozens and dozens of companies that 
stand ready to make that investment. And we have ourselves.
    Mr. Hunter. OK. So who do you think is motivating the 
effort to get more Jones Act waivers? And do you think that 
that exists?
    And anybody else, feel free to answer.
    Mr. Tabbutt. It seems that--it seems to go from time to 
time to different very targeted, very specific tonnage, and I 
don't--I don't think it is an organized effort between all 
those. I think they are disconnected.
    Mr. Hunter. Sir.
    Captain Marcus. Yes, sir. I would like to say that there 
are some instances when waivers are appropriate. For example, 
if there are U.S.-built ships that were built for international 
trade in years gone by, there is no reason why those ships 
couldn't be brought back in to serve sectors of the industry 
that are not currently served.
    For example, there were three LNG ships several years ago 
that were U.S.-built, built in Quincy, Massachusetts. A waiver 
was approved in Congress for those ships to come back into the 
domestic Jones Act LNG trade if there is a shipper that needs 
those vessels. Similarly, there are a couple small pocket 
drugstore chemical tankers available that waiver is being 
    So, in some cases, the waivers make sense. In other cases, 
for example, the strategic oil movement of a couple of years 
ago, it made no sense. So I think it is a case-by-case 
    Thank you.
    Mr. Hunter. Thank you.
    Mr. Garamendi.
    Mr. Garamendi. Mr. Chairman, thank you very much for your 
leadership in promoting the maritime industry. It is 
exceedingly important.
    I want to go to a series of questions dealing with the 
export of LNG. But before I do those questions, I want to enter 
into the record a series of news articles that have recently 
come to light.
    This one is August 5th, ``China Pushes to Build Its Own 
Ships to Deliver Gas.'' This one, August 18th, ``South Korea to 
Support Shipbuilding Industry.''
    And this one, a July 30th article, GAIL, which is the 
national--which is the Indian Government's gas utility program, 
they want to build nine ships to ferry liquefied natural gas 
from U.S. producers to India, and they are going to require 
that three of those nine ships be built in India.
    And, also, a memo from my staff entitled ``The global LNG 
fleet needs to grow by 225 vessels by the end of 2020. How are 
foreign governments supporting their shipbuilding industries?'' 
and another article on the modernization of the--``China to 
Modernize Shipping Industry,'' basically the support that the 
Chinese Government is giving to the shipbuilding industry; and 
a series of maps on the LNG facilities that have been suggested 
for the United States.
    So, with your permission, Mr. Chairman, I would like to 
enter those into the record.
    Mr. Hunter. Without objection.
    [The information appears on pages 72-79.]
    Mr. Garamendi. And now a series of questions.
    As I mentioned at the close of my opening statement, Mr. 
Hunter, you and I have introduced legislation, H.R. 5270, the 
Growing American Shipping Act, to promote the use of American-
flag vessels for the looming export of liquefied natural gas.
    So the questions I have to solicit the view of our 
witnesses, first and foremost, for the record, do each of your 
organizations--you and your organizations support the bill as 
    And then at the same time you might answer. Are there any 
changes that you recommend to the bill to improve it? And are 
there amendments that you would like to see in the legislation?
    Let's start from Mr. Paxton, and then we will go down the 
    Mr. Paxton. Congressman Garamendi, yes. The Shipbuilders 
Council of America does support the Growing American Shipping 
Act. Sorry. We do support that.
    I probably wouldn't suggest at this point we have 
amendments that we would offer to you. We understand how 
technical this legislation can be, especially when you start 
requiring shipbuilding construction as element, which this 
legislation does not do.
    So we would just want to work with you on continuing to see 
how this evolves. We obviously support our--our--the maritime 
industry international trades. We want to see that grow.
    Mr. Garamendi. Very good.
    Captain Marcus. Thank you, Mr. Garamendi and Mr. Chairman, 
for bringing forward this legislation.
    Of course, we fully support it. We think that it could be 
more expansive. We would love to see an encouragement of, for 
example, bilateral trade agreements.
    We would love to see the provision of reflagging foreign-
flag LNG carriers into the U.S. flag be eased so, if they meet 
international standards, they could export American cargoes.
    We have numerous things in mind. But, in my mind, when you 
look at the vast fortunes being made in this industry, there is 
no reason why some sort of bilateral trade agreement couldn't 
be part of any kind of export strategy.
    Thank you.
    Mr. Garamendi. Mr. Johnsen.
    Mr. Johnsen. USA Maritime is still reviewing the bill. But 
speaking on behalf of our companies, we always support anything 
that increases the utilization of U.S.-flag vessels.
    Mr. Garamendi. Thank you.
    Mr. Tabbutt.
    Mr. Tabbutt. Thank you.
    We are also very supportive of all efforts to promote our 
industry. And specifically to our narrow focus of the domestic 
operation, we would be very interested in building Jones Act 
LNG tankers and have had discussions with both Puerto Rico and 
Hawaii in that effort.
    Mr. Garamendi. Thank you.
    The next question is--the emergence of the LNG export 
market is an economic phenomena that virtually no one 
anticipated as recently as 3 to 4 years ago.
    The bill, 5270, intends to utilize the emerging trade to 
revitalize the U.S.-flag fleet because analysis of the global 
LNG market indicate favorable conditions for the development of 
a long-term sustainable LNG export trade and trade that could 
sustain a resurgence of the U.S.-flag fleet.
    In general--my question: In general, does each of you agree 
that--with the analysis projections finding that a U.S. LNG 
export trade will be sustainable and a viable export market 
that could provide a future new trade for the U.S. foreign 
trade fleet?
    And, secondly, what initiatives has the maritime community 
made to reach out to the LNG energy industry to identify 
opportunities to take advantage of this emerging LNG export 
market to the benefit of the maritime operators?
    I think you have answered this, in part, Mr. Tabbutt. If 
you would like to expand and just take it from there.
    Mr. Tabbutt. It makes sense for any place that is off the 
grid to participate in the LNG to go from heavy oil to burning 
LNG, and we stand ready. And if we find the right customer, 
then that--we will build and be part of that.
    And we are working very closely with industry and supply of 
our vessels for liquid natural gas both in the Pacific 
Northwest for the Alaska operation and the supply down in 
Florida for our Puerto Rican operation.
    Mr. Garamendi. Thank you.
    Any comments from the flag ship--Captain?
    Captain Marcus. Yes, Mr. Garamendi. With Masters, Mates and 
Pilots and I think every other union in this room, we have all 
made various efforts to reach out and place some of our members 
aboard LNGs.
    I know there are a handful of American officers working 
aboard foreign-flag LNGs, and certainly it is the interest of 
the U.S. Merchant marine to build a pool of American mariners 
working on U.S.-flag vessels. We believe that it is 
    In the case of Masters, Mates and Pilots, we have worked 
closely with the marine engineers on some projects, and we know 
the other unions have as well. So we are enthusiastic about it. 
We see a future for it. And we hope to continue to get the 
support of this subcommittee.
    Thank you.
    Mr. Garamendi. Mr. Paxton.
    Mr. Paxton. Yes, sir. The SCA participated in the American 
Gas Association Policy Summit where we were really highlighting 
the growing use of LNG as a marine fuel. And so we have been 
talking to the--to a lot of the industry that is going to be 
producing this and the fact that we are--we will be a sector 
that will be using it. And that is for domestic use, of course.
    But per your legislation, any--any signals of the 
Government that Congress can send to industry that they are 
serious about this new energy being a national security 
imperative, being something that is so crucial to our industry 
that they are going to require some level of U.S. manning or 
U.S. building, those signals are absolutely wonderful for 
purposes of establishing the market and the cargoes. So we 
appreciate that.
    Mr. Garamendi. Mr. Chairman, I am significantly over my 
time. I have two other questions, one of which I will just ask 
for the record and written response from the witnesses.
    But one, I would, with your acquiescence, put before the 
    Mr. Hunter. Sure.
    Mr. Garamendi. Thank you.
    Mr. Hunter. We will probably have time, if you want, to go 
to Ms. Hahn and then back to you again.
    Mr. Garamendi. Let's do that.
    Mr. Hunter. OK. Ms. Hahn, you are recognized.
    Ms. Hahn. Thank you, Mr. Chairman, Ranking Member 
    I have really enjoyed listening to all of our witnesses 
this morning sharing their expertise as it relates to our 
merchant marines. I am a big supporter of our merchant 
    Every May 22nd, National Maritime Day, if I am not here, I 
am attending the memorial service in San Pedro, where we are 
one of the few communities that has a merchant marine veterans 
memorial right along Harbor Boulevard. So I am a big supporter.
    Unfortunately, it's still true that our merchant mariners 
who served this country in World War II were not considered 
veterans and, therefore, have never received veteran benefits.
    Last year I introduced H.R. 1936, the Honoring Our World 
War II Merchant Mariners Act of 2013. This bill, which has been 
introduced a couple of times, would provide a modest $1,000 
monthly benefit to the nearly 10,000 surviving World War II 
    I know that this bill is not in the jurisdiction of this 
committee, but the Committee on Veterans' Affairs is currently 
not considering it. And I would like to see our subcommittee 
encourage them to take this bill up. We don't have much time 
left in Congress, and we don't have much time left with our 
merchant mariners. Many of them are in their 80s. We are losing 
them every single day.
    I think it would be fitting and proper and an honor for 
this country to finally honor the World War II merchant 
mariners. More merchant mariners were lost in World War II than 
any other branch of the military.
    So I think it is time at that we honor them. I think it is 
a meager amount, and I would hope this Congress or maybe next 
Congress would finally honor them. So I appreciate this 
    I think, just listening to you, we have already, I think, 
realized more and more how important our merchant mariners are 
to this country and what they mean to the fabric of industry 
and commerce as well as internationally through the help that 
we give through Food for Peace.
    Mr. Paxton, I appreciate you bringing up General Dynamics. 
I was able to tour General Dynamics in San Diego, and I learned 
a lot about the shipbuilding industry in southern California. 
And much more needs to be done, I think, in this industry.
    And you are absolutely right. Shipbuilding, that is a great 
career. I mean, those are great skills; ironworkers and 
electricians have great skills. These are skills to pay bills 
that a lot of our young people could really benefit from. And I 
would love to see this start in our high schools and our 
community colleges. These are the kind of vocational classes 
that are so important. What a great career, to be building 
ships in this country.
    Captain Marcus, you talked, as well as Mr. Johnsen, about 
Food for Peace, and I would like to focus on that a little bit.
    This great program, since 1954, has played such a critical 
role in times of crisis by providing emergency food assistance 
as well as money. It is critical to supporting employment among 
our U.S. farmers and our merchant mariners.
    After the typhoon in the Philippines in 2013, Food for 
Peace was right there. It was able to provide $20 million in 
food aid, such as rice, emergency food bars to the devastated 
region, and helped to connect both our U.N. and private aid to 
the devastated islands.
    I worked hard to support this program. I wrote a letter to 
the House appropriators, requesting that they fully fund Food 
for Peace by adding $800 million to the program.
    In addition, last year, I worked really hard on the House 
floor to defeat an amendment that was on the floor that would 
reduce its funding. Unfortunately, this year the President 
proposed reducing the budget for Food for Peace by cutting 26 
percent from the 2015 budget.
    Can you talk again to us on what you think the impact of 
reducing funding for this program or changing how it operates 
would be on your industry. How would such a cut affect the 
amount of food that would be able to be transported in times of 
    Mr. Johnsen. Just a brief comment first. The action that 
was taken in reducing the percentage participation that I 
mentioned in my remarks has already resulted in a cargo loss 
that exceeds the 25-percent reduction, and it just shows you, 
if that continues to happen, the cargo base will go away for a 
very important constituency of the U.S.-flag fleet. So it has 
to be maintained. Otherwise, we lose more vessels and, as 
Captain Marcus was talking about, we lose--we lose jobs for--
for the mariners.
    Captain Marcus. Yes, Ms. Hahn. I would just reiterate that, 
in order for companies like Waterman/Central Gulf and the major 
carriers--the American carriers to have faith in maintaining 
their ships in U.S. flag, they need to have a reliable stream 
of cargo, and this provides a reliable stream of cargo and--not 
only on bulk carriers, but also aboard containerized vessels.
    And it is critical that, in times when we have a drawdown 
such as now where the military cargo is less because of the 
withdrawals in Afghanistan and Iraq, we have got a reliable 
stream of cargo to help keep our ships afloat.
    If they are not carrying cargo, they are not making money 
and the carriers will lay up ships or they will reflag ships to 
foreign flag. It is as simple as that.
    So thank you.
    Ms. Hahn. Thank you.
    I know my time is up, but I want to point out that there is 
a thought process out there that asserts we would do better to 
give our money, our foreign aid, directly to the country and 
help support their agriculture and their farmers.
    And, yet, when you look at the Philippines typhoon, the 
place was destroyed and it wouldn't have made any sense to try 
to give money to use their own agriculture and their farms. The 
place was destroyed. And if it had not been for Food for Peace 
bringing that emergency money and agriculture in, many more 
lives would have been lost.
    Captain Marcus. If I might just add one thing, I mean, on 
that particular point, in our belief, there has been a lot of 
cynicism and mistruth spread around.
    There was something put out by USAID that the cost 
differential was some $78 million when, in fact, it is closer 
to about $7 million, and the differential--in our view, this--
this debate has taken on a life of its own and there is more 
mistruth than fact in it.
    But the baseline is, it seems, if you want a constituency 
that supports foreign aid, you need to have some kind of 
secondary benefit for American workers and American agriculture 
and you need a transparent system where the food is actually 
    Having been aboard a ship that delivered 25,000 tons of 
grain to India, you physically see it there. You see bags with 
the U.S. flag on it, you see the handshake cargo, and you know 
it is there. It is not just some invisible cash that has 
changed hands.
    And, of course, it is somewhat absurd to think that you 
would be buying local produce. If that was the case, people 
wouldn't be starving in the first place. So there seems to be 
kind of a logical and a factual disconnect in this whole 
    Thank you.
    Ms. Hahn. Thank you very much.
    Mr. Chairman, I yield back.
    Mr. Hunter. I thank the gentlelady.
    A quick question about Coast Guard.
    Mr. Johnsen, you talked--you mentioned a few times that the 
Coast Guard is increasing your cost, as an operator, through 
different rules and regulations and that MSP vessels have 
different standards--the Coast Guard has different standards 
for MSP vessels than they have for similarly--for similar 
foreign-flag vessels.
    Could you just give us some examples--some specific 
    Mr. Johnsen. When we first started reflagging some vessels 
from international flag to U.S. flag back in the mid-1980s, the 
Coast Guard had a series of regulations in place that required 
us to replace equipment on board those vessels, which were 
perfectly suitable for their purposes, which were approved by 
the Safety of Life at Sea, SOLAS, regulations, and it was--in 
my mind, it was a ridiculous waste of money.
    And I remember on those first reflags we spent millions of 
dollars to reflag the vessels. We subsequently continued an 
initiative to talk to the Coast Guard and see if there was some 
way to resolve this disconnect between what the Coast Guard 
wanted and what was internationally acceptable.
    And we came up with a program, working together with the 
Coast Guard, which we called a gap analysis, and we analyzed, 
for example, the piping systems. We analyzed the life rafts 
that were on board, and the different components of the vessel.
    And I hasten to say that--and our friends in labor know 
this--our culture is all about safety. So we never do anything 
that would jeopardize the safety of the mariners on our 
vessels. So we have been very, very studious about that in 
working with the Coast Guard.
    Going through this process eventually produced a situation 
where we could bring a ship under U.S. flag, do some 
modifications to the ship, approximately $400,000 or $500,000, 
rather than millions of dollars, to complete a reflag. And that 
was simply because we weren't throwing away perfectly good 
    What we are concerned about with this new NVIC is that it 
is regressing back, and our sense is, as we review it--and 
there is a lot of technicalities in it relating to the life 
rafts, relating to the firefighting systems, relating to the 
controls between the bridge and the engine room, that are 
perfectly OK, but we need to get back to this cooperative 
attitude of doing a gap analysis.
    So I hope that the Coast Guard is going to come around and 
understand that that is what ought to be done because all they 
are doing is layering on expense--hundreds of thousands of 
dollars of expense that is totally unnecessary.
    Mr. Hunter. Thank you.
    Does anybody else have any specific examples?
    Captain Marcus. Well, this is less a specific example than 
just sort of an observation.
    Having a delegation from labor that participates in IMO 
proceedings and knowing full well that the U.S. Coast Guard has 
full voice with the U.S. delegation at all of these IMO 
Maritime Safety Committee meetings and setting the standards--
the international standards, the whole purpose of these 
international conventions is to have some kind of uniformity 
and to be part of the rulemaking process internationally.
    And then to come back when we had the understanding that 
the international requirements would be what is necessary to 
reflag a vessel and then those international agreements and 
impose your own agreements that do not enhance safety, but 
increase cost, in our view, it just doesn't make sense.
    Thank you.
    Mr. Hunter. Thank you.
    Mr. Garamendi is recognized again.
    Mr. Garamendi. Thank you very much, Mr. Chairman.
    Let me find my place here. I was anxiously listening to 
what was being said about the Coast Guard and the rulemaking 
and the like.
    The next questions really deal with the capacity of the 
American shipbuilding industry to produce LNG tankers. We have 
heard that a lot of things are going on. There is a resurgence 
in--there is a boom in the industry. State-of-the-art vessels 
are being made.
    I know, Mr. Tabbutt, you and I were talking about the 
vessels that you currently are having made in San Diego at the 
NASSCO yard.
    So this question arises, ``Well, we can't build them 
here.'' I would just note one of the things I put in the 
record, but didn't mention, is that India requires that the LNG 
ships be built and available within 2.5 years; however, 6 years 
for the ships built in India. So there is a waiver.
    My question really goes to this issue of the ability of the 
American shipyards to build LNG tankers. So for the record, 
does the U.S. shipbuilding industry retain the technology and 
industrial capacity to build LNG tankers should the U.S. LNG 
export trade take off and we require that at least some, if not 
all, of those tankers be American-built and American-flagged?
    Mr. Paxton, if you would like to get at this, and then we 
will go down the line.
    Mr. Paxton. Thank you, Congressman Garamendi.
    The answer is yes. The U.S. shipyard industry built LNG 
carriers for a long time. Unfortunately, we stopped building 
those carriers in the 1980s. So the answer is yes. If this 
market was there, we would be building for it.
    I am sure Mark will have some comments about the domestic 
moves of LNG if we moved it around the United States. We can do 
that, too. That is a different size of an LNG carrier. If we 
are talking international trade, that is a larger LNG vessel. 
But the fact of the matter is we built them.
    The other fact is we have three of them that just got 
waived back in--or would be waived back into the Jones Act if 
there was actually the infrastructure there to start moving LNG 
around domestically. We can do that, too. We built those ships 
also in the 1980s. So the answer is yes.
    As you know--because we have had many meetings on this--if 
we had that market right now, it would probably be a 5-year 
process to get that LNG carrier built and ready to go. I have 
been told that by our shipyards to that effect. But we do have 
the capability and we have the capacity. Our shipyards are 
seeing red.
    And the other example of that is, when this new market came 
up to move petroleum and crude around domestically, we are 
building for that market and we are answering that demand. So 
our shipyards stand by to do that, sir.
    And, also, a last point on this, our shipyards also work 
with international partners, NASSCO with Daewoo. We don't stand 
idly by just looking inward. We look outward. We want to see 
what best practices are, benchmark ourselves against those, and 
build as competitively as we can.
    So I think some aspect of this would probably look at, 
``Hey, what are the best things internationally that are being 
done? And can we partner with those guys and get it done 
    Mr. Garamendi. Thank you.
    Mr. Tabbutt, I know that you and I discussed this, if you 
would like to comment.
    Mr. Tabbutt. Sure.
    Through NASSCO, General Dynamics, we have actually engaged 
in conversations with them about building domestic LNG 
carriers. They have supplied us several different models that 
would be different capacities that are being made 
    And we would have all the confidence in the world to sign 
with them and to build them. We don't see any issue about our 
domestic capability--or the yard's domestic capability to build 
    Mr. Garamendi. Mr. Johnsen, Captain, if you would like to 
comment on this or if it is in your territory or out of your 
territory. Good.
    I think that, as I understand this--this is my comment; the 
expert I am not--but, in discussions, is that there is a phase-
in, we can't build these things this year or next year.
    But if there is a market out there, that is, if the United 
States policy drives towards the development of a market, it 
can be done, but it would be phased in over a period of time.
    India is giving its shipbuilding industry 6 years to build 
the ships. Mr. Paxton, if we gave the American shipbuilding 
industry 6 years to build ships for the trade, could we do it?
    Mr. Paxton. And just to be clear, we are talking 
international trade, not just domestic trade?
    Mr. Garamendi. Correct.
    Mr. Paxton. And, with that, as we discussed in the past, 
any international requirements would have to just make sure we 
get by any treaty obligations we have, GATT implications, and 
we would be very careful of that because we don't want to take 
down the build requirement that is exempt in the--under GATT.
    But if that was all done through some type of national 
security imperative, my shipbuilders have told me it would be a 
5-year process by which they could--from contract to delivery 
to do it. But there is many steps in that process to make sure 
we do it legally and we do it under our trade obligations, sir.
    Mr. Garamendi. A very, very good point.
    The final comment that I will make on this is that India is 
going to buy American gas, LNG. India is requiring that that 
gas be shipped--at least one-third of the ships be Indian-
    It seems to me that we could have a trade agreement with 
India that would say, ``Terrific. How about the second third 
being American ships?'' Now we have an agreement. We are not 
violating any trade agreement. We are not writing any law. We 
are simply good negotiators. I think we can get at that issue 
in this way without the trade laws.
    The second point is the Trans-Pacific Partnership trade 
agreement is in discussion. We need to be very, very careful 
and very watchful that we are not giving away--negotiating away 
a strategic American asset, LNG, and the shipbuilding that 
could go with that.
    I think we have covered my issues, Mr. Chairman. I have two 
questions that I would present to the witnesses in writing. And 
that will complete my time, with a final comment, since I don't 
see another round coming down.
    I appreciate the testimony of the witnesses and 
particularly the opportunity that presents all of America to 
rebuild our manufacturing base one ship at a time or maybe 100 
ships at a time.
    It is imperative that this sector of the American economy 
rally around the potential that exists, maintenance of the 
Jones Act, Food for Peace, all of the things that have been 
discussed here.
    Each one of these are pieces of a large puzzle of economic 
development, and we need to be mindful of each piece of that 
puzzle as we promote this extraordinary opportunity, in this 
case, the Jones Act, but it is also Food for Peace, and it is 
the other elements, the military cargo and the like.
    One thing I would ask all of the participants--the 
witnesses and anybody else that is participating in this 
hearing is that we may not know where the next waiver is.
    But if we knew where the next waiver of the Jones Act 
occurs, we might be able to do something about it. So let us 
know if you hear something or are aware of something. Assume 
that we don't know.
    But I know that the chairman and I are more than willing--
at least I and the chairman, from his past record on this--more 
than willing to jump on one of our administrative agencies that 
is waivering the Jones Act unnecessarily. So help us understand 
    Final point. We have a new employment training law in 
place. It is a rewrite of the old law and it is done in such a 
way as to encourage the Labor Department, Education Department, 
and other Federal agencies that are involved in employment 
training to work with the industries in developing training 
    And so the money flows in a different way rather than to 
the--rather than for the benefit of the organizations that are 
doing the training, rather to the benefit of the employers that 
need trained workers.
    And so for this industry, wherever you happen to be, keep 
that in mind. And it should help address some of the concerns 
that were expressed here in the committee hearing.
    Mr. Chairman, thank you very, very much for conducting this 
    Mr. Hunter. I thank the ranking member for his points and 
discussion here.
    And thanks to all of you, too.
    This is a great industry, and I think we are doing God's 
work in this committee by, like Mr. Garamendi said, 
strengthening our industrial base, our ability to build ships, 
our ability to work with steel, and not become one of these 
bygone countries that used to rule the oceans 50 years ago and 
that can't even build an aircraft carrier anymore. I think we 
know what country we are talking about.
    Mr. Garamendi. Name names. Go ahead. Name names.
    Mr. Hunter. For Great Britain, it is not going to be so 
great anymore. It is going to be ``Little Britain'' if the 
Scots get their way.
    But this is important. This is as important as anything 
else that this whole committee does, the Committee on 
Transportation and Infrastructure. And we will keep working. We 
will keep growing.
    And we need to make sure that we have these seats filled 
with other Members that need to, at least--at the least, learn 
about your industry, about what you do, about what is 
important, and how we can make it grow and make you stronger, 
not just for yourselves, but for the American people, and our 
    Oh. We have--I almost gavelled.
    Does this mean I can't go now?
    Mr. Cummings. Sorry.
    Mr. Hunter. The gentleman is recognized.
    Mr. Cummings. Thank you very much, Mr. Chairman. I 
apologize. I was in a full committee hearing.
    Mr. Johnsen, you wrote in your testimony that, ``In order 
to achieve a robust U.S.-flagged merchant marine sufficient in 
size and capabilities to support our national and economic 
security, the Federal Government must act quickly and 
decisively to preserve the long-term health and viability of 
this industry. Absent aggressive action to develop and 
implement a comprehensive national maritime strategy, we fear 
that the decline of our industry will only accelerate.'' That 
was your testimony.
    Do you believe that vessels in the U.S. flag--would that 
include any vessels participating in the MSP program?--are 
currently poised to leave the flag? And, if so, do you have a 
sense of how many that might be?
    Mr. Johnsen. My sense is that, if we do not aggressively 
pursue a reorganization and a reevaluation of the current MSP 
stipend, that we will force vessels to leave.
    I cannot put a number on that, but I can assure you that it 
will happen, because that, combined with the cargo--military 
cargo base dwindling and the pressure that we talked about on 
the food aid programs, it is just sucking business away from 
U.S.-flag vessels. And vessels need cargoes to pay the bills 
and they just won't be able to do it.
    Mr. Cummings. Well, what do you believe should be the 
essential components of a national maritime strategy?
    Mr. Johnsen. I believe the--as I said in my oral testimony, 
that the--we talk about it as a three-legged stool. We need the 
MSP program, we need a military cargo program, and we need a 
food aid program.
    And the food aid program--I am lumping together with that 
the Ex-Im Bank requirements and the other cargo generation that 
the Maritime Administration should be policing and ensuring 
    And that--that is part of their job, and they have got to 
continue to be aggressive and require U.S. flag when it is 
required by the statutes.
    Mr. Cummings. Well, Mr. Johnsen, you also wrote--and I 
quote--``It is critically important that the level of support 
for MSP vessels be adjusted to achieve commercial viability and 
a more level playing field for MSP vessels when competing 
against foreign-flag vessels.''
    And, similarly, Mr. Marcus, you wrote, ``Looking forward, 
we believe it is critically important that the per vessel 
support level authorized for the MSP as part of defense 
authorizations legislation enacted in 2012 be reviewed and 
adjusted as appropriate.''
    Let me ask both of you: What level of support do you think 
needs to be provided through MSP to ensure that vessels 
participating in the program remain commercially viable?
    Captain Marcus. Thank you, Congressman Cummings.
    First--on your first question, I would just like to add 
that we were just informed about 2 weeks ago by one of our 
employers that one ship will be leaving the MSP program. So we 
have been formally informed that one ship will be going before 
the end of the year.
    With response to the----
    Mr. Cummings. I guess they don't come back.
    Captain Marcus. Well, we expect to meet with that company. 
But as far as we have been signaled, that--they do not intend 
to take this particular slot back. At least that is what they 
have told us at this point.
    Mr. Cummings. All right. Go ahead.
    Captain Marcus. But we believe that, because of the level 
of support and the cost disadvantage that we have relative to 
foreign-flag and flag-of-convenience vessels, that the 
authorization level called for in 2012, as soon as it is 
politically practical, that there be some kind of an escalation 
so that, as time goes on, there will be appropriate escalation 
just to keep in tune with the usual inflationary escalation of 
    So we don't have a particular number, but we believe that, 
at some point, that the total number needs to be addressed if 
we are going to be competitive.
    Thank you, sir.
    Mr. Cummings. Mr. Johnsen, you have 12--9 seconds.
    Mr. Johnsen. The stipend needs to be increased. There have 
been a number of independent studies done to try to determine 
the differential between international-flag cost and U.S.-flag 
    According to the Maritime Administration and these studies, 
that differential, that delta, is something between $5 million 
and $7 million. That has to be kept in mind when the MSP 
stipend is being looked at.
    It is important that there be a coordinated approach to the 
stipend, including discussions--ongoing discussions that we 
have with USTRANSCOM and the Department of Defense and the 
Maritime Administration. But there does need to be an increase 
to some degree.
    Mr. Cummings. Thank you, Mr. Chairman.
    Mr. Hunter. I thank the gentleman.
    And, with that, I thank the witnesses for their testimony 
and Members for their participation.
    The subcommittee stands adjourned.
    [Whereupon, at 10:56 a.m., the subcommittee was adjourned.]