The Emperor Has No Clothes

Aug 11, 2010, 8:59AM EST
The Subcommittee on Coast Guard and Maritime Transportation convened on July 20th in Washington to receive testimony regarding the current Status of U.S.-flagged Vessels in U.S.-Foreign Trade. Industry heavyweights weighed in on the full array of unanswered questions, but the hearing also served to bring one more to light: Is MARAD necessary?

Last month’s Congressional Subcommittee Hearing on the current Status of U.S.-flagged Vessels in U.S.-Foreign Trade roughly coincided with the 40th anniversary of the Merchant Marine Act of 1970. A lot of water has gone under the proverbial bridge since then. In the same time frame, literally hundreds of ships have disappeared from the U.S.-flag merchant fleet. And so, with the intent of providing the bright spotlight on issues that affect America’s ability to compete in the global maritime market, the maritime industry, U.S. federal government and the regulatory bodies that oversee all of that got together in Washington to hash out the details and perhaps, chart a true course to the Promised Land.


Like, to a certain extent, those faced with the piracy problem that plagues shipping of all flag states, the American maritime industry found out in July that it will probably have to go it alone. For the most part, those gathered to give testimony gave credible presentations and then fielded some surprisingly good questions from the subcommittee. On the other hand, the opening statement given by the U.S. Maritime Administration’s David Matsuda was wooden; an abbreviated version of his prepared text, drawing from a tired playbook of banalities that could have been culled from any one of a dozen Wikipedia entries. As the face of the agency charged with maintaining the health of the domestic merchant marine, the Maritime Administrator provided the subcommittee with little in the way of concrete policy guidance with which to improve the sad state of current affairs. Unfortunately, that wasn’t the worst of it. Not by a long shot.


  • Feet to the Fire


Subcommittee chair Rep. Elijah Cummings (D – MD) was similarly unsatisfied with the performance of MARAD’s Chief Executive. In a short but pointed question and answer session that followed Matsuda’s testimony, Cummings dug for any golden nuggets that might point the way forward for America’s merchant fleet. None were forthcoming. At best, Matsuda seemed to be unprepared for the hearing. Worse; he showed himself to be disinterested. Unable to provide any sort of depth of analysis to the committee’s questions, the Maritime Administrator did promise to “get back to them later with answers.” And for his part, Cummings promised to hold his feet to the fire if he did not.


To be fair, it really isn’t Matsuda’s fault at all. He has virtually no support from his boss at DOT and beyond the lip service there, no real commitment to preserve the waterfront. Cummings and his colleagues were pretty easy on the Maritime Administrator. You have to wonder whether an appointee from the other side of the aisle would have gotten the same consideration. At no time was this more apparent than when Matsuda listed the $132 TWIC Card as a reason that American shipping was so expensive. Nevertheless, the shallow answers to hard questions eventually led members to move on to the next presenter, where perhaps, more meat could be found. They weren’t disappointed.


The testimony and Q&A sessions that followed throughout the bulk of the more than two-hour meeting touched on the full range usual subjects: CCF, Title XI, HMT, Cargo Preference, MSP and a bunch of other stuff. The discussions ultimately showed that what ails the U.S.-flag effort in foreign trade is the very thing that will eventually bring the whole house of cards crashing down; Jones Act ships, domestic shipbuilding – everything. And, in case you weren’t paying attention during the hearing, MARAD isn’t going to be much help.


  • Reading the Tea Leaves


With the problem defined succinctly in the statistic that showed America’s participation in its foreign trade share shrinking to a mere 2 percent from the 58 percent reported in 1947, the lineup of U.S. industry and labor leaders led their Congressional inquisitors through the reason(s) why for that metric. Showing himself to be well versed in all of that was Liberty Maritime’s CEO Philip Shapiro, who gave the subcommittee a tight and mercifully short (unlike this column) primer on what ails us. Afterwards, he was likewise nimble on his feet during the Question and Answer sessions.


Shapiro predictably petitioned the room for expansion and reauthorization of the Maritime Security Program, but he did that with caveats. Noting that in 1997, just 4 of 47 MSP ships were essentially foreign controlled, he bemoaned that today’s MSP lineup included just 11 pure American vessels in the 60 available slots. He stated flatly that the foreign dominated MSP list was “a threat to national security.” He’s right. Beyond that, he also pointed out that the $2.9 million annual allotment given each MSP participant vessel doesn’t begin to make up for what he calculated to be a $4 million operating deficit when compared to foreign costs. On the other hand, Shapiro also operates a shipping company that – depending on the time frame in question – relies on the U.S. Government for at least 85 percent of its business and sometimes all of it.


There are those who would prefer that U.S. shipping companies find their own way to making money, beyond what the anti-Jones Act lobby would characterize as the “the public dole.” That said, Shapiro wrapped up by urging Congress to provide adequate support of MARAD, but also called for better federal oversight of government contracts. He called on MARAD to do more; and to Matsuda, he implored him to enforce the law. Whether you agreed with him or not, this was the way to give a speech. As pointed out by Rep. Cummings, MARAD Chief Matsuda could have learned a thing or two. By then, however, Matsuda was long gone, probably sitting in traffic on the 14th Street Bridge.


MEBA’s President, Don Keefe (no relation, BTW) represented the labor end of the equation equally well. He called for – among other things – tax relief for mariners in a similar fashion to that afforded other U.S. ex-patriot workers who spend more than 6 months outside the country. The vast majority of foreign mariners, if they spend 6 months and a day outside the country, pay no income tax in their own countries. The tax situation that makes a foreign Master making $70K per year less expensive – and him/her, personally richer – than U.S. counterparts making $110K, also makes U.S. shipping more expensive. That's a fact. And what percentage do these mariners make up in the domestic workforce? One quarter of one percent? Rep. Oberstar (D-MN) tried to move legislation addressing this as early as 2001, the effort failed again in 2004 and to hope for it to do any better now, with an anemic MARAD as an unwilling cheerleader, is probably beating a dead horse.


  • Understanding the Big Picture: More than Ships


John Reinhart, President & CEO of Maersk Line also weighed in. He quickly pointed out that Maersk is a U.S. flag ship management and technical services company, managed by U.S. citizens, employing thousands of U.S. merchant mariners and over 200 shore side personnel, pays U.S. taxes, and is one of the largest owners and operators of U.S.-flag ships. He also admitted to being part of the A.P. Moller-Maersk Group, an international transportation and energy company. As a participant in U.S. MSP and cargo preference cargoes and programs, Maersk’s foreign connections may not always be popular with its purely American counterparts. Nevertheless, Reinhart and Maersk do get it. As one of many who testified on July 20th, Reinhart was one of the few – if not the only person – who recognized that shipping is a multimodal endeavor, involving far more than just water based assets. Indeed.


Reinhart made some good points. To those who can provide the total package, the business will naturally follow. Amplifying on that theme, he said, “Let me give you some real-world detail: we deliver military cargoes in the harshest of environments, including Afghanistan, with ‘end to end’ service directly to the military’s forward operating bases. U.S.-flag carriers with international capabilities and global networks have answered the call to create other gateways to allow military and relief cargoes to move thousands of miles over land through Latvia, Russia, Uzbekistan as well as Georgia, Armenia, and Azerbaijan in addition to the primary gateway of Pakistan. The Department of Defense and the U.S. Transportation Command, the logistics arm of the U.S. Department of Defense, continue to rely on the service we are providing our warfighters. In fact, when required, we have figured out a way to provide satellite tracking every 30 minutes on containers and equipment in Afghanistan to support the warfighter’s need to know where materiel is in theatre, a capability we have created specifically for the U.S. military.” His words, at least temporarily, deflected any in the room that might criticize Maersk’s less than Red, White & Blue roots.


Perhaps the most important part of Reinhart’s testimony is what he didn’t say. That’s because he has the best of both worlds right now – a U.S.-flag operator with a cornucopia of MSP missions with which to support his bottom line AND the ultimate luxury of being part of a bigger, global entity that can pick and choose where to take its losses in a vertically integrated way. Much like the Asian shipyards who take their roots in steel (like we used to) and continue today as steel manufacturers AND shipbuilders, Maersk’s business tentacles indirectly stretch in a dozen different directions, including a larger foreign-flagged shipping fleet. It is enormously difficult for pure U.S. based shipowners to compete with any of that; here or overseas. As such, the purpose of the subcommittee hearing might (should) have been a broader look at the entire U.S.-flagged merchant fleet and industry.


  • Can this Merchant Marine be Saved?


The unanimous call for the reauthorization of the Maritime Security Program and stricter enforcement of cargo preference laws are nice, but at the end of the day, they serve as temporary Band-Aids for a much deeper systemic laceration. Either or both might save the 60 ships involved in the MSP program and a few others, but what’s the point, especially when all but a handful are effectively foreign-controlled to begin with? One of my readers said it best recently when they wrote, The really disingenuous part is trying to paint the subsidy/preferential trade as having any relationship to domestic shipbuilding.” I couldn’t have said it better myself. None of it will promote shipbuilding at home, and at the end of the day, the root problems with a fading merchant fleet begin at home, in the graving docks. And, where is the risk for the foreign-controlled MSP participants? If the subsidies go away, they’ll just reflag (again) and go on their merry way.


Fast forwarding to 2012, when the drawdown in Iraq and Afghanistan will be complete (President Obama said so; it has to be true), and that’s when we’ll all be in big trouble. Although Rep. Taylor (D-MS) was somewhat on the right track when he asked whether the U.S. Merchant Marine was in good position to bring home military supplies from a shrinking war effort on American bottoms, he also missed the bigger picture. Taylor, in the end, is trolling for table scraps when he should have been trying to address the bigger problem of what to do when the U.S. military (at least temporarily) no longer needs MSP vessels because we’re not fighting any more wars. Supposedly, that’s just around the corner.


Operators like Maersk, of course, can always take their marbles and go play somewhere else. Shapiro and the American maritime labor equation will at that point be desperately seeking work or worse: a safe place to lay up relatively new (for a change) tonnage that has no takers. Even Matsuda – in a rare moment of wisdom at this hearing – said (before leaving early), “Once the drawdown completes, it will be a struggle.” No kidding.


  • Inward Reflection


Knowing that MSP and cargo preference are not going to save the U.S. merchant marine, can we expect that the Jones Act, Title XI and other cabotage enhancements will do the trick? Well, yes and no. Cabotage laws are not unique to the United States. Getting rid of them so that, riding third world shipping rates, grain shipping executives in the Midwest can take the family to Europe this summer is not a good idea. Like it or not, the Jones Act serves a vital, national security need for this island nation and it will be cheaper in the long run than negotiating exorbitant wartime shipping contracts with flag-of-convenience operators. I’m not sure of very much, but that one is a “lock.”


My unidentified reader also told me last week, “These guys don’t have much sense of the ports and they convey no sense of inland or short sea (other than the lady from Hawaii).” In other words, what she was trying to say went directly towards to the concept of shortsea shipping, America’s Marine Highway and everything else that MARAD gives lip service (and little else).


It is way past time to be worrying about MSP funding and cargo preference laws. Let’s assume for the time being that these subsidies will be around for the long haul. They have to be, because the one thing that remains as a constant is that we do need a merchant marine of nominal strength, one which can respond to crises when necessary and that which can assure us the sealift capabilities that come with providing adequate national security. After that, the only thing left is our coastwise, inland and Great Lakes trades. And that slice of the pie remains as the backbone of what’s left. Saving it should be Job 1.


  • Throwing the Baby Out With the Bath Water


The solutions to our problems are self-evident. I would also tell you that the continued development of our marine highway initiatives is the way to go, but there has been no support for that inside the beltway and the latest news isn’t any better. Take the recent GAO report (GAO-10-780) on the Highway Trust Fund, for example. GAO found that nearly all states received more funding than they contributed in highway taxes since 2005. In a country that runs massive deficits in the first place, this shouldn’t be big news. On the other hand, the Highway Trust Fund is already insolvent (or nearly so), but given the massive stimulus numbers being pumped into concrete and asphalt, these numbers make a lot of sense. The same cannot be said for port spending and infrastructure upgrades on the waterfront.


DOT continues to lay down pavement to the detriment of its maritime modal arm which could reverse this problem in a very short period of time. And yet, just last week, the Senate introduced a bill that would allow tractor-trailers as heavy as 97,000 pounds on Interstate highways. The Safe and Efficient Transportation Act, mimics another House effort introduced last year. Predictably supported by shippers and trucking companies, the measure, if enacted, would only increase the amount of abuse being taken by our already crumbling highways. In effect, and instead of removing freight from the highways and putting it onto more efficient and cleaner water routes, the change in truck tonnage weight allowances would further burden the federal effort to maintain our highways. Will DOT and/or MARAD oppose this? No, probably not.


  • Rocket Science


A workable shortsea plan simply allows for the dredging of five or six major U.S. ports to about 60 feet, where the new generation of (foreign built, owned and operated) 13,000+ TEU mega-containerships can deliver their goods. From there, a new fleet of American produced, built-for purpose U.S-flag coastwise shuttle vessels – operating under a proposed, new law that removes the Harbor Maintenance Tax from the shortsea leg – can move the cargo to niche ports up and down the coast, removing the trucks, related pollution and wear and tear from the highways. This is not rocket science. It’s also not going to happen any time soon, especially given the paucity of money being spent on the ports in comparison to the billions being hemorrhaged on the highways and rail infrastructure.


In the short term, I suppose that we can take heart in the fact that Russia’s problems this summer may actually push the United States to number one in global wheat exports, with a bunch of that grain going overseas in “cargo preference” parcels. Like cargo preference laws and MSP funding, though, it’ll only get you so far. From there, we will need political backbone from DOT, the Obama Administration and Congress itself. I’m not feeling the love.


  • MARAD: Necessary, Important – but also Impotent


According to the Maritime Administration’s own WEB site, MARAD has a three-pronged mission. This entails advancing (a.) economic growth and recovery by providing job-producing businesses with efficient transportation options to reach their suppliers and customers, (b.) marine transportation that is sensitive to environmental impacts on communities, and (c.) a vital, viable, safe, and secure U.S. merchant marine for commerce, emergency response, and national security. Also according to MARAD, getting that done will take almost $350 million. The collective domestic waterfront will have to make up its own mind as to whether we are getting a decent ROI on that investment.


Ultimately, DOT Secretary LaHood will determine the future of MARAD and its missions. So far, he has shown no inclination to assist them in their assigned tasks. More interested in the noble goal of forever eradicating the scourge of “texting and driving,” it also took him almost one year to choose a Maritime Administrator. His choice of Matsuda, a fine career SES employee and the “place holder” after Sean Connaughton departed with the outgoing Bush Administration, was no choice at all. Lahood’s selection was so important that he waited almost 19 months to swear his maritime leader.


A similar situation is now playing out at the federal Merchant Marine Academy where faculty, staff, cadets and parents await definitive word on the future of the school’s leadership. It should not and does not have to be this way.


In terms of public affairs, this is one organization that I am certain that BP will NOT be turning to for help in their foundering public relations effort. The lockdown of information emanating from DOT headquarters is the one MARAD mission that is being carried out to perfection. I didn’t call MARAD for the purposes of this article. That’s because my efforts to elicit information from MARAD or DOT PAO’s over the course of the past 19 months have largely been met with promises that are not kept, or worse; complete silence. I interviewed the past three Maritime Administrators on more than one occasion for any number of stories but as yet have not seen the inside of the DOT building since the current administration took office. Can you say FOIA?


MARAD’s appropriated budget supposedly supports five DOT strategic goals. The largest share of the agency budget supports Security, Preparedness, and Response. At approximately 77%, it is by far the agency’s primary mission. Approximately 13% of the appropriated budget supports Reduced Congestion, 5% supports Environmental Stewardship, 4% supports Global Connectivity, and 1% supports Organizational Excellence. Arguably, the Security piece is being adequately handled, but beyond that, failures abound. Fruits of the other primary goal (reduced congestion) are nowhere to be found.


This week, we did reach out to Congressman Cummings’ office in Washington. His spokesperson confirmed that the promised letter to MARAD – requesting answers not given during the subcommittee hearing – was indeed sent out. Beyond that, he insisted, “There will be a hearing on it in the future, as was promised. I don’t have a timetable for it right now, but it’s obviously being planned.” Let’s hope so.


Also in the “good news” department was the effort to promote the U.S. flagging requirement in the Gulf and the Taylor amendment; both folded into the oil spill recovery and prevention bill that passed the House last week. The bill that passed was tagged as the Natural Resources committee bill, but it was actually the product of all three committees of jurisdiction and their individual bills, which were combined into the one overarching piece of legislation. The bill, of course, still has to go through the Senate.


Is MARAD necessary? Actually, the mission has never been more important. In its current form, however, MARAD has also never been more irrelevant. The Emperor truly has no clothes. Listen to the tapes of the July 20th hearing and see if you don’t agree. – MarPro.


Link to the hearing video here:


* * * *


Joseph Keefe is the lead commentator of He can be reached at or at MaritimeProfessional is the largest business networking site devoted to the marine industry. Each day thousands of industry professionals around the world log on to network, connect, and communicate.

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Ron Oyer
MarAd should concentrate on developing Kings Point and leave the state schoolships to fend for themselves as commercial entities,after all they are businesses. Kings Point could then serve as a training center for officers as well as a center for naval architecture and marine engineering. One has to ask when has MarAd had a real "hands on" commercial mariner at it's head? The same applies to Kings Point. Tom King seems to be the last there.

Develop an in depth study to determine if the US has any potential for competition in the foreign trade and if so, MarAd could work with reputable yards in the Far East and Europe with regards to standardized designs in the container, dry bulk and tanker sector. When chosen they could identify one or two qualified yards (Aker Philly/Nassco perhaps), develop a building program simmilar to the Mariner program and assist a reputable "US" operator to build and enter the foreign trades as well as short sea shipping. Work for the yards and mariners as well.

As for tax relief for mariners? They make a handsome living and separation has always been part of the lifestyle. I would rather see the US revamp the tax structure for everyone in the form of a national sales tax.

Is this possible? Perhaps if one can navigate the nebulous web of Washington politics and special interests. Congressman Cummings should visit SMM next month in Hamburg and get a glimpse of what the real maritime industry and successful operators are really like.
8/11/2010 11:26:42 AM
Richard Paine
Joe -

Well done. Your report illustrates just how inept this administration is at any tasks other than tax and spend. Spending yes but, evidently, not on anything supportive of U.S. maritime interests. Between the impotence of and ineffective leadership at MARAD, sniping by the likes of John McCain and other Jones Act critics and a general lack of interest in things maritime by the DOT, there doesn't seem to be much good news on the horizon.

While many of us understand the value of a U.S. marine highway, we've both been to too many conferences that ultimately end in the conundrum of the lack of infrastructure, incentive and opportunity yet true and demonstrated need that characterizes the failure to launch a marine highway.

It seems that other than lip service, MARAD and the DOT really don't care a whit about short sea shipping . . . or much else maritime lately, at all.
8/12/2010 11:29:53 AM
Gary Ferrulli
Not a bright picture for the US Maritime industry but nowhere do I see the root cause - cost; nor any suggestions on how to mitigate those. An extremely complex set of issues that no one wants to tackle because of the reality that without significant government subsidies, a true US Flag Merchant Marine fleet serving global markets is not viable.
Start with vessel building cost, look at the last time anyone ordered a Jones Act vessel and look at the Jones Act fleet of the largest Jones Act liner carrier, Horizon Lines, they have to replace vessels, but how? At more than $150. Million for a 3000 teu container vessel, and they need how many to service Puerto Rico, Hawaii and Alaska?
Transfer that same thought to the "Marine Highway" proposition. The markets they are targeting (truckers) won't take 12 knot barge service, they want relatively high speed ro-ro vessels - at over $100. Million a copy for 200 trailers! So how many trucks do we really take off of the road with a 200 trailer capacity? at what cost? it isn't commercially viable; it will have to be subsidized from the start- ship building subsidy and operating subsidy.
Is this what we want of a US Merchant Marine? If it is then the US Government has to step up and commit $$ to the program and be smart enough to reform the shipyards/unions; automate the yards, get in work rules that reflect todays world, do something to protect yard workers for a period of time, and stop the Navy from making thousands of changes to design after the contract has been let.
You cannot have a viable US Merchant Marine with no ability to build ships at relatively competitive world costs. Today it is 3 to 5 times more expensive to build ships here and the time frames much longer.
In my career life, true US Flag carriers have become all but extinct for two reasons; one, when they were subsidized, those that were never learned to be commercially competitive and when subsidies went away, so did they. The few that were not subsidized, some lasted a few years, a couple still exist. But look at what they charge cargo to move when it is flag impelled. Another form of subsidy.
As said, a very complex set of issues and no one wants to tackle it because no one sees any real way to make it work.
8/12/2010 12:07:10 PM
Ron Oyer
To begin with MarAd needs to have a well seasoned maritime professional at the helm rather than a political appointee. The same applies to Kings Point. We need managers that have had recent exposure to the industry worldwide to include all sectors, shipping, shipbuilding and maritime training and operations. Right now we have but 2 yards that have the potential to produce large deep sea vessels, Aker Philly and Nassco albeit Nassco being tainted by Navy pricing and pay up front mentality for design and research. As for short sea shipping we have a few other good yards such as Halter, Bollinger, Eastern that could take an off the shelf Damen design for a coaster and run with it.

As to subsidies both construction differential and operating? Nothing more than a crutch that led to ineptitude and stagnation. Like one old time colleague of mine from one of the extict US shipping leaders used to say "The maritime version of a WPA project".

MarAd continues to fund the state schoolship programs and Kings Point languishes without a leader. The state schollships operate as a business and the declining demand for "seagoing" mariners would indicate they should stand on their own. An intense effort should be made to bring a "seasoned" mariner in to head KP and funds should be appropriated to upgrade the facilities, curriculums and it's mission. Kings Point would make an excellent location for a maritime fuels and emissions research and training center. When mariners such as Capt. George Previll were at the helm of maritime learning such as his tenure as Master of the NY schoolship the cadets were exposed to real maritime professionals. Unfortunately the likes of Capt. Previll and others like Capt. Bill Kolbe, Tom King, Tom McCarthy and others are not readily availalable. There is young blood out there though who have some pretty inpressive credentials and might step up if politics did not get in the way.

US naval architects and marine engineers have developed the likes of nuclear propulsion, the SS United States, maritime electronics. With the right guidance and foresight we can revive a "limited" yet "profitable" maritime sector in the US.

An old adage comes to mind - "If the Captain or Chief ever has to tell you who they are, it's perhaps best they stay on the beach". Think about it.
8/12/2010 12:52:20 PM