MarEx 14

U.S. Coast Guard Icebreaking Invasive Species Second Quarter 2003

Michael J. Siragusa

Oglebay Norton Marine Services Company

Robert F. Dorn

The Interlake Steamship Company

The

Great Lakes

Jerome K. Welsch, Jr. John E. Giles

American Steamship Company

BigCarriers Four Great Lakes Fleet

The Foreignization of the Jones Act Fact or Fiction Grading the U.S. Merchant Marine During the Iraqi War

Announcing MITAGS/PMI’s New Company and Ship Security Officer Training Since September 11th 2001, the maritime industry has come under increasing pressure to improve security awareness and implement security measures appropriate to the threat level.

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Second Quarter 2003

Editor & Publisher:

Tony Munoz Senior Editor:

Joseph A. Keefe Art Director:

Evan Naylor Editors:

Paul Smith Hugh Jardon Senior copy Editor:

Bill Greenthal Counsel :

Timothy C. Cronin Circulation:

TM Marketing

CONTENTS( A R T I C L E S 11 HOW TO USE NON-qualified deferred compensation to attract and keep the best people Kenneth A. Dayton, JD., C.P.A. 14 A VIRTUAL HIGHWIRE ACT IN NEW ORLEANS NEW MINI-IENC ASSISTS CRUISE SHIP TO TRANSIT POWERLINES Craig Thomas 16 POINT-COUNTER POINT: JONES ACT ROBERT ALARIO, OMSA: fixing leaks in the jones act LARRY RIGDON, RIGDON MARINE: foreign investment and control by u.s. citizens 20 The foreignization of the jones act Tony Munoz 28 case study: the great lakes carriers American steamship company great lakes fleet, inc. oglebay norton marine services company the interlake steamship company 36

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Executive interviews: the great lakes carriers robert F. dorn: the interlake steamship company John e. Giles: great lakes fleet, inc. michael j. siragusa: oglebay norton marine services company James Weakley: the LAKE CARRIERS ASSOCIATION JEROME K. WELSCH, JR.: American steamship company

46 ICEBREAKERS LEADING THE WAY: THE PERFECT MODEL: ROI for taxpayers Joseph A. Keefe

50 focus: invasive species threaten the great lakes working to maintain & foster commerce The Maritime Executive while protecting an ecosystem (ISSN 1096-2751) is published by Joseph A. Keefe The Maritime Executive Corp., 2125 SE 10th Ave, Ste 1019 Ft. Lauderdale, FL 33316 e: tony@tmmarket.com 866 884 9034 :tel 954 524 9750 :fax

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EDITORIAL ANWR DRILLING

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Editorial ANWR Drilling: Sensible Solutions to a Myriad of Ills End of War Not an End to US Energy Problems

by Joseph A. Keefe

W

hile it is probably not possible to put aside all the rancor and divisive debate on the fate of the proposed drilling leases for Alaska’s National Wildlife Refuge (ANWR), reducing the issue to its lowest common denominator certainly is. It really comes down to three simple questions: If not now, then when? If not here, then where? If not ever, then why not?

Even as Senate lawmakers rejected the latest bid to open drilling in ANWR by razor-thin margins (52 – 48), helped by defections from the ranks of the controlling GOP majority, the sanity of such a move has to be questioned.

With the U.S. House of Representatives now backing a pro-drilling bill, a collision with the Senate seems inevitable. The stakes have never been higher, and the time to drill home the point to Senate resisters is now.

It is likely that the next vote on an Energy package in the Senate will take place in late 2003, possibly as early as September. What that bill will contain is predicated largely on how hard the Bush Administration pushes for the inclusion of ANWR provisions. And, the key to leveraging the approval of ANWR drilling will be concessions made to Midwestern Senators and their farming constituents. Should the final Senate energy package contain room for both ANWR and Ethanol (read: corn), then Senate Minority Leader Tom Daschle (D-SD) - and others (moderate Republicans and Democratic incumbents in agriculturally sensitive regions) will have some difficult decisions to make in the fall. It’s way too early to get overconfident, however.

If Not Now, Then When?

The timing of the latest efforts to introduce oil drilling to Alaska’s ANWR region is entirely predictable. In the wake of the combat phase of the U.S. led intervention in Iraq, the questions of whether a reliable and cost-efficient supply of energy for the United States will exist down the road, and where this energy will come from, all remain unanswered. Eschewing the big, long-term picture for immediate gratification,

the current objections to ANWR appear to be consolidating around a growing not-in-myback-yard environmental voice of dissent.

The politics of those who would never allow what they characterize as the desecration of the pristine Alaskan tundra are also all too predictable, and also provide stark reminders of the deep contradictions in their arguments. The same people who would decry the current U.S. war in Iraq as purely an imperialistic “Blood for Oil” effort also offer no plausible solutions to a looming energy crisis here at home. Calmed by various expert estimates of vast and seemingly endless untapped worldwide oil reserves, and further bolstered by the recent, postwar drop in prices at domestic gas pumps, U.S. consumers (and their elected officials) have been lulled into a false sense of security. But the worldwide energy situation is anything but settled, not withstanding any warm and fuzzy feeling that has grown from our apparent successes in Iraq.

The United States voraciously consumes up to 40 percent of the world’s energy, while producing only a fraction of that amount for the purposes of satisfying its enormous appetite.

Looking abroad, the primary sources for US imports include such stable countries as Nigeria (ripe for civil war as the current elections, rumored to be rife with fraud, come to a close), Venezuela (bitter political divisions creating massive internal strife and strikes, crippling their oil machine at a time when the US can least afford it), and Columbia (where the main pipeline is damaged with alarming regularity by rebels, interrupting supplies of crude oil from the interior to the coast). Beyond this, none of these primarily totalitarian regimes – and other oil-exporting players - are particularly friendly to the United States, and they have little or no incentive to improve on that behavior.

Embarking on a prompt domestic production plan to augment present reserves serves two purposes: First, it sends a clear message to the balance of the world that the United States is serious about reducing its dependence on foreign oil, and about the geopolitical realities that might make that oil a future weapon of negotiation. Secondly, the American Petroleum

Institute (API) estimates recoverable oil reserves of 10.4 billion barrels from ANWR drilling.

Prudhoe Bay developments are still producing upwards of 20 percent of domestic crude supplies – well past the expected life span of this project, with the almost certain potential of duplicating those results at ANWR. The time for reducing U.S. dependence on foreign energy sources is now. The future is now.

If Not Here, Then Where?

It is important to put the concept of ANWR drilling into perspective. ANWR spans a square mile area about the size of North Carolina. The proposed area for drilling activities within ANWR is about the size of Dulles Airport, approximately 2,000 acres in total. The argument which asserts that drilling in ANWR would destroy a virgin wilderness further deteriorates, when it is disclosed that the proposed drilling project would likely tap into existing pipelines for delivery of crude oil, lessening the environmental impact to a point where virtually 99.9 percent of the ANWR ecosystem would never even know the drilling was taking place.

Don’t take the word of the U.S. Government or the oil companies, however. These are questions best asked of the people of Alaska, who, among other things, have discovered that caribou herds have increased tenfold in the wake of other Alaskan drilling efforts, and that 75 percent of their residents favor ANWR drilling.

Surely, if anyone should have a voice in the notin-my-backyard discussion, then it should be the people whose backyard will ultimately be affected. Consider this: Despite originally using 1970’s technology, numerous groups, including the state of Alaska, have found minimal environmental impact resulting from Prudhoe Bay drilling, production, and transportation efforts.

When and if ANWR drilling is ever approved, and the project begins, can anyone doubt that this particular effort would represent the most environmentally sensitive, carefully planned oil project ever attempted? Environmental watchdog groups would certainly insist on it, the media would watch it closely, and the oil industry itself would be foolish to risk the loss of Second Quarter 2003 - The Maritime Executive 3

Editorial goodwill which would surely come with anything less. At the end of the day, there is no other locale in North America that has the prospect of producing so much energy, while delivering little or no environmental impact.

If Not Ever, Then Why Not? Blood for oil? Hardly. The resources to produce a healthy percentage of our own oil already exists, right here in the United States, and everyone knows it. Certainly, George W. Bush knows it, and he is working the system hard to make it happen. The realization of even fifty percent of the ANWR oil reserve estimates would put a solid cornerstone in his foreign policy agenda. The removal of oil as a negotiating tool for those who would formulate policies based on exploiting American weaknesses would be a welcome part of that agenda. Even the most diehard American environmentalist would probably agree. Unfortunately, an alternate, realistic way to achieve that goal has not yet been put forth by the anti-ANWR camp.

Rarely does an opportunity come along, which while solving the primary issue, can also serve as a panacea for so many other problems.

ANWR drilling affects national security, the trade deficit, commercial shipbuilding, long-term employment numbers, sealift capacity for a materiel hungry armed services, and, perhaps as a broad stroke; the economy as a whole. The facts are clear. ANWR drilling will reduce dependence on foreign oil, and, by association, the detrimental effect on the US trade deficit as well. At least 15 Jones Act oil tankers will need to be built to handle the increased transport load, putting thousands to work at sea, and ashore at the nation’s shipyards. The resulting ships will provide ready reserve capabilities in time of war. And, ANWR drilling will do far more than anything in the President’s bag of tax cuts to revive a stagnant economy.

Oil production from ANWR will never completely eliminate our dependence on foreign oil, but then neither will improving the efficiency of gas-guzzling SUVs. Both efforts are worth pursuing, but the cornerstone of a comprehensive and sensible national energy policy is finally within reach. The time is now. The place to start is ANWR. Joseph A. Keefe is the Senior Editor of The Maritime Executive.

MarEx

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The Maritime Executive - Second Quarter 2003

Washington

The Senate Committee on Commerce, Science & Transportation held a committee

meeting on June 5th, hearing testimony relating to management problems with the Title XI Ship Loan Program.

In case you missed it, Senator John McCain’s concession that he would be unlikely to kill Title XI any time soon was upstaged only by the ferocity of the grilling endured by Maritime Administrator William Schubert. Even as Congress agreed to dump another $25 million into the checkered shipbuilding program, the DOT’s Inspector General imposed reform measures that must be implemented before any new funds can be used. The bar set by the IG was unusually high, and although Maritime Administrator Schubert testified that these recommendations were already being implemented, it remained clear as the meeting ended that heightened Congressional scrutiny would continue. MARAD Spokesperson Robyn Boerstling commented after the meeting that, “Although the current Administration continues to not request funds for Title XI, Congress does appropriate money, and as long as they do, MARAD will be a good steward to the program.”

Among the deficiencies cited by witnesses and committee members alike were MARAD’s failure to properly assess risk of default on loans, failure to annually review loan status, the absence of OMB oversight, failure to recognize its own costs, and failure to operate in a business-like fashion. In response, Captain Schubert promised that reform of the Title XI program was one of his highest priorities, and that he would “revisit MARAD’s credit risk model, and enhance and improve where necessary.”

With 9 loan defaults since 1998 totaling $400 million in taxpayer losses, there was much to talk about in room 253 of the Russell Senate Office Building. Although it was pointed out that

Insider

by Joseph A. Keefe

5 of the 9 defaults had occurred in the wake of 9/11, and, were mostly a function of a severe economic disruption, Senator McCain was having none of it. He termed the losses associated with the AMCV cruise vessels “a rip-off of taxpayers,” and further cautioned against interference from Congress in terms of individual project approvals.

DOT Inspector General Ken Mead also commented that the program was doomed to fail “without good internal controls,” and admitted that investigations into waste fraud and abuse were active, but refused to comment further on those matters. But the program has powerful supporters in Congress, with Senators Ted Stevens (R-AK) and John Breaux (D-LA) also sitting on the committee. Breaux was quick to go on record asserting that Title XI was not a subsidy program and that, properly managed, the loan guarantees were a good bet to produce domestic fiscal dividends. Senator Stevens was adamant that “the Alaskan coastwise trades could not survive without Title XI, and that waste, fraud, and abuse were not confined to any one program” sanctioned by Congress.

Perhaps one of the more interesting exchanges of the day came as Senator McCain questioned Maritime Administrator Schubert as to why the application from the Fastship group, pending since 1999, had dragged on for so long. Although Schubert has been on board for less than half of that time period, he did concede that complex questions regarding technical and economical viability issues for the proposed fleet of transatlantic containerships were a factor, but promised that reviews of all pending applications were underway. Schubert also promised implementation of all 5 of the Inspector General’s recommendations, as well as a “process change” with regard to all Title XI applications.

William Schubert did not create the mess, which has come to characterize the Title XI program, but his ability to clean it up may well define his legacy at MARAD, long after he is gone. In the meantime, the controls set into motion by the Inspector General very well may

WashingtonInsider reduce the program to a minor appendage to U.S. maritime policy, with stringent risk models dictating that MARAD guarantee loans only to those who really don’t need the help. Senator McCain may get his way after all.

Ghost Fleet: End Game in Sight?

Before you start complaining that “You’ve heard it all before,” or perhaps that “You’re tired of the dance,” understand that the problem has not yet been solved. As we move into the second half of 2003, MARAD has apparently pinned its hopes for mitigation of the balance of the original ~ 130 “Ghost Fleet” vessels on a combined program of (a.) foreign scrapping, (b.) reefing solutions, and, to a lesser extent, (c.) domestic dismantling. The good news is that the prospect of actually disposing of a good portion of these toxic time bombs has markedly improved. Left in the cold, however, are the Program Research & Develop Announcement (PRDA) responders who had the temerity to propose anything that might have deviated from the norm. It is a fact that MARAD has its hands full with any number of hot-button issues, and with the memory of the AMCV Title XI failures still in play, the concept of any sort of risk with regard to the handling and disposal of the decaying vessels is clearly out of bounds.

But, the enormous pressure on MARAD to deal with the issue, and prior to 2006 as mandated

by Congress, is potentially coloring the decision process.

AS MAREX goes to press for this issue, MARAD, according to spokeswoman Robyn Boerstling, is “focusing its efforts on negotiations with a UK based primary responder to (one of many) PRDA solicitations.” Although

she declined to identify the primary party, she did acknowledge that the firm of ABLE UK, also based in the UK, was the designated sub-contractor to this party. ABLE UK’s WEB site indicates that they are, indeed, an experienced ship-breaking company, with appropriate environmental policies in place.

The proposal would send 13 vessels from the James River “Ghost Fleet”, or ten percent of MARAD’s total headache, to the UK to be disposed of, perhaps as early as August of this year. Boerstling cautioned that the deal was not final, and that its completion was predicated on (a.) EPA approval (received on May 22), (b.) negotiation of several points with the primary responder, and (c.) notification of the UK government that such a transaction was to take place. To a lesser extent, another proposal to send another 4 hulls to a domestic yard for scrapping is also still alive. Curiously, the proposal to send as many as 40 of the decrepit hulls to China - as reported in the 1Q issue of THE MARITIME EXECUTIVE - has been put on the back burner.

Knowledgeable industry sources confirm that the 4 hulls intended for domestic disposal “would not, under any circumstances, be fit for towing to foreign yards.” Hence, the decision to pursue this avenue is not necessarily the best or most economical solution for MARAD, but certainly involves the route fraught with the least amount of risk. The decision to enter into (and apparently be very close to completing) negotiations with a UK disposal crew raises a number of questions, however. U.S. Representatives Solomon Ortiz (D-TX ) and Curt Weldon (R-PA) have complained about the obscure nature of the process, as well as about the fact that the cost of sending these hulls overseas is not completely transparent. Of course, it goes without saying that Ortiz and Weldon represent Congressional districts that contain industries potentially capable of performing ship-breaking operations. It all comes down to cost: who can do it cheaper. Or does it?

Typically, the average disposal price for one of the U.S. government’s ship scrapping candidates has been in the range of $1.5 – $2.5 million per hull. And, there is absolutely no reason to believe that any UK company which measures up to the task will be able to do it any

cheaper. In fact, UK environmental and OSHA standards are at least as stringent as U.S. requirements, and, in some respects, probably more so. MAREX sources knowledgeable about UK shipyard productivity, wages, and workweek hours indicated no particular differences in that regard. Tim Mullane of Baybridge Enterprises, one of many domestic PRDA bidders hopeful to garner at least some of the ship disposal work, also asserted that “towing costs to the UK would start at $200,000 per unit,” and that “MARAD would likely have to pick up the cost of P&I Insurance for the trip.” Typically, he says, in this type of venture, the government assumes the risk of loss, with no P&I Insurance available.

In contrast, one PRDA Responder with “provisional MARAD acceptance” for a domestic disposal solution has steadfastly clung to a figure of just $750,000 per vessel. Despite this, Spiros Vassilopoulos of Vassilopolous and Williamson, LC, still awaits the call to spring into action.

The questions do not stop there. It has now come to the attention of MAREX, as well as the EPA (who has requested the report), that the sub-contractor of a primary PRDA responder is a firm which also operates landfills, and, in fact, operates one which ranks number 76 (or in the worst 8%) out of 921 landfills in the UK, according to the UK Environmental Agency Operator and Pollution Risk Appraisal (OPRA) scheme. This may or may not come as news to EPA officials who have approved the deal, but considering that the practice of exporting U.S. government hulls to foreign yards was stopped because of just such an environmental issue should raise red flags anew.

Domestic PRDA responders, meanwhile, are becoming frustrated with the game. Provisional acceptance of proposals is not translating into business, and the secrecy with which foreign operators are being afforded during negotiations has angered many who have bid on the PRDA projects. Spiros Vassilopoulos, whose plan includes the dismantlement of 27 obsolete James River Reserve hulls, conversion of at least one vessel to a floating, scrap-processing unit, and conversion of nine other vessels for alternative operational uses, remains “optimistic, and neutral for the time-being. We have to wait for MARAD to go through their evaluation period.”

But, he also laments, “Politics appears to be triumphing over logic and innovation. The problem does not lie at MARAD.” Vassilopoulos also Second Quarter 2003 - The Maritime Executive 5

WashingtonInsider acknowledged that MARAD is frantically trying to do the best they can with just $31 million, but remains puzzled as to why the apparent (his) low cost option is still on the table.

Although the possibility of a lawsuit to prevent foreign export of the “Ghost Fleet” has been broached, Vassilopoulos also maintains “litigation has never been an option.” Hence, legal challenges to the UK solution are not likely.

Tim Mullane, a shipyard project manager, is candid about the challenge, and the task facing Americans who hope to capitalize on the $31 million available to MARAD in their quest to rid U.S. waterways of these floating disasters. He acknowledges “there is not a lot of expertise left in the United States for cutting ships, and as these people go away, the cost of recruiting them back into the business becomes prohibitive.” But, he also adds, “If we don’t get started, we’ll never get finished in response to the 2006 deadline.”

The domestic reefing solution is also a good one, but the costs for cleaning up the vessels for sinking can and do reach $3 million. So, for the time being, MARAD focuses on its foreign disposal plans, with the UK firmly in the cross hairs to get things started. And, while no one is (yet) overtly suggesting that politics is playing a part in the sidelining of the Chinese in favor of the British for the initial reintroduction of U.S. export of scrap hulls, the timing is curious, especially in the wake of the Iraqi conflict. It will also be interesting to see, when it is all said and done, if MARAD can demonstrate that sending these hulls overseas is any more efficient, cost-effective, and environmentally correct than any number of domestic solutions already on the table. Spending those tax dollars in the U.S. already makes better sense, but sorting out the politics and machinations of the decision process is proving to be harder still.

Sealift to Iraq: Grading the Effort / Looking Back to Desert Storm

The recent sealift effort during Operation Enduring Freedom (Iraq) can be described as generally unremarkable. And that’s just fine with the U.S. Maritime Administration. A total of 40 RRF vessels were activated, moving 30 million square feet of cargo in support of the war effort. All of these vessels, which included 30 RO / RO, and 4 pre-positioned vessels were 6

The Maritime Executive - Second Quarter 2003

activated on time, and without significant difficulties. MARAD spokesperson Robyn Boerstling also reported that the Voluntary Integrated Sealift Agreement (VISA), which allows the government to marshal all U.S. merchant certain vessels in times of need, was not activated, but that 12 vessels who participate in this program were chartered. Of those 12 vessels, 3 participate in the MSP protocol. Although no official statistics were yet available, she also indicated that approximately 82 to 85% of all cargo was shipped on U.S. bottoms. All of this occurred with little or no negative press coverage.

Flashback to the aftermath of Operation Desert Storm: The U.S. Government Accounting Office (GAO) admitted that “During the Gulf War, 75 percent of the Ready Reserve Force ships could not be made ready by their specified deadlines, mainly because of the ships’ poor conditions and because of crewing problems.” In the end, the job got done. In other words, the initial “surge” effort achieved by U.S. Sealift capabilities probably earned a passing grade, but our ability to sustain a long-term campaign would likely have failed miserably.

The Mobilization Requirement Study (DOD / MRS 1992), and its follow-up document, the “Bottom Up Review”, clearly outlined deficiencies in prior U.S. Sealift policies and capabilities, and recommendations for courses of action to correct these items. MARAD subsequently spent in excess of $1 billion to resolve mechanical, management, and crewing issues encountered during the Gulf War. The GAO has since reported “significant progress towards solving those problems.” MARAD initiated a number of strategies in a effort to maintain the current readiness levels of their RRF vessels, including, but not limited to, assignment of permanent, nucleus crews to the highest priority ships (starting in 1993), and plans to perform unannounced activations on an annual basis to demonstrate and prove this highly important capability. Most vessels activated on time, or earlier, during drills and actual practice.

It is no accident that the government moved quickly after the Gulf War to assemble permanent crews for the critical vessels intended for the crucial, initial surge effort. The collection of merchant mariners assembled from various sources before, and during the Gulf War conflict, fell well short of expectations and requirements, both in terms of numbers and competence lev-

els. The GAO has made pointed references to the “declining pool of available, qualified mariners which will affect MARAD’s future ability to adequately crew RRF ships”.

In the bad news department, U.S. merchant marine vessel numbers (over 1,000 GT) have dropped from a peak of 2,926 vessels in 1960 to the current level of approximately 277 privately owned, ocean-going vessels. Lloyds Register estimates the U.S. flag fleet to comprise just two (2%) percent of the world fleet as of 1998. The efforts of the past ten years to improve American Sealift capabilities, however, have done nothing to improve this situation.

The current policy of “acquire and convert”, and/or build to suit the needs of the RRF fleet is, perhaps, understandable, especially from the frame of reference of a military machine concerned with a single, short term objective.

The requirement for any future shipbuilding under Title XI parameters to stipulate ship design which would easily translate to military applications, in time of need, might not be a bad idea, especially as Congress and MARAD struggle with reform of the beleaguered program. Under this scenario, ALL vessels, no matter what their design, would be required to participate under a “VISA” type program. For example, RO/RO and /or container vessels would need to comply with MILSPEC requirements, and be of such intermodal construction so as to allow easy and quick conversion for military applications. Tanker design would require CONSOL and / or underway replenishment stations and gear and fenders, as well as cargo systems, pumps, and piping to facilitate carriage and delivery of military fuels and petroleum products. The military and DOD planners benefit from a modern and actively operating fleet, and commercial operators could potentially flourish under favorable terms for their marine projects. In the long run, a loan guarantee program predicated on dual design requirements would come at a significant cost reduction to the US taxpayer, foster domestic jobs and tax revenue, and maintain (and potentially grow) a strong U.S. merchant marine.

We live in a world in which the European Community is unable, or probably more accurately, unwilling to police its own backyard. The Middle East festers in a climate in which U.S. tanks and guns are welcome in time of need, but tolerance for our way of life is actively

WashingtonInsider shunned, politically and through organizations such as OPEC. And, for all the solidarity provided to their friends across the water, the British tend to bring competence to the table, certainly, but often little in the way of real men and materiel.

Furthermore, their merchant marine may arguably be in worse shape than ours. Like it or not, the next major conflict will involve America, and we will likely have to go it alone. The requirement for both a strong Ready Reserve capability, balanced by a vibrant commercial Merchant marine, should be apparent to everyone by now.

Churning the Waters:

Summer Heat on the Houston Ship Channel

As reported in our last issue, there is more to life on the Houston Ship Channel than just sharp turns and the occasional oil spill. Two hot button issues that are on the plate of the Port of Houston Authority (POHA) will come to a head by the end of this summer, and, one way or another, the headaches will continue. The fate of the POHA’s proposed container / cruise terminal at Bayport awaits the edict of the U.S. Army Corps of Engineers (USACE), and oral arguments in 5th Circuit Court of Appeals for the lawsuit filed by a score of pipeline owners regarding costs related to relocation of pipelines are expected to kick off in early September. The pipeline lawsuit has far reaching consequences on a national level, with other ports watching to see what happens. Local port municipalities have a huge stake in the outcome, with funding models for future dredging and improvement projects hanging in the balance. Beyond this, the struggle to secure adequate funding for the completion of the dredging and widening project continues.

The countdown to USACE’s issuance of the

Record of Decision regarding the Final Environmental Impact Statement (FEIS) for the Bayport Terminal is underway, although now it is now delayed even further by a request from the Galveston Bay Conservation and Preservation Association (GBCPA) to delay the deadline for public comments on the matter to July 15th, from the original date of June 16th.

As a result of the extended comment period, the Record of Decision will also be delayed and not be issued until approximately August 28th.

The USACE can then do one of three things: (a.) issue the permit, (b.) issue the permit with conditions, or (c.) deny the permit.

As they gear up for the final battle, POHA has put its best foot forward, emphasizing recent environmental efforts and awards at the port, and a host of concessions and environmental improvements with regard to the terminal. On the other side, environmental activists and local residents are also ramping up their efforts to prevent the terminal from being built. POHA’s Executive Director Tom Kornegay’s prediction of issuance of a USACE construction permit in June or July has already evaporated, and even if the permit is issued in August without conditions or modifications - a lawsuit is sure to follow. Breaking ground in Bayport may very well be a long way off. It is already looking less likely during this calendar year.

The Bayport FEIS, finally available on May 16th, is an important document in the battle over the future of Bayport’s waterfront. GBCPA President and environmental attorney Jim Blackburn says, “The FEIS validates all of the concerns voiced by the GBCPA and area residents.” He points out the conclusions reached in the Executive Summary of the FEIS in which (ES-65 / E8.0 - Unavoidable Adverse Impacts) no less than 11 adverse items are laid out, including loss of upland habitats, public expenditures for public infrastructure investments, air quality pollutants, and permanent fill or excavation of 146.4 acres of wetlands. The FEIS also lists positive cumulative effects of the project.

Bayport is by no means a done deal. A significant development, which has created additional

debate, is the approval of the Shoal Point Container Terminal on April 23 of this year. The GBCPA has continually pointed to the availability of the Shoal Point land, and has aggressively pushed this site as an attractive and viable alternative to Bayport. With construction at Shoal Point expected to begin in the near term, it is logical to assume that the container facility in Texas City will get the jump on any additional business and growth in the container business in the Houston area. And, since the proposed Bayport terminal will have to compete against the new facility at Shoal Point, the question of whether the new capacity represented by Bayport is really needed has to be asked and answered.

It is almost certain that the issuance of a clean (without modifications or conditions) permit to proceed at Bayport will trigger a lawsuit to stop the project. Jim Blackburn refused to speculate on the potential parties to such an action, nor would he comment on scenarios involving issuance of a USACE permit that included certain conditions. He did indicate that the GBCPA would be a party, and, perhaps, would even be the lead plaintiff in any action that might be filed. He also conceded that legal action might not necessarily stop the groundbreaking of such a project, but, if not, he cautioned, “The POHA spends money and proceeds at its own risk.”

The balance of the year promises to be a difficult period for the port of Houston. Victory on either or both issues (Bayport / pipeline costs) will involve continued legal wrangling in Federal court. Losing on either issue will possibly involve appeals, draining valuable funds for legal expenses from the bottom line. The dredging project, which will eventually widen the ship channel to 130 feet and deepen it to a controlling depth of 45 feet, although proceeding with dispatch, is not guaranteed full funding, nor is that a likely prospect if the economy does not markedly improve in the near term. Despite the cool and wet spring, it is indeed heating up in “Sauna City,” but this year, the heat is purely a function of heartburn.

And, relief is nowhere in sight.

Joseph Keefe is the Senior Editor of The Maritime Executive. He writes the Washington Insider as a regular feature, and can be reached at jkeefe@ maritime-executive.com.

MarEx Second Quarter 2003 - The Maritime Executive 7

EXECUTIVEACHIEVEMENT the driving force behind SCI’s annual Christmasat-Sea Gala.

Senator John B. Breaux (D-LA) Honored in New Orleans The maritime community of New Orleans recently honored Senator John Breaux with its 2003 “The C. Alvin Bertel Award.” Breaux currently serves on the Commerce, Science and Transportation Committee, as well as on the Finance Committee. He has always been a staunch proponent of U.S. and Louisiana ports and the merchant marine, shipbuilding, and ship repair industries. He is also deeply involved in issues affecting some of Louisiana’s highest economic priorities, including Industrial Canal Lock, expansion of port facilities, and dredging the Lower Mississippi River. Breaux has been involved with all major pieces of U.S. maritime legislation in recent years. He was named Port Person of the year by the American Association of Port Authorities in 2001.

C. Alvin Bertel became a prime mover in the early 1940s in bringing about a constitutional amendment which provided the non-political selection of New Orleans Port Commissioners.

As a result, the “Dock Board” instituted administrative reforms that endure to this day. Other recent recipients of the prestigious award have been Donald “Boysie” Bollinger -1997, Capt.

Mark Delesdernier, Jr. -1999, John P. LaBorde – 2000, Capt. Stephen W. Rochon, USCG-2001, and Walter J. Boasso-2002.

Seamen’s Church Announce Silver Bell Recipient Admiral James Loy, Administrator for the Transportation Security Administration, and Mrs. Grace Allen were honored at the Institute’s 26th Annual Silver Bell Awards Dinner at Chelsea Piers in New York City.

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The Maritime Executive - Second Quarter 2003

Last year, more than 900 people attended and more than $600,000 was raised to support the Seamen’s Church Institute. “We at the Seamen’s Church Institute, as well as others in the maritime, were privileged to know Jim Loy from his distinguished service in the U.S. Coast Guard, long before he spearheaded improvements in airport security,” said the Rev. Dr. Jean R. Smith, Executive Director. “Grace Allen has been a leading proponent of SCI’s timeless and innovative programs alike. From core offerings such as ship visiting and Christmas-at-Sea to SCI’s more recent initiatives in service to inland mariners, her keen insights and enthusiastic encouragement have had a profound and lasting impact upon the Institute’s ability to serve well. Both Silver Bell recipients are SCI Board members.

Since November 2002, Admiral James M. Loy, Administrator for the Transportation Security Administration, has managed a new federal agency formed by the Aviation Transportation Security Act. This agency provides security for the traveling public and for all commercial transportation. Previously, Admiral Loy served as Commandant of the Coast Guard from May, 1998 to May, 2002, when he focused his leadership on restoring Coast Guard readiness and shaping the future of the Coast Guard. Prior to becoming Commandant, Admiral Loy served as the Coast Guard Chief of Staff from 1996-98, during which time he redesigned the headquarters management structure and overhauled the Coast Guard planning and budgeting process to focus more closely on performance and results.

Mrs. Grace Allen, the Chairman of the Institute’s Arts and Artifacts Committee, is an avid sailor, who appreciates the often lonely and dangerous life of mariners. She has orchestrated many of the Institute’s maritime art openings in the Water Street Gallery located at SCI’s headquarters in Lower Manhattan. These shows have given the general public an opportunity to appreciate a mariner’s life through art and artifacts. A native of the midwest, Mrs. Allen enthusiastically supported the Center for Maritime Education’s initiative to train mariners by building the first inland simulator-based training facility in Paducah, Kentucky, and she is

John J. McMullen to Receive a Lifetime Achievement Award Dr. John J. McMullen, a 1940 graduate of the Naval Academy, served in the Pacific theater during World War II. He was awarded the Asiatic Pacific Campaign Medal and the World War II Victory Medal. He was also awarded the Silver Lifesaving Medal and the National Defense Service Medal. He completed post-graduate training at MIT and earned a doctoral degree from the Swiss Federal Institute of Technology. His civilian career includes leading the U.S. Maritime Administration’s Office of Ship Construction and Repair, starting his own naval architectural firm, and working as president and CEO of United States Lines, one of the nation’s foremost shipping companies. Dr. McMullen established the naval architecture firm of John J. McMullen Associates, which is responsible for numerous innovations in ship design and construction.

The Seamen’s Church Institute’s mission is to advance the personal, professional, and spiritual well being of mariners worldwide. Established in 1834, SCI is an ecumenical agency affiliated with the Episcopal Church.

Mr. Bob Magee Honored in Puget Sound Bob Magee, President and CEO of Totem Ocean Trailer Express (TOTE) and American Shipping Group, Inc., has received the 2003 Puget Sound Maritime Achievement Award. The award, known as the Puget Sound Maritime Man of the Year award from 1951 to 1992, was presented May 2 at the Seattle Maritime Festival Luncheon aboard the Norwegian Cruise Line vessel Norwegian Sun at the Bell Street Pier Cruise Terminal. Announcing the award was Stan Barer, the 1991 award winner and a principal at Saltchuk Resources, the Seattle-based parent company of TOTE and American Shipping Group.

Born in Philadelphia, Magee graduated from

EXECUTIVEACHIEVEMENT the U.S. Merchant Marine Academy at Kings Point, New York. His maritime career includes four years as a merchant marine deck officer, management positions at Sun Shipbuilding in Pennsylvania, and Senior Vice President of Vessel Operations for Puerto Rico Marine Management.

Magee joined TOTE, a privately held common carrier operating trailer ships between Tacoma, Washington and Anchorage, Alaska, in 1986 as Vice-President of Marine Operations.

His association with the company, however, dates back to TOTE's start-up in 1975 when it was a subsidiary of the Philadelphia-based Sun Company. He has served as President and CEO of TOTE since 1994.

In selecting Magee as this year's recipient, the award committee recognized Magee's strong leadership in promoting the Jones Act, Alaska legislation, and other initiatives that benefit the entire maritime industry. They also noted TOTE's long time emphasis on customer service and community support, as well as TOTE's decision to add two new vessels, the M.V. Midnight Sun and M.V. North Star, to its fleet. These vessels, among the most environmentally friendly deep draft vessels ever built, are entering the Alaska trade this year.

Magee has a Masters Degree in finance from Widener University, Chester, Pennsylvania, and has studied advanced management at Harvard University. He currently serves on the executive board of the Tacoma-Pierce County Chamber of Commerce, on the board of Cruise West, and on the Thea Foss Waterway Development Board. His professional affiliations include the Propeller Club of the United States, the American Bureau of Shipping, the Society of Naval Architects and Marine Engineers, the National Defense Transportation Association, and the National Cargo Bureau.

Other awards presented to Magee include the 2002 Master Mariner award presented by Propeller Club, Port of Tacoma chapter, and the National Propeller Club Maritime Person of the Year for 2001-2002. He and his wife Marie live in Tacoma.

Crowley Promotes Alford to Director of Security Ed Alford has been promoted to Director of Security for Crowley Maritime Corporation and is now responsible for supporting all Crowley

companies in developing and implementing effective security programs. In his new position, Alford will remain domiciled in Port Everglades and continue to report to Charlie Nalen, VicePresident, Environmental, Safety and Quality Assurance.

Alford began his career with Crowley in 1991 in port operations at the company's Port Everglades, Fla., terminal. He continued in this capacity until 1994, when he was promoted to Manager, Contraband Prevention and Security.

Alford has also managed Crowley Liner Services' Maritime Anti-Narcotic compliance with the U.S. Customs Super Carrier Initiative Agreement and was instrumental in Crowley being one of the first Sea Carrier companies approved for the new Customs and Border Protection, Customs Trade Partnership Against Terrorism program (C-TPAT).

"Ed has enhanced our security program in so many ways through the years," said Nalen. "He understands the importance of safety and security to our customers and to our business and has implemented security programs making Crowley a leader in the industry. This promotion is a direct result of his dedication and success."

Alford is a graduate of the U.S. Merchant Marine Academy and sailed as a U.S. Coast Guard licensed deck officer on ships and ocean going tugs prior to joining Crowley. He is also a graduate of the Department of Treasury Federal Law Enforcement, Seaport Security and AntiTerrorism Program and is Crowley's representative on the Maritime Security Council.

Waterways Work! Announces Barry Palmer New President & CEO Barry Palmer has been named President and Chief Executive Officer of Waterways Work!, the national coalition to promote the positive contributions that America's ports and inland water-

ways system make to our nation's economy, environment, national security and quality of life. Palmer comes to Waterways Work! after serving for 21 years as Executive Director of DINAMO, the Association for the Development of Inland Navigation in America's Ohio Valley.

Palmer succeeds Dennis Kirwin as President of Waterways Work!

A career organizational manager, Palmer came to DINAMO from the Greater Pittsburgh Chamber of Commerce as its Manager of Governmental Affairs. Previously he was VicePresident, General Services Department at the Harrisburg (Pennsylvania) Area Chamber of Commerce. During his professional career, his work has focused on transportation, energy, and tax issues.

"We are pleased to welcome Barry Palmer to the helm of Waterways Work!," said Berdon Lawrence, Chairman of Waterways Work! "His more than 30 years of experience in helping to educate the various publics about the critical importance of the waterways system to our nation and the world will serve to further strengthen the Waterways Work! mission".

"We owe many thanks to Dennis Kirwin, outgoing president of Waterways Work!, who worked so hard to lay the foundation for this campaign and to ensure its success," Lawrence continued.

Waterways Work! is supported by more than 250 waterways carriers, shippers, port authorities, shipping associations and waterways advocacy groups from all regions of the country.

Captain Jim Bamberger Joins TSA Capt. Jim Bamberger recently joined the Transportation Security Administration (TSA) as Deputy Branch Chief, Maritime Passenger Security. Bamberger has over 25 years of experience in the maritime industry including positions as Master, Captain, and Chief Operating Officers. He was recently the Sales Manager at Maritime Institute of Technology and Graduate Studies (MITAGS) in Linthicum Heights, Maryland.

Second Quarter 2003 - The Maritime Executive 9

EXECUTIVEACHIEVEMENT Tom Crowley Jr. Receives Honorary Degree From the USMMA Tom Crowley Jr., Chairman, President and CEO of Crowley Maritime Corporation, received an honorary doctorate degree from the U.S. Merchant Marine Academy at Kings Point, NY, at today's commencement exercises.

USMMA officials presented the degree to Mr. Crowley for outstanding service to the academy, and to the public, government and industry the academy serves.

In addition to being a staunch advocate for the U.S. merchant marine and the Jones Act, Mr. Crowley has supported men and women at the USMMA with scholarships, internships, and jobs after graduation. Through the Thomas B. Crowley, Sr., Memorial Scholarship, which Mr. Crowley established in memory of his late father, the company has awarded tens of thousands of dollars to deserving cadets. "It is truly an honor and a privilege to be recognized by one of this country's most outstanding and important institutions of higher learning," said Mr. Crowley. "I look forward to continuing our relationship with the academy as we work together to strengthen the U.S. merchant marine."

Today, Mr. Crowley directs a company with about $1 billion in annual revenues, approximately 3,800 employees and more than 300 vessels around the world. The corporation is engaged in worldwide logistics, liner cargo services, energy and marine services, ship assist and escort services, petroleum and chemical transportation and vessel design/build technical services. During the past nine years, Mr. Crowley has worked to expand and position the 111-year-old company for success in the 21st Century, focusing on growth as it relates to the company's expertise on water, while leveraging into new business areas. His portfolio approach to the business protects the company from assuming too much risk, while maximizing opportunities to grow. He and his management team have forged enlightened relationships with employees and with organized labor to build a resilient, well-trained organization dedi10

The Maritime Executive - Second Quarter 2003

cated to customer responsiveness and service excellence.

Among his many achievements during his tenure as CEO, Mr. Crowley has aggressively directed efforts to preserve the Jones Act; spearheaded a management re-engineering, embraced and invested in cutting edge technological advances; initiated and completed the sale of non-core businesses, and expanded into logistics services and breakbulk and petroleum transportation. He also launched the largest vessel fleet revitalization in recent industry history with the construction of 26 new tugs, including the most powerful cycloidal-propulsion tugs in the world.

In 2001, Crowley acquired Marine Transport Lines (MTL), a storied U.S. company engaged in chemical parcel transportation, refined petroleum transportation, crude oil lightering, and ship management. In addition, he positioned Crowley to be the first U.S. ocean cargo carrier to serve Cuba in over 40 years through a licensing agreement with the U.S. government. The historic first shipment of frozen poultry arrived in Havana December 16, 2001. In 2002, the company took delivery of four U.S.-built 155,000-barrel, double-hulled articulated tug/ barge units (ATBs).

He is widely respected in the maritime industry through his involvement with organizations such as the Sea-Lift Committee of the National Defense Transportation Society, the American Bureau of Shipping, the Transportation Institute, the International Council of Container Operators, World Shipping Council, Mystic Seaport National Council of Advisors, Marine Transportation Council and the American Waterways Operators. Additionally, he is a member of the Barbary Coast Chapter of the Young Presidents Organization.

Mr. Crowley, who earned a finance degree from the University of Washington, has received several distinguished awards during his career, including last year's United Seamen's Service 2002 Admiral of the Ocean Sea (AOTOS) Award.

Oakland-based Crowley Maritime Corporation, founded in 1892, is primarily family- and employee-owned, and is engaged in worldwide logistics, liner services, contract towing and transportation, energy support services, ship assist and escort services, vessel management and petroleum and chemical marine transport. Additional information about Crowley,

its subsidiaries and business units may be found on the Internet at www.crowley.com.

PHA Executive Director Kornegay Named 1st Vice President of International Association of Ports and Harbors.

The Port of Houston Authority (PHA) announced that Executive Director Tom Kornegay was elected First Vice President of the International Association of Ports and Harbors (IAPH) during the Association's conference in Durban, South Africa. In this capacity, Kornegay will also chair the IAPH's technical committees of sustainment and growth for which he provides leadership on matters such as membership, communication and networking, and human resources development. As a point of IAPH succession, Kornegay will become president of IAPH at the end of the 2005 conference in Shanghai, China, and presiding president during the Association's 2007 conference in Houston.

Incoming IAPH President Pieter Struijs, Executive Director/Vice Chairman of the Rotterdam Municipal Management Port, Netherlands, stated, "In his new role, Kornegay will have tremendous influence to promote IAPH's global strength. He will be a strong advocate for information exchange among members and support for programs aimed at enhancing opportunities for training, educational and technical assistance for ports in developing countries. With Kornegay as 1st Vice President, Datin Paduka O.C. Phang of Klung Port Authority as 2nd Vice President, and Siyabonga Gama of the National Port Authority as 3rd Vice President, I feel that IAPH has a superior leadership team in place to advance the ideas and goals of the organization."

PHA Chairman Jim Edmonds stated, "The IAPH's 2007 conference will advance Houston's stature as a world class destination. In addition, I am confident that Tom Kornegay's extensive experience will greatly enhance the direction of IAPH's strategic leadership."

MarEx

ExecutiveCompensation How to use Non-Qualified Deferred Compensation to Attract and Keep the Best People

by Kenneth A. Dayton, JD, CPA

In 1997, the Society for Human Resource Management (SHRM) polled over 400 human resource professionals in various businesses. At the time, they found that nearly three-quarters of their respondents were concerned about the number of voluntary resignations at their organizations. In the same survey three years later, that number had jumped to 84%.

Most of the organizations responding to the survey conducted exit interviews with employees who were resigning. The two most common reasons for resignations were the pursuit of career opportunities, and better compensation and benefits. And of course, the associates who are most likely to be lured away with the promise of better benefits—and who are the most expensive to replace—are an organization’s key executives.

For this reason, many corporations increasingly use non-qualified deferred compensation (NQDC) plans to attract and retain key executives. In fact, these plans are now offered by most public companies, and by the vast majority of all companies with revenue greater than $2.5 billion. Basically, NQDC involves a contractual agreement between a sponsoring employer and selected employees to defer receipt of otherwise currently taxable compensation until a specified future date or event (e.g., retirement, termination, college funding or large purchases, death, or disability).

Why are these particular plans so popular… and why are they such an important part of a successful recruiting and retention strategy? And if your company offers such a plan, why is it critical for you to make sure it’s up to date?

The answer begins with the realities

of retirement savings today.

According to the Social Security Administration, for most of us the primary sources of retirement income will be Social Security, personal savings, and employer-sponsored retirement plans. As compensation increases, so does the amount of replacement income required in retirement, as well as the percentage of that income needed from sources other than Social Security.

However, recent tax law changes have reduced the total annual contributions or benefit accruals an employee can earn under a qualified retirement plan or tax-sheltered annuity program, by limiting the annual compensation that can be taken into account to $200,000. For the highly compensated employee, this creates a retirement income gap, which only widens at higher compensation levels. Put another way, the more money executives make, the more they will need in order to maintain their standard of living into retirement—and the less they can save in qualified plans.

$

$

$

The 401(k) Dilemma Employer sponsored qualified retirement plans, such as 401(k)s, are

subject to Internal Revenue Code (IRC) and Employee Retirement Income Security Act (ERISA) regulation. IRC and ERISA restrictions frequently operate to the detriment of highly compensated executive participants in such plans. Today, 401(k) plans are widely offered by employers to encourage employee accumulation of retirement savings through voluntary deferral of otherwise taxable compensation.

Employee contributions to a 401(k) plan are limited in absolute dollars (i.e., $12,000 in 2003), and may be further curtailed as a consequence of plan-discrimination testing.

In effect, the result can be a form of reverse discrimination against your highly compensated executives. In terms of percentage of total compensation, highly compensated executives are prevented from deferring as much into qualified retirement plans as rank and Second Quarter 2003 - The Maritime Executive 11

ExecutiveCompensation

[

A high percentage of Fortune 500 companies provide relief from qualified retirement plan limits on highly compensated executive contributions and benefits via employer-sponsored voluntary NQDC plans. A non-qualified plan can be a valuable supplement to your 401(k) plan—allowing your highly compensated executives to overcome the effects of contribution limits, accumulate significant capital, and plan more effectively for both near- and long-term needs.

file employees. While EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) provided modest relief to the highly compensated executive group relative to qualified plan limits, both highly compensated executives and plan sponsors remain severely constrained with respect to qualified retirement plan contributions and benefits for top earners.

A high percentage of Fortune 500 companies provide relief from qualified retirement plan limits on highly compensated executive contributions and benefits via employer-sponsored voluntary NQDC plans. A non-qualified plan can be a valuable supplement to your 401(k) plan—allowing your highly compensated executives to overcome the effects of contribution limits, accumulate significant capital, and plan more effectively for both near- and long-term needs.

By deferring compensation on a pretax basis, your key executives can invest more in a deferred compensation account than if they had received the compensation currently, paid income taxes, and invested the after-tax amount. Because investment earnings on their account balance are tax-deferred (they only pay income tax when they receive a distribution), the plan generates more rapid growth than a personal after-tax investment earning the same rate of return.

These plans are not just highly valuable to senior executives and other key associates—for the plan sponsor, they offer an extremely cost-effective way to recruit, retain, and retire high-value personnel. Additionally, NQDC can supplement, or serve as a substitute for, equity-based compensation packages 12

The Maritime Executive - Second Quarter 2003

such as company stock or stock options.

NQDC plans are highly flexible and place almost total plan design control in the employer’s hands—you choose who will be covered, what benefit levels will be provided, and under what terms and conditions. In fact NQDC is an ideal plan from both a human resources and financial perspective.

The Executive Viewpoint Let’s examine these plans from the viewpoint of your participating executive. There are several benefits: Investment options. Typically, a wide range of high quality fund managers is provided. The menu of investment options typically spans all asset classes (large cap, small cap, corporate bonds, international equities, etc.). While many plans offer the same investment funds that are available to 401(k) participants, others offer a different set of asset managers to provide diversification between qualified and non-qualified plans.

Tax savings. Not only does the participant reduce his or her current income tax (up to 100% of annual base salary, bonus, and/or commissions can be deferred), but the account balance itself accumulates tax-deferred.

Distribution options. Sub-accounts can be set up for specific pre-retirement events such as college tuition. At the time of election, a participant may elect

]

to receive some or all of the deferred amounts and related earnings on a particular date prior to retirement.

Distributions can be made any number of ways.

Executives can receive their payouts in any period from an immediate lump sum to regular payments over a period of time up to 20 years. If the associate has immediate financial needs such as college education costs, “in service” distributions can be taken in a lump sum prior to retirement. There is no early withdrawal charge for scheduled distributions or distributions due to death, disability or hardship.

Deferral elections. Participants may elect salary, bonus and commission deferrals in dollars or percentages, and may vary the deferral amounts for each type of compensation.

Vesting. Participant deferrals and balance credits are generally 100% vested. Company matching contributions (if any) may include a vesting schedule.

Protection. Often, benefits are protected from “change of control” through the use of a rabbi trust. A rabbi trust is an irrevocable trust established by the company to hold assets separate from other company assets for the purpose of paying future participant benefit obligations.

For these reasons, from the obvious financial benefits to the wide range of payout options, a well-designed NQDC plan is an attractive benefit for your key executives. Provided you make sure the plan and its components are effectively and thoroughly communicated, these programs can be a strong inducement for attracting top people, and keeping them on board.

(Editor’s note: At press time, the Senate had approved the conceptual

ExecutiveCompensation outline of legislation that could potentially impact some of the provisions discussed above. Legislative changes are an important reason to examine your plan with a specialist in this area.)

You as the Plan Sponsor As attractive as an effective NQDC plan can be to your key associates, it also has some significant advantages to you as the plan sponsor, beyond enhancing your ability to recruit, reward and retain top talent—and helping you achieve benefit parity for your highly paid employees.

Costs for NQDC plans can be extremely low. In terms of cash flow, employee contributions are voluntary, and any employer match is optional (about 40% of companies offer it). In terms of corporate P&L, assets and benefit liabilities can be managed to neutralize potential negative impact and volatility. While plan sponsors typically bear modest plan administration costs, the administrative burden is generally outsourced to a services provider specializing in these plans.

Department of Labor (DOL) regulations limit plan eligibility to management and highly compensated employees, but plan sponsors are permitted to define and control participation eligibility.

In the most contemporary NQDC plans, investment menus are constructed with “best-in-class” investment managers. Unless your plan provider has proprietary investment managers, your plan should not be subject to any pre-determined investment product requirements. Generally, you want to be afforded choice in determining which asset managers to offer across all asset classes, and as the plan evolves, you should have the ability to replace and add managers as needed.

Other contemporary features to look for are “24/7” account access, which means access through a plan participant and plan sponsor website and/or a call center. Options within the plan should be easy to access and to use, with the same features your participants would

can least afford to lose. expect in a competitive 401(k) plan. The more sophisticated providers of these Kenneth A. Dayton, JD, CPA has over 25 plans offer comprehensive education to years of experience in the fields of accounting, participants, who may not fully underlaw, insurance and executive benefits consultstand the value of investing, in addition ing. He is currently a consultant in the area of to frequent communication about eligiexecutive benefits for The Newport Group, a bility and other mechanics of the plan. leading retirement services and asset manageBeyond communication and educament firm specializing in the creative design, tion, there are three other disciplines funding, and administration of qualified and critical to the development, execution non-qualified retirement plans. and management of a successful non-qualified plan.

These include consulting, which in this Your Current Plan… Is It Keeping Pace? case means assessing Many existing plans are in need of review and updating, the company’s needs as they have failed to keep pace with the evolving needs of and crafting a suitable plan sponsors and participants. Is this the case in your plan design; asset organization? To find out, answer the following questions. management, which If the answer to more than 4 of them is “no,” you may want a means providing cor- specialist to evaluate your plan. porations, plan sponsors and plan partici- Consulting Issues: pants with the neces- ■ Is your plan design driven by your compensation objecsary guidance to tives rather than your systems? select, manage and ■ Is the plan design contemporary and flexible? monitor their assets; ■ Has the design been benchmarked to peer company plans? and comprehensive ■ Have you considered integrating your NQDC plan with administration, which your 401(k) plan? means that a service provider manages and Asset Management Issues: oversees plan admin- ■ Does the range of asset classes and styles on the plan istration, including menu permit meaningful diversification? financial and account- ■ Are assets being allocated consistent with a stated investing reports, annual ment policy? plan reviews, and ■ Is investment performance being monitored? rebalancing reports.

■ Does the plan offer “best-of-class” investment managers?

Due to constantly ■ Is investment manager performance systematically evolving benefit monitored? design, tax rules and legislative changes, Communication Issues: you should frequently ■ Do participants understand and utilize the plan? [Well undertake a thorough communicated plans generally have over 60% participaassessment of your tion.] plan. A properly ■ Are participants provided with education, financial tools designed, communiand advice that will assist them in meeting their retirecated and serviced ment objectives?

NQDC plan adds ■ Do you measure participant satisfaction? value to your overall Administration Issues: compensation and ■ Is the plan being administered on an efficient and cost-efbenefits strategy, and fective basis? can help you recruit ■ Is timely, useful information being provided to human and retain the people resources, finance and accounting to effectively you want most and monitor, manage and report results?

MarEx Second Quarter 2003 - The Maritime Executive 13

New Technology

A Virtual High Wire Act in New Orleans New Mini-IENC Assists Cruise Ship to Transit Powerlines Craig Thomas

S

peaking into his hand-held radio, Captain Carl Scully, Sr., a Crescent River Pilot who is navigating the M/V Rickmar Shanghai to the Gulf of Mexico, has just released the two tugs, which had assisted the breakbulk ship into the outbound traffic lane of the Mississippi River.

With a short blast of their horns, the boats acknowledged their orders and backed down off the ship’s gray hull.

On the bridge with Captain Scully, who is now busy establishing coordinates with the first mate, are Mark Nettles, a cartographer with the Army Corps of Engineers and Captain Douglas Grubbs, a senior Crescent River Pilot who has navigated these waters for about 30 years. Mr. Nettles and Captain Grubbs have invited me onboard for a demonstration of a unique navigating tool that the Crescent River Pilots are using to sail under the low hanging Chalmette Powerlines, just a few miles south of the city of New Orleans.

A small version of the Inland Electronic Navigational Chart (IENC), known as the MiniIENC, provides essential, special vertical, and horizontal navigational clearance information to the pilots while navigating the Carnival Conquest, with a 209-foot air draft, under the low lying powerlines, located at Mile 89.2 on the lower Mississippi River. Additionally, the

14

The Maritime Executive - Second Quarter 2003

Mini-IENC, which this writer calls the “virtual navigator,” is being used for Vessel Traffic Management and Decision-making ship handling exercises by the Crescent River Pilots in the Maritime Institute of Technology and Graduate Studies (MITAGS) STN-Atlas shiphandling simulator in Linthicum Heights, Maryland.

In response to a special navigational situation, the Crescent River Pilots, responsible for the ultra-large cruise ship, turned to the U.S. Army Corps of Engineers-MVN to design and produce the Mini-IENC which is a specialized, large-scale version of the Inland Electronic Navigational Chart (IENC). The Mini-IENC uses standardized navigational principles which provide sophisticated computations that consist of “virtual buoys.” The pilots use these buoys as symbols in an out-of-the-ordinary area, where heavy traffic prevents the actual placement of buoys.

As the Rickmar Shanghai approaches the Chalmette Powerlines, the ship and the virtual buoys are on Mr. Nettles’ laptop computer screen. As the actual ship transits the area, we can also see its transit on the computer screen in a virtual mode as well. The “virtual buoys” are strategically placed along the river banks, and we can witness the virtual ship move through the zone under guidance of the buoys.

Within a few minutes, the ship is safely through

the area and on its way to Hamburg, Germany.

The Mini-IENC is comprised of vector data, features, and objects, using the standardized IHO, S-57 electronic charting transfer format that sets forth a standard for electronic charting for any special navigation restriction or hazardous area in the world.

The system has far-reaching applications, which require the establishment of virtual navigation aids to assist mariners in difficult and treacherous areas.

The implementation of the Mini-IENC was an coordinated effort between the federal government and local economic interests, Captain Grubbs and Mr. Nettles teamed up to design an innovative navigational program to, hopefully solve a high-profile problem that has kept the CONQUEST home-docked in Gulfport, Mississippi instead of in New Orleans.

To find out more about the Mini-IENC and its current and potential applications, contact Craig Thomas, MITAGS at (toll free) 866-6565569 or at CThomas@mitags.org, Capt.

Douglas Grubbs at the Crescent River Pilots Association at (504) 392-5016, ext #2 or at cres78@aol.com, or Mark Nettles USACE-MVN at (504) 862-1817 or at james.m.nettles@ usace.army.mil.

MarEx

Editorial-Mass Maritime

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)

As one of five state funded maritime academies nationwide, which also competes with the Federal Academy at King’s Point, Mass. Maritime has evolved into the one school which has remained truest to its original mission: sending graduates to sea. More than one-half of each graduating class still receive Coast Guard licenses and go to sea. The inevitable change in curriculum which has occurred over the years reflects a changing maritime business climate, as well as the realities of the twenty-first century. Graduates now fan out into all aspects of shoreside maritime management.

The Massachusetts Maritime Academy Shows its True Colors Core Mission of the 112-Year-Old School is Secure

I

n May of this year, the oldest continuously operating Maritime Academy in the United States narrowly avoided becoming one of the newest casualties in the political minefield known as Massachusetts politics. The news that Massachusetts Governor Mitt Romney (R) had abandoned his sweeping plan to reorganize the Commonwealth’s education system, while spinning off Mass. Maritime (MMA) as a semi-private institution, was well received on the academy’s Buzzard’s Bay campus. The decision also augers well for the maritime industry as a whole, for national security, and a host of other reasons too numerous to mention in the space of this magazine.

A colleague of mine once advised me that in life, and in business, there are only two rules.

First, and foremost, there is no justice. Rule number two: See rule number one. Fortunately, there is usually at least one exception to the rule, and in this case, sanity has prevailed over partisan politics. Romney’s quest to punish U. Mass President William Bulger entailed a tangled web that eventually threatened the survival of MMA, one of five such state-run academies, nationwide. In a nutshell, the loss of state funding for the Academy would have put the school at a decidedly poor competitive position, and, probably, assured its demise.

In a time in which most college graduates are having an exceedingly difficult time securing a job of any kind whatsoever, MMA boasts a 100% placement rate, with average salaries that exceed $50,000 annually. With fully 60% of all alumni still living in Massachusetts, and the vast majority of each graduating class represented by Massachusetts residents, the return on investment for the taxpayers is easy to calculate.

Much has been made, especially during this particular episode, of the relatively high cost to educate a Mass. Maritime cadet, especially in comparison to other state colleges in the Commonwealth. In reality, nothing could be fur-

ther from the truth. At a cost to the Federal government which is less than ten percent of what it costs to operate the U.S. Merchant Marine Academy, MMA is a bargain to all concerned. And yes, the yearly price tag of $13,000 for MMA cadets dwarfs that of the typical Fitchburg State student, who can expect a tuition bill of perhaps $5,000. It is also true that the training of an individual who will be tasked upon graduation to take the helm of an $80 million ship involves quite a bit more than educating Physical Education or English majors.

And, the efficiency with which this is accomplished in Buzzard’s Bay is astonishing. No other state college in Massachusetts can compete with MMA’s freshman retention rates, nor the percentage of those entering the Academy who actually graduate. It is clear that this institution has developed into the crown jewel of the Massachusetts State College system. What was the Governor thinking?

The big picture extends far beyond graduation rates, earning power, ROI for the taxpayers, and, certainly, the myopic little world of Massachusetts politics. As one of five state funded maritime academies nationwide, which also competes with the Federal Academy at King’s Point, Mass. Maritime has evolved into the one school which has remained truest to its original mission: sending graduates to sea.

More than one-half of each graduating class still receive Coast Guard licenses and go to sea.

The inevitable change in curriculum which has occurred over the years reflects a changing maritime business climate, as well as the realities of the twenty-first century. Graduates now fan out into all aspects of shoreside maritime management and power generation, and in spite of this, all but 20 of the 900 cadets at the quasi-military school still wear uniforms and participate in the rigors associated with life in the Corps of Cadets. It’s not for everybody. Nor should it be.

The school that sent countless graduates to sea with the Military Sealift Command (DOD), U.S. Navy, and Merchant Marine billets during the recent sealift effort to Iraq is a valuable asset not only to Massachusetts, but to the country as a whole. The need for MMA graduates will not go away any time soon. The sealift building program to ensure ready reserve capabilities continues, and a round of new building for the U.S. commercial merchant fleet is just getting started. If (read: when – it’s only a matter of time) oil exploration in the Alaskan National Wildlife Refuge (ANWR) kicks off, a frenzy of tanker building not seen since the mid-1970’s will further heighten the demand for marine professionals.

As this, the latest of many crises and challenges facing the Academy over the years, fades into a hazy memory, there are lessons to be learned. In the past, the Academy primarily concerned itself with the accomplishment of its core mission, but remained, in many respects, poorly prepared to deal with the realities of life in a politically charged atmosphere. The school has always received its fair share of press coverage, and although not all of it was good, some of it was deserved. Certainly, a good portion of it was biased and poorly informed. With this “wake up call,” however, the Academy has served notice that it will not be “business as usual” any longer. The few people left who would still doubt the staying power of MMA faculty, alumni and cadets haven’t seen anything yet. We can now also expect that the same energy which has been expended by MMA graduates in their chosen professions at sea and ashore for the past 112 years will now also be extended to ensuring that the Academy survives for another century, and another after that.

Joseph Keefe is the Senior Editor for the Maritime Executive. He is a 1980 graduate of the Massachusetts Maritime Academy, and a licensed mariner.

MarEx Second Quarter 2003 - The Maritime Executive 15

point The Offshore Marine Service Association (OMSA), from its inception, has been a fierce but reasonable protector of the Jones Act. OMSA religiously regards the Jones Act as the backbone of the U.S. domestic shipping industry, and we maintain that it is absolutely imperative the integrity of the Act be protected against any and every attempt to abolish or diminish its purpose, scope and/or its authority. Over the years, OMSA and other strong, dedicated proponents of our U.S. cabotage laws have closed ranks to meet, and defeat, determined attacks on the Jones Act from without and within.

Accordingly, OMSA has recently filed detailed objections and appeals with the U.S. Coast Guard to request that they review and overturn specific approvals that have been granted to certain companies in the past three years and to reject future applications by these and other companies that have been or may be predicated, we believe wrongfully, upon the lease finance provision of the Coast Guard Authorization

feel, do not substantively satisfy the requirements of the Act, or the relative or relevant provisions.

The lease/finance provision of the Act requires, among other things, that the owning entity (of the vessel) or an affiliate “is primarily engaged in leasing or other financing transactions”, viz. a bona fide financial institution, “and that the vessel is under at least a three year demise charter to a Section 2 citizen”, which charter would, in fact, confer full, effective control of the subject vessel(s) to the Sec. 2 citizen.

Recently, Groupe Bourbon, a French corporation, and Rigdon Marine, an American (U.S.) corporation, concluded a “cooperation agreement” by which Groupe Bourbon is to finance the construction, in the U.S., of ten special purpose offshore vessels, at a cost of $125 million dollars (U.S.), to be operated, under a demise charter, by Rigdon Marine in the U.S. Gulf of Mexico, Jones Act market.

Mr. Rigdon is a U.S. citizen. It is acknowledged he has the

Fixing Leaks in the Jones Act –Robert Alario, OMSA

Act of 1996.

The lease finance provision was developed singularly and explicitly in order to expand access to investment capital, including foreign capital, for qualified Section 2 U.S. citizens to build vessels, which vessels could be employed in Jones Act trades. However, we contend that the lease financing provision was designed as a strictly limited exception to the Sec. 2 citizen ownership requirement, which would allow the USCG, only in carefully delineated circumstances, to issue a coastwise endorsement to vessel owners who would not otherwise qualify, as would a Sec. 2 U.S. citizen, to participate in Jones Act activities.

The U.S. Coast Guard was directed by the Act of 1996 to promulgate regulations which would clearly establish the scope, limits, and procedural rules of the subject lease / finance provisions.

Unfortunately, it did not do so, and, in the interim, as applications were filed, documentation and processing focused more on form than substance. Since the large majority of applications that were based upon the lease finance provision were of a straightforward, non-controversial nature, there were, in general, no systemic, negative consequences resulting from the absence of specific regulations. However, there have since been decisions by the Coast Guard, in three cases at least, that do pose a serious, fundamental threat to the Jones Act in the opinion of many in the U.S. maritime community. We are committed to do whatever is necessary to force a more surgical review of the applications, which we feel, and our colleagues 16

The Maritime Executive - Second Quarter 2003

absolute right to build and own U.S. flag vessels, qualified to operate in the Jones Act trades. Neither OMSA, nor its members, begrudge Mr. Rigdon that right or opportunity. However, in this case, Groupe Bourbon, a French company, with one of the largest offshore maritime operations in the world, will finance the vessels. They, or their affiliates, cannot, under U.S. law, directly or indirectly, retain control of the vessel(s) in any manner whatsoever, if the vessels are to be employed in Jones Act activity. Of course, under the lease finance provision of the Coast Guard Authorization Act, vessels may be allowed to be so employed if they are engaged, under a demise charter, approved by the U.S.C.G., to a Sec. 2 citizen for three years, i.e.

Rigdon Marine.

Another requirement of the lease/finance provision, however, as indicated earlier, is that the “foreign controlled” lender or leasing institution be a bona fide financial entity, viz. one primarily engaged in leasing or other financing transaction.

Interestingly, to the best of our knowledge, and after a careful search of the Groupe Bourbon website, the company’s entrepreneurial scope and activity makes no mention of primary or incidental engagement, by Groupe Bourbon or any affiliate, in finance or leasing activity, prior to the “arrangement” with Rigdon Marine. Also of relative interest were press releases by Groupe Bourbon, again just before the announcement of the “cooperation agreement” with Rigdon Marine, that Groupe Bourbon proposed to “expand its marine operations into the U.S. Gulf of Mexico and obtain, through partnerships or acquisitions, a piece of the deepwater continued on page 18

counter point In 1996, the U.S. Congress passed the Foreign Leases Financing Law. The goal of this law was to bring foreign investment capital into the U.S. maritime industry. Fortunately, this law has proven successful in bringing billions of dollars of foreign investment capital into the United States.

To accomplish its goal of increasing foreign investment in the U.S. maritime industry, Congress changed one aspect of the Jones Act. The Foreign Lease Financing Law changed the Jones Act to provide that foreign investors can own a U.S. Jones Act qualified vessel provided they lease the vessel to a U.S. citizen under a demise charter.

Simply put, this means that a foreign entity can form a U.S. leasing company and directly own all of the stock or interests in this U.S. entity. This foreign-controlled U.S. entity can then buy or build a U.S. Jones Act qualified vessel. However, this vessel must be demise chartered or leased to a U.S. citizen. The key issue is that control of the vessel must be transferred to the U.S.

and controlled by U.S. citizens and manned by U.S. citizens.

Such success should be cause for celebration, but the use of foreign lease financing has resulted in an emotion-charged outcry of protest by some in the U.S. maritime industry.

The vocal opponents of the use of the Foreign Lease Financing Law of 1996 have wrapped their issues in the Stars and Stripes. Emotional, patriotic appeals have become their stock-in-trade because these U.S. opponents have neither the law nor the facts to support their position.

Opponents have argued that foreign investors have an unfair advantage over the U.S. competitors because they receive shipbuilding and operating subsidies from their home governments, operate flags of convenience and have tax advantages not available to U.S. companies. These issues have a thin veneer of patriotic appeal, but are absolutely not relevant to the foreign lease financing issue. Vessels built using foreign lease financing will have to comply with all U.S. laws; including income taxa-

Foreign Investment and Control by U.S. Citizens

–Larry Rigdon, Rigdon Marine

citizen through the demise charter or lease agreement.

Two recent foreign lease financing transactions have brought significant construction contracts to two U.S. shipyards. BP Oil Shipping Company USA is providing the financing to build up to six tankers at National Steel and Shipbuilding Co. (NASSCO) in San Diego, California, at a total contract value of $1.2 billion. Bourbon Maritime USA, Inc., is providing financing to build ten platform supply vessels at Bender Shipbuilding and Repair Co., Inc., in Mobile, Alabama, at a total contract value of $125 million. All of these ships are state-ofthe-art vessels utilizing the latest technologies.

According to a letter from the Alaska Tanker Company to the U.S. Coast Guard, they will be the demise charterer of the foreign-controlled BP Oil Shipping Company USA tankers for use in the Alaska to the West Coast oil trade. Likewise, the foreign-controlled Bourbon Maritime USA, Inc., platform supply vessels will be demise chartered to Rigdon Marine, LLC, for operation in oil exploration and production support in the U.S Gulf of Mexico and in international markets. Both the Alaska Tanker Company and Rigdon Marine are U.S. citizen entities qualified to operate Jones Act qualified vessels in the U.S. coastwise trade.

These two significant commitments to renewing the U.S. flag fleet using foreign lease financing point out that the Foreign Lease Financing Law of 1996 has been successful in meeting its original goal of increasing investment in the U.S. flag fleet.

Foreign financing has enabled two U.S. shipyards to put U.S. citizens to work building U.S. flag vessels that will be managed

tion, environmental, manning, training, homeland security, personal injury laws, etc. There are no advantages given to U.S. flag vessels built utilizing foreign lease financing and operating under the U.S. flag.

Opponents respond by saying these arguments miss the point. They contend that they are referring to the earnings and cash flow advantage that foreign investors achieve in markets outside of the U.S. when competing with U.S. flag vessels. This argument might have a small element of truth for the handful of U.S. flag vessel operating in foreign markets. The reality is that U.S.-based marine companies with foreign operations quickly drop the U.S. flag or build foreign and utilize the same shipbuilding subsidies, flags of convenience, foreign crews and other foreign flag cost savings techniques used by their foreign competitors. Again, the foreign multinational companies bringing investment capital into the U.S. market have no advantage on U.S. based multinational marine operators.

The jingoist rhetoric used by the U.S. opponents to wrap themselves in the U.S. flag points to the decline in U.S. deep-sea fleet and U.S. dependency on foreign vessels to meet the military defense needs of our country. These are hollow arguments when raised in connection with the foreign lease financing issue. U.S.-flag vessels built using the Foreign Lease Financing Law of 1996 are subject to all the same military requisition, homeland security and manning provisions as any U.S. flag vessel. Vessels built with foreign lease financing are not a negative to the U.S., but a positive addition of vessels that can be utilized by the U.S. military in a time of need. continued on page 19 Second Quarter 2003 - The Maritime Executive 17

point

continued

offshore marine operations market.” As noted, Groupe Bourbon is heavily engaged in offshore oil and gas support operations, worldwide, through its French subsidiary, SURF, which operates in excess of two hundred vessels, including offshore support vessels.

In essence, it appears that it is possible, and we believe that it is a fact, that Groupe Bourbon, a French company, has concocted a “special purpose” leasing company to literally and artificially comply with the lease finance provision of the Act. Notwithstanding their reliance upon the “fifty percent” revenue formula contained in a conference report, we believe that this creative legal maneuver does not fulfill the requirements of the law as intended by Congress, either in spirit or substance.

Mr. Rigdon has alleged that OMSA is attempting to prevent the use of foreign capital to build U.S. flag vessels in U.S. shipyards. This is untrue. Mr. Rigdon has also charged that OMSA is trying to restrict or eliminate foreign lease financing for qualified U.S. citizen operators who wish to be active in coastwise trade, to the detriment of U.S. shipyards and qualified U.S. operators. This is also untrue. In fact, OMSA freely supports legitimate lending and /or investment by bona fide financing institutions and leasing companies, including foreign sources, as the law intended. However, OMSA will challenge the creation of “special purpose” subsidiaries set up by foreign vessel operators, like Groupe Bourbon or others, who seek to gain entry into protected Jones Act trades through the back door, through what we contend is a shallow, superficial, and even perverted interpretation of the lease finance provisions of the law, whereby U.S. companies purporting to be qualified for the U.S. coastwise trade are, arguably, or in fact, ‘agents’ for foreign interests with questionable ”control” over the subject vessels.

We contend, respectfully, that there has been a dangerous, fundamental misinterpretation and flawed implementation of the lease finance provisions of the Coast Guard Authorization Act of 1996. We further contend that this represents a serious and immediate threat to the stability and reliability of the Jones Act. With all due respect, we honestly believe that the Groupe Bourbon/Rigdon Marine transaction is an example and reflection of the incorrect application of the law. We clearly understand, accept, and approve that Congress intended to expand access to capital, including foreign financing, to U.S. citizens, but do not believe Congress intended to invite foreign competition, directly or indirectly, into protected Jones Act trades, which is what Groupe Bourbon has clearly stated, in the press, as its ultimate objective.

We firmly believe that where the lending and/or leasing entity is a “special creation” designed solely to comply, arguably, with the law, the U.S. Coast Guard is obliged to look more deeply into the substantive issues of ownership, control, and actual statutory compliance, i.e. in cases such as the NABORS and Groupe Bourbon/Rigdon Marine transactions.

If Mr. Rigdon establishes that he has met, or that he will meet, 18

The Maritime Executive - Second Quarter 2003

ultimately, all of the requirements of the Act, and is upheld by the U.S. Coast Guard’s review and/or by a court decision, he will naturally win the right to proceed under the law. On the other hand, OMSA and others, who have legitimate concerns about the nature of the transaction, are obliged to act to ascertain the facts relative to the agreements and true infrastructure of the transaction.

Meanwhile, assuming our objections and arguments are valid, there is a clear and present danger that ineligible foreign vessels owners will be allowed, directly or indirectly, to enter protected Jones Act markets, by virtue of creative, legally artificial compliance with the subject lease finance provisions, and establish a monumental and adverse precedent which could, effectively gut the Jones Act. Unlike almost every other lease financing application received and reviewed by the Coast Guard to date, this application – like the Nabors transaction – is controversial, raising serious citizenship and control issues, as indicated earlier.

Accordingly, in that context, we have asked that the Coast Guard review very recent guidance provided by Congress as to how citizenship determinations, like the one in this case, are to be properly addressed. Given the critical importance of this application to the integrity of the Jones Act and the vested rights at stake, on all sides of the issue, the Coast Guard, we feel, should institute a formal review process in connection with the approval of this and other disputed approvals of foreign leasing applications. This is what Congress recently mandated the Department of Transportation do in resolving the disputed citizenship of DHL Airways, which involves, arguably, the same kinds of citizenship issues as are at stake in the Groupe Bourbon/Rigdon Marine transaction, and what the DOT Inspector general recommended the DOT do in all “complex or contentious” citizenship cases.

The American maritime industry has invested billions of dollars on the assumption that the law forbids foreign carriers from penetrating U.S. domestic Jones Act commerce “by any means whatsoever.” Exceptions generally have been, and should be, extremely limited and strictly enforced. Lately, interpretations and implementation of the Jones Act by government have become increasing loose and conflicted. We cannot afford to have that pattern be expanded or ignored. The American maritime industry therefore has a vested interest in assuring that the factual nuances and legal arguments foreign carriers might raise in efforts to get around the Jones Act are fully appreciated and aggressively addressed. This is true, in particular, in the context of those rare applications, like the Nabors and Groupe Bourbon/Rigdon Marine cases, which, on their face, raise serious citizenship and control concerns. And so it shall be done. There is nothing personal in it. We are simply fighting for the life of our industry.

MarEx

continued

counter point

Finally, the marine industry opponents to foreign lease financing argue that only “banks or finance companies” should be allowed to use the Foreign Lease Financing Law of 1996.

Their position is that any foreign entity that has any marine operations should be excluded by the U.S. Coast Guard to protect the Jones Act and to insure “fair” competition for the existing U.S. marine owners and operators. The opponents would restrict the definition of leasing companies to effectively exclude legitimate foreign sources of lease financing capital.

Unfortunately for the opponents of foreign lease financing, they again have neither law nor facts to support their position.

An examination of the legislative history of the Foreign Lease Financing Law of 1996 through a review of the Congressional Conference Report for this Law sets out clearly that Congress intended to have a broad definition for foreign-controlled entities primarily engaged in leasing or other financing transactions.

The only restriction discussed in the Conference Report for the foreign lease financier is that the consolidated group that includes the foreign-controlled U.S. owning and leasing company cannot have more than fifty percent of the consolidated revenue from marine operations. It is instructive that Congress, in its wisdom, did not include this provision in the Foreign Lease Financing Law of 1996, but the U.S. Coast Guard has used similar language in their latest proposed regulations for this Law. In the case of foreign-controlled foreign lease investments in tankers and platform supply vessels, both of these consolidated groups have significantly less than fifty percent of their consolidated revenues derived from maritime activities.

The obvious conclusions to be drawn about opposition to foreign lease financing are these: 1) Opponents do not want new ships competing with their aging U.S. flag fleet; 2) They fear the impact of the longer-term investment strategy that is prevalent among foreign investors in the maritime industry; 3) the “Old Boys Club” of the U.S. maritime industry views any change in the Jones Act as un-American and achievable only by devious, unpatriotic and illegal acts or subterfuge; or 4) all of the above.

In summary, the Foreign Lease Financing Law of 1996 has generated billions of dollars of investment capital for the U.S. maritime industry and, as a result, achieved the original goal of Congress for this legislation. This law has shaken one foundation of the Jones Act and some of the staid members of the maritime industry. It has created a new competitive force for investment in the U.S. maritime industry. A typically American conclusion could be: competition is healthy and will result in improved services for the customers of the new ships built using the Foreign Lease Financing Law of 1996!

FOREIGN LEASE FINANCING LAW OF 1996 – The full text of this law follows: PUBLIC LAW 104-324 OCTOBER 19, 1996 110 STAT. 3971 (d) LEASING.-Section 12106 of title 46, United States Code, is amended by

adding at the end the following: (e)(l) A certificate of documentation for a vessel may be endorsed with a coastwise endorsement if- (A) the vessel is eligible for documentation; (B) the person that owns the vessel, a parent entity of that person, or a subsidiary of a parent entity of that person, is primarily engaged in leasing or other financing transactions; (C) the vessel is under a demise charter to a person that certifies to the Secretary that the person is a citizen of the United States for engaging in the coastwise trade under section 2 of the Shipping Act, 1916; (D) the demise charter is for a period of at least 3 years or a shorter period as may be prescribed by the Secretary; and , (E) the vessel is otherwise eligible for documentation under this section.

(2) The demise charter and any amendments to that charter shall be filed with the certificate required by this subsection, or within 10 days following the filing of an amendment to the charter, and such charter and amendments shall be made available to the public.

(3) Upon termination by a demise charterer required under paragraph (1)(C), the coastwise endorsement of the vessel may, in the sole discretion of the Secretary, be continued after the termination for default of the demise charter for a period not to exceed 6 months on such terms and conditions as the Secretary may prescribe.

(4) For purposes of section 2 of the Shipping Act, 1916, and section 12102(a) of this title, a vessel meeting the criteria of this subsection is deemed to be owned exclusively by citizens of the United States." (e) CONFORMING AMENDMENT.-Section 9(c) of the Shipping Act, 1916, as amended (46 App. U.S.C. 808(c)) is amended by striking "sections 31322(a) (1)(D)" and inserting "sections 12106(e), 31322(a)(1)(D),".

JONES ACT - The Jones Act and related statues require that vessels used to transport cargo and passengers between U.S. ports be: (1) owned by U.S. citizens, (2) built in U.S. shipyards and (3) manned by U.S. citizens. These statues, known as cabotage laws, form the legal foundation for the domestic maritime industry.

JONES ACT QUALIFIED VESSEL - This is a vessel that has met all the requirements of the Jones Act and related statues and can engage in coastwise transportation of cargo and passengers between U.S. ports.

U.S. CITIZEN – This is an individual U.S. citizen or can be a legal entity in which U.S. citizens hold at least seventy-five percent (75%) of the ownership and controlled of the entity. Control by U.S. citizens extends to the governing board of the entity and at least seventy-five percent (75%) of the members of the governing board must be individual U.S. citizens.

U.S. COAST GUARD DOCUMENTATION REQUIREMENT - To verify that an acceptable demise charter has been created between the foreign-controlled U.S. leasing entity and the U.S. citizen bareboat charterer, the full text of the demise charter must be submitted to the U.S. Coast Guard Documentation Office for review and approval. In addition, the U.S. citizen demise chartering the vessel must certify to the U.S. Coast Guard Documentation Office that he is a U.S. citizen qualified to engage in the coastwise trade in the United States.

The submission of these documents and the required representations are to enable the U.S. Coast Guard Documentation Office to verify that the demise charter transaction is acceptable and appropriate under the Jones Act and that control has been transferred to the U.S. demise charterer.

MarEx Second Quarter 2003 - The Maritime Executive 19

Jones Act

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The Maritime Executive - Second Quarter 2003

Jones Act

The Foreignization of the Jones Act T

By Tony Munoz, Editor

he Jones Act has been hailed as the birthright of U.S. flag carriers, a measure of protection granted not only by the Jones Act itself, but by our Founding Fathers as well. In 1789, the First Congress enacted maritime cabotage as a form of national security for the original 13 Colonies. The Merchant Marine of 1920, Section 27 of which is known as the Jones Act, was simply the reaffirmation of the colonial cabotage laws that had been under constant attack throughout the preceding generations in Americana.

The Jones Act reflects upon the oldest concerns of maritime commerce, and it is encrusted with the tradition. Every maritime nation has some form of protection for their seagoing capabilities. But, because the United States is the wealthiest trading nation in the world, the Jones Act has been portrayed as one of the nation’s most unfair trading practices by the foreign interests that have everything to gain by its repeal.

Countries like Japan, Norway, and Germany have filed formal protests at the World Trade Organization (WTO). Yet, these countries have some of the most restrictive cabotage laws in the world.

As the end of World War II approached, the fact is that it was the United States who wanted open trade markets, when President Roosevelt proposed a single international trading regime without trade borders or barriers. This proposal included airlines being able to fly into any country as often as it was economically justifiable. However, Winston Churchill understood that the U.S., at the end of 1944, would be the only country in the world to come through the war economically stronger than any other country. Churchill was also concerned that the U.S., with a huge military air force, could be strategically positioned to dominate commerce, not only in the air,

but on the high seas as well.

Consequently, the Europeans, led by Britain, held out for bilateral negotiation agreements versus the open international trading regime.

The realities of international commerce are that every major trading nation protects its transportation sectors. The British, Dutch, Danes, French, Italians, and Japanese have all privatized their maritime fleets, Rep. James L. Oberstar (D-MN) yet each government still maintains a vested interest in them.

And, the support of governments for essential transportation sectors goes far beyond the maritime industry. When Air France gets into financial trouble, the French Government is there to bail them out. The same is true of Lufthansa and the German Government, and British Airways and the British Government. And, foreign govTimothy Brown, President of ernments provide subsidies and Captain the Master, Mates and Pilots union. emergency funding for their maritime fleets as well.

Representative James L. Oberstar (D-MN), in his 15th term, said that, when he first came to Congress, the U.S. had about 800 international vessels on the high seas. “Compare that to the end of World War II when the U.S. had about 5,000 ships. That was a time when the U.S. had 25 million tons of deadweight shipping, and we were number one in the world.

Now, we have 97 U.S. flagged ships and we’re ranked dead last.

Even, when we had 800 ships, we were ranked eighth in the world, and, were still dead last,” he said.

There is certainly dissension within the U.S. as well, as cerSecond Quarter 2003 - The Maritime Executive 21

Jones Act

(

…it is absolutely ludicrous for the American Farm Bureau, whose constituents just received $6.4 billion in farm subsidies… to demand for the repeal of the Jones Act. …the Federal Government recently bailed out the airlines due to 9/11. And railroads last year embarked on a campaign to convince the public that the Federal Government should spend upwards of $550 million to rehabilitate the nation’s aging rail infrastructure. Yet, the U.S. domestic maritime industry which receives no subsidies whatsoever is left to fend for itself and either sink or swim based upon its own merits.

)

Seabulk New Jersey

tain state governments and trade organizations continually call upon Congress to repeal the Jones Act, because it allegedly imposes higher costs on consumer goods and commodities.

The American Farm Bureau (AFB) claims that the small U.S. flag fleet costs the U.S. economy approximately $1.3 billion each year due to the inefficiencies of the monopoly.

Meanwhile, the elected representatives from the State of Hawaii and the U.S. territory of Puerto Rico contend that their citizens, businesses, and industries pay much more to exist than mainland Americans. In fact, the repeal of the Jones Act is an entrenched political platform in both of these U.S. island provinces.

However, it is absolutely ludicrous for the American Farm Bureau, whose constituents just received $6.4 billion in farm subsidies from the Bush Administration’s Farm Security and Rural Investment Act of 2002, to demand for the repeal of the Jones Act. Furthermore, the Federal Government recently bailed out the airlines due to 9/11. And railroads last year embarked on a multi-million dollar national advertising campaign to convince the public that the Federal Government should spend upwards of $550 million to rehabilitate the nation’s aging rail infrastructure. Yet, the U.S. domestic maritime industry which receives no subsidies whatsoever is left to fend for itself and either sink or swim based upon its own merits.

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The Maritime Executive - Second Quarter 2003

“I believe that the Jones Act is politically secure, I'm not so sure that it’s secure economically,” said Captain Timothy Brown, President of the Master, Mates and Pilots (MM&P) union. “Even though TOTE has christened new vessels, Matson Navigation is building two new ships; Keystone Tankers is involved with the four new tankers being built in San Diego, and American Heavy Lift wants to deliver new U. S. built tonnage. The problem is that so much of this depends on Title XI money to get the building going. I fear that, one day, if there isn't enough Title XI, we'll end up at the crossroads where there won't be enough tonnage to move the cargo and the Jones Act will come under serious attack.”

Recently, Waterways Work! and the Ship Operators Cooperative Program(SOCP) have begun campaigns to inform legislators and the general public that the U.S. maritime industry can be a major solution to many of the nation’s environmental and urban lifestyle concerns by moving cargoes off the highways and railways and onto our coastal and inland waterways. Waterways Work! represents the inland tug and barge industry and the SOCP, which is sponsored by the Maritime Administration, represents the nation’s ship operators. The statistical information provided by these groups clearly demonstrates that the marine infrastructure, which doesn’t require millions of dollars in constant repair, could be

(

Jones Act

According to Public Law 104-324- U.S. Coast Guard Authorization Act of 1996, ownership by a non-U.S. citizen would be permitted when (1) ownership is a financial investment, without the ability to control the vessel’s operations and (2) when the owner has transferred to a qualified American citizen full possession, control, and command under a demise charter. It is intended that banks, leasing companies, or other financial institutions qualify as owners of U.S. flag-vessels, so long as the majority of their aggregate revenues are not derived from the operation and management of vessels.

utilized immediately to improve air quality, to conserve fuel, and to decrease highway congestion. Unquestionably, U.S.-flag operators need to begin to support these organizations’ efforts to promote the maritime industry as the most sensible solution to the nation’s growing highway gridlock and environmental problems.

The Foreignization of the Jones Act?

The foreignization of the Jones Act isn’t about the overt attacks against the law, such as the legislative confrontation that Rob Quartel and his Jones Act Reform Coalition pursued in the mid-1990s to completely abolish the Law. The foreignization is more about the subtle interpretations and minor infractions that chip away at its purity and sanctity.

Inversion

The recent “inversion” by Nabors Industries is perhaps the most blatant infraction of the Jones Act. Nabors Industries is a multi-national drilling conglomerate which was reorganized from a U.S. (Houston) corporation into an offshore Bermudabased corporation. The Nabors Industries’ 2002 Annual Report states that Sea Mar Marine Transportation is its U.S. based business affiliate, but it’s glaringly clear that Nabors owns and operates the 30 U.S.-flagged vessels working in the

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Gulf of Mexico.

The Jones Act was enacted to provide a level playing field on which all U.S. operators could to compete. But, the inversion of Nabors and its offshore tax advantages provides the company with a distinct advantage over other U.S. based offshore companies operating in the Gulf of Mexico. Companies like Tidewater, Inc and Seabulk International, which have huge foreign fleets and pay U.S. taxes on their foreign income, are disadvantaged globally as well. If Nabors Industries is allowed to continue its ownership of the Jones Act fleet, (no matter how cleverly its trail is papered), while being a foreign corporation, there very well might be a justifiable mass exodus of U.S. base operators to offshore tax havens. And, the provocation of inversion by other U.S.-flag companies might very well render the Jones Act as flawed, thin veil of deceit and disguise, which is buried under legal manipulations and interpretations.

Lease Finance

Today, the most confusing and emotional issue is the “Lease Finance Law” which was enacted in 1996 to promote foreign investments in U.S.-flag tonnage. The Law has been so successful that U.S. shipyards are bursting with new building orders. However, the success of the Law is creating such a national furor that the Law’s governing body, the U.S. Coast Second Quarter 2003 - The Maritime Executive 23

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“The deal between Rigdon Marine and Groupe Bourbon is exactly like the BP’s and ATC transaction,” says Larry Rigdon, President of Rigdon Marine. “Except, I own 93.3 percent of Rigdon Marine and have an enormous personal investment in the company. My only intent is to bring new capital into the U.S. shipbuilding market. And, I only want a transaction that is legal, moral, ethical, and above board.”

Rigdon Marine received its lease financing from Groupe Bourbon, a Marseilles-based operator of shopping malls, handymax bulk carriers, harbor tugs and offshore boats.

Guard, is remaining cautiously silent as U.S. Lease Financed companies and Jones Act proponents strategically position themselves for a legal clash.

Thus far, The Alaska Tanker Company (ATC) is the biggest beneficiary of the Law, as BP Oil Shipping Company is investing $1.2 billion to build four, double-hulled, specialized tankers at National Steel and Shipbuilding Company (NASSCO) to transport North Slope Alaska crude to West Coast refineries.

ATC is a Jones Act-qualified joint operating company for tank vessels, which is owned by Keystone Alaska LLC (37.5%), OSG Ship Management, Inc. (37.5%), and BP Oil Shipping Company, USA (25%).

It is widely acknowledged that BP has a foreign affiliate that operates vessels in foreign trades. However, the BP Group’s aggregate revenue is derived from natural gas, crude oil production, and refining, and not from vessel operations.

And, even though BP owns 100 percent of these tankers, it’s BP’s 25 percent participation in ATC which is the determining factor under the Lease Finance Law that appeases Jones Act advocates.

Phil Grill, Vice President of Government Affairs for Matson Navigation and spokesman for the Maritime Cabotage Task Force (MCTF) said, “The Lease Financing Law was enacted to allow Jones Act operators to secure financing for ship24

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building from foreign lending institutions, leasing companies, and banks. Today, the Law has been manipulated by foreign vessel operators that are interested in infiltrating the Jones Act by financing U.S. owned companies that they control. The Law was originally designed as a financing mechanism, and, now it’s turned into a shell-game for foreign ownership.”

Rigdon Marine and Northland Holdings are the primary targets of Jones Act proponents, because their Lease Finance funding comes from foreign companies involved with foreign vessel operations. According to Public Law 104-324- U.S. Coast Guard Authorization Act of 1996, ownership by a non-U.S. citizen would be permitted when (1) ownership is a financial investment, without the ability to control the vessel’s operations and (2) when the owner has transferred to a qualified American citizen full possession, control, and command under a demise charter. It is intended that banks, leasing companies, or other financial institutions qualify as owners of U.S.-flag-vessels, so long as the majority of their aggregate revenues are not derived from the operation and management of vessels.

“The deal between Rigdon Marine and Groupe Bourbon is exactly like the BP’s and ATC transaction,” says Larry Rigdon, President of Rigdon Marine. “Except, I own 93.3 percent of Rigdon Marine and have an enormous personal investment in

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Today, Royal Boskalis now effectively controls a fleet of some 16 dredging and support vessels through an elaborate joint venture operation known as Bean Stuyvesant, LLP. If this exploitation were allowed to continue, Royal Boskalis’ stated strategy of expansion and consolidation could well lead to its domination of the U.S. dredging market, exactly what Congress intended to prevent in 1992. “Royal Boskalis has abused a limited grandfather provision and taken advantage of the good will of our Congress. Meanwhile, American dredging companies are suffering,” said Rich Weeks.

the company. My only intent is to bring new capital into the U.S. shipbuilding market. And, I only want a transaction that is legal, moral, ethical, and above board.”

Rigdon Marine received its lease financing from Groupe Bourbon, a Marseilles-based operator of shopping malls, handymax bulk carriers, harbor tugs and offshore boats. The bone of contention is exactly what percentage of revenues does Groupe Bourbon derive from its vessel operations? On the other hand, Northland Holdings’ Australian partner, Adsteam Marine, which owns 50 percent of the Seattle-based company, derives 100 percent of its corporate revenues from vessel operations. And, besides its relationship with Northland Holdings, Adsteam Marine recently purchased UK-based, Red Funnel Tugs for $25 million and Howard Smith Tug Company for $500 million.

Northland Barge Company was purchased in 1997 by Colorado investor, George Gillette, and a group of Northland Services managers. Thereafter, Northland purchased two Alaskan companies, Yutana Barge Lines and Services Oil and Gas. After word of the Northland-Adsteam Marine partnership became public, Crowley Maritime Corporation and others challenged the validity of it.

“There is no question that Adsteam-Northland arrangement is improper and should not have been approved,” said

Michael Roberts, General Counsel for Crowley in Washington, D.C. “If other foreign carriers could safely copy the Adsteam model, the Jones Act ownership requirements would become essentially meaningless. The industry had no choice but to fight it.”

Grandfathered Vessels

The Oceans Act of 1992 was enacted by Congress due to concerns about unfair competition by foreign dredging companies in U.S. waters. However, through successful lobbying efforts, Royal Boskalis Westminster, a Dutch company and the largest dredge operator in the world, was allowed to “grandfather” a pre-existing foreign-controlled vessel, the Stuyvesant, and limited supporting vessels to continue to operate in the U.S. dredging market.

Congress included a customary grandfather clause to allow the Stuyvesant to continue in domestic operation under charter to SDC for as long as the Stuyvesant remained under U.S.flag, or until the end of its useful life in 2022. The clause even generously allowed SDC to charter other existing U.S.-flag hopper dredges and other non-hopper dredges that worked together with the Stuyvesant or were needed in the event of the Stuyvesant’s temporary disability. But, six years later, Royal Boskalis led the U.S. Customs Service to interpret the hopper Second Quarter 2003 - The Maritime Executive 25

Jones Act

dredge grandfather so broadly that it became the basis for Royal Boskalis to expand into the much larger non-hopper segment of the U.S. market, greatly expanding what it had ever been able to do previously.

Today, Royal Boskalis now effectively controls a fleet of some 16 dredging and support vessels through an elaborate joint venture operation known as Rich Weeks, President Weeks Marine.

Bean Stuyvesant, LLP. If this exploitation were allowed to continue, Royal Boskalis’ stated strategy of expansion and consolidation could well lead to its domination of the U.S. dredging market, exactly what Congress intended to prevent in 1992.

“Royal Boskalis has abused a limited grandfather provision and taken advantage of the good will of our Congress.

Meanwhile, American dredging companies are suffering,” said Rich Weeks, President of the Dredging Contractors of America and President of Weeks Marine, Inc. “Congress should stand up for the American dredging industry and end this unfair competition by closing the Stuyvesant loophole.”

“Closing the loophole will not put any companies out of business, and it won’t disrupt existing contracts,” said Mark Sickles, Executive Director of the DCA. “It will simply require everyone in the dredging industry to play by the same rules.

No more was ever intended, and no more is warranted now.”

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“The problem is that Americans don’t know who the U.S. merchant marine is,” says Captain Brown of the MM&P. “We’ve just finished doing an incredible job in Iraqi Freedom, increasing the efficiencies of Desert Storm and Desert Shield by at least ten times”.

Beyond the Loopholes:

“The problem is that Americans don’t know who the U.S. merchant marine is,” says Captain Brown of the MM&P. “We’ve just finished doing an incredible job in Iraqi Freedom, increasing the efficiencies of Desert Storm and Desert Shield by at least ten times. The Government recognized after the Gulf War that the merchant ships needed to be in top working order, and that we needed to train the mariners working on them.

Today, Americans are very proud of the performance of our U.S. Armed Forces in Iraq, but I wonder if they understand that the U.S. Merchant Marine did a remarkable job as well?”

U.S.-flag operators are a key element in not only national security, but are also essential in the total scheme of the national transportation sector. The U.S. maritime industry contributes $15 billion annually to the U.S. economy, including $4 billion in direct maritime wages, which in turn generates $1.4 billion in tax revenues to the U.S. Treasury.

Vigorous competition throughout the Jones Act fleet has created some of the world’s most innovative maritime technologies, such as the container ship, double-hulled tank barges, the Great Lakes self-loaders, the chemical parcel tanker, and the articulated tug and barge. These innovations have been devised on a level playing field, which has allowed operators to gain enough revenue and income from their efforts to recapitalize its fleets.

“The Jones Act carriers are essential to the economic well being of the U.S.,” states Brad Mulholland, Chairman of Matson Navigation. “Today, our customers want two things: increased service capabilities and price competition. It’s incumbent for all Jones Act carriers to ensure that their customers are getting good value for their dollar. It’s the most important thing that will make the Act worthwhile.”

If foreign operators with foreign tax advantages, lower labor costs, and socialized benefits are allowed to buy and control U.S.-flag companies, then wholly owned U.S. companies will definitely be at a distinct disadvantage. The Jones Act might very well come to the economic crossroads when tonnage exceeds vessel capacity, and, finally, the Jones Act may very well be in serious political trouble.

“There will always be challenges to the Jones Act,” says Congressman Oberstar. “This nation needs to begin rebuilding its domestic and international fleets. If my seaman taxation bill passes, this might very well be a move in the right direction. It might jump start the U.S. into becoming a strong and vibrant maritime nation once again.”

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Headquartered in Fort Lauderdale, Florida, we have been providing benchmark quality service to our customers since 1958, with safety and reliability as the hallmarks of our worldwide operations.

Seabulk International, Inc. www.seabulkinternational.com 954 523 2200 tel 954 763 1501 fax

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U.S.-Flag Lines Strong on America’s Fourth Coastline:

The

Great Lakes Carriers

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American Steamship Company: The company was originally formed as a partnership between John J. Boland, Sr. and Adam E. Cornelius, Sr. in 1903 and was incorporated in 1907.

The Maritime Executive - Second Quarter 2003

Great Lakes Fleet, Inc: The company’s history dates back to 1899, making it one, if not the oldest bulk carrier still in operation on the Lakes.

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The Blue Bloods of American Shipping: The shipping companies of the Great Lakes are an integral part of Americana.

Workhorses of America’s industrial revolution, these steamship companies were launched to serve the industrial supply lines for John D. Rockefeller, Andrew Carnegie, J.P. Morgan, Henry Clay Frick, and Elbert H. Gary. The job kept their hulls full of the iron ore that fed the blast furnaces of the American industrial saga.

It was an era of incredible private wealth, in which the vertical industrial ownership of mines, railroads, docks, ship and barge lines, and blast furnaces were held by just a handful of men. Between 1880 and the turn of the century, steel production increased from 1.25 million tons to more than 10 million tons per year. And, by 1910, America was producing more than 24 million tons of steel per year and was considered the greatest steel producing nation in the world.

The steel industry was under constant consolidation during this period, as mill owners sought economies of scale, guaranteed sources of raw materials, and stable market conditions. The period was also wracked with violent labor disputes such as the Homestead Strike of 1892, and the industry would not be fully unionized until the 1930s.

In 1901, Andrew Carnegie sold his company and gained a personal fortune of $250 million. He sold his steel interest to J. Pierpont Morgan and Elbert H. Gary, and the U.S. Steel Corporation was established with a capitalization of $1.4 billion. It controlled 60 percent of the American market and was the largest industrial enterprise on earth.

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Oglebay Norton Marine Services Company: The discovery of iron ore would become the foundation of the Oglebay Norton Company.

The first iron ore brought into Cleveland was shipped by Henry Tuttle for the Lake Superior Iron Company in 1854.

The Interlake Steamship Company: The Interlake Steamship Company celebrated its 90th anniversary on April 25, 2003.

However, the company’s roots go back another 30 years with the formation of the Pickands Mather & Co. partnership in 1883.

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American steel production peaked in 1969 when the country produced 141,262,000 tons. However, new, more efficient steel mills were being built abroad, and began to give the American steel companies increasing competition.

By 1975, American steel production had plummeted by 37 percent to only 89 million tons, but it again rebounded in 1988 to 102,700,000 tons. However, even though the steel industry became competitive again, it would never be the driving force behind the economy it had once been a hundred years before.

Recently, steel company bankruptcies have been frequent, with companies like National Steel, Bethlehem Steel, and LTV Corp. leading the way. But, today, there has been a new consolidation and resurgence, with ISG emerging from LTV and buying Bethlehem Steel, and U.S. Steel purchasing National Steel.

To produce one ton of steel requires 1.3 tons of iron ore, 400 pounds of fluxstone (a type of limestone) and a quantity of metallurgical coal. To move these raw materials from mines and quarries to the blast furnaces requires a supply line of ships, and lots of them.

The Plight of the Great Lakes Carriers:

With 50 percent of the nation’s industrial production and one third of its exports coming from the Great Lakes region, this story should be a showcase for a vibrant segment of U.S.flag shipping. Instead, what we found is that shipping on the Great Lakes is depressed, because of its dependence on the ailing American steel industry, 70 percent of which is based in the Great Lakes region.

Interlake Steamship Company’s-Mesabi Miner

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The difference between the once touted U.S. international-flag fleet and the Great Lakes shipping segment is that the latter is protected by the Jones Act. The foreign carriers, who operate for much less due to tax breaks, subsidies, cheap labor, and socialized health benefits or no-paid benefits at all, cannot pick off any of these U.S.-flag carriers. Therefore, under the protections of the Jones Act, the carriers are left to their own devices to either become solvent or to merge for cost efficiencies.

Doing business on the Great Lakes is much more complex, because companies truly operate in a vacuum-type environment, in which their cost efficiencies are integral to the success of their client-industries. And, a major factor that has impacted the carriers has been low water levels. Over the past decade, the Great Lakes waterlines have declined dramatically, and, for every inch of water lost, the cargo tonnage drops significantly.

Lake Superior began this year seven inches below its long term average ; Lakes Michigan and Huron were down 21 inches; Lake Erie was down six inches ; and Ontario was down seven inches . One possible solution is dredging the Lakes deeper, but the U.S. Army Corps of Engineers is just beginning a lengthy study to determine dredging requirements. The designed depth – 25 feet – dates from the 1950s and nowhere near reflects the requirements of modern Lake ships, but the study must also address many environmental considerations.

Another issue that is impacting revenues and operational abilities of the carriers is the lock system at Sault Ste. Marie, Michigan. Each year, the steel industry ships 60 percent of its cargoes through the Soo Locks, and the carriers need twinPoe-sized locks there. Additionally, there are a number of non-

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Interlake Steamship Company’s-Paul R. Tregurtha

steel related commodities that also require the Poe-sized ships, such as western coal which has surpassed grain in tonnage shipped through the Locks. The completion of the Great Lakes/St. Lawrence System Study is paramount to carriers, and the Federal government has appropriated $2.5 million to move forward on the replacement lock. Once the project’s cost/benefit ratio is confirmed, Congress and the Great Lakes States must fund their own respective shares. In the case of the Federal government, its share is estimated to be $175 million.

The “Big Four” Great Lakes Carriers:

U.S. Steel once owned the Great Lakes Fleet; Pickands Mather & Co. once managed The Interlake Steamship Company, and John J. Boland, Sr. and Adam E. Cornelius families’ owned the American Steamship Company until 1967 when Oswego Shipping Company purchased the company. On the other hand, Oglebay Norton Marine Services Company has always been a part of Oglebay Norton Company, which began in 1854. The “Big Four” carriers of the Great Lakes all have important and significant histories which can be dated back to the height of America’s industrial revolution.

Today, the “Big Four” carriers are a new breed of modern operators that have built self-loading vessels which have reduced dockage time and manpower requirements. More than 95 percent of the cargoes they move are composed of

iron ore, coal, limestone, cement, salt, sand and grain.

Unfortunately, as the Federal government stood by and allowed the dumping of cheap foreign steel on the nation’s shores, the carriers watched helplessly as their mainstay of iron ore tonnage dropped to record lows. And, as the once great American steel companies were gutted and perished in vast numbers, the blast furnaces that once built this great nation fell silent.

These “Big Four” carriers are working hard to bring about political, legislative, and technological changes that will ensure their survival. They understand the practicalities of cutting costs, but are far-sighted enough to acknowledge that their fleets will require re-capitalization and investment in new technologies that will bring about further operating efficiencies. We have provided interviews with each of the managing executives of each company. Their comments and views of the future of shipping on the Great Lakes are insightful and honest.

American Steamship Company:

The company was originally formed as a partnership between John J. Boland, Sr. and Adam E. Cornelius, Sr. in 1903 and was incorporated in 1907. In the beginning, the fleet consisted of three bulk ships.

The company pioneered the use of bow-thrusters during the 1960s. In 1967, Oswego Shipping Company purchased the Second Quarter 2003 - The Maritime Executive 31

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American Steamship Company’s St. Clair at Port Huron

company, and, by the end of the decade, was operating 31 vessels and transporting over 30 million tons per year.

In 1973, the GATX Corporation purchased the company and embarked on an aggressive building program, which included the delivery of its first 1,000-foot ship. During the 1990s, the company installed Electronic Chart/Precise Integrated Navigation Systems on all of its ships.

Today, the company president is Jerome K. Welsch, Jr., and American Steamship Company has recently formed an alliance with Oglebay Norton Marine Services Company in which the companies pool resources to improve efficiencies and economies of scale. The alliance operates under the name of United Shipping Alliance, LLC (USA).

taconite , a relatively new development in iron ore mining .

In 1953, the Pittsburgh Steamship Company became a division of U.S. Steel. In 1964, the company was entirely integrated into the parent company and simply became known as the “Pittsburgh Fleet.” During the 1980s, with the decline of and restructuring of the integrated steel industry in the United States, USX, the successor and owner of U.S. Steel, sold the majority of its shares, along with other transportation assets, to Blackstone Capital Partners. In 2001, Blackstone assumed total ownership, and the company was renamed Great Lakes Fleet, Inc. Mr. John E. Giles is the President and CEO, and Great Lakes Fleet, Inc. operates eight vessels from 767 to 1,000 feet.

The company employs 184 people and management staff, and is headquartered in Duluth, Minnesota, while its parent company is located in Monroeville, a suburb of Pittsburgh.

Oglebay Norton Marine Services Company:

Great Lakes Fleet, Inc:

The company’s history dates back to 1899, making it one, if not the oldest bulk carrier still in operation on the Lakes.

Andrew Carnegie and Carnegie Steel Company chartered the Pittsburgh Steamship Company on November 5, 1899, and the company began with six Lake steamers and one barge that were dedicated to moving iron ore from Minnesota and Michigan ranges to the docks at Conneaut, Ohio. About the same time, Carnegie gained control of the railroad between Conneaut and Pittsburgh, and the Pittsburgh, Bessemer and Lake Erie Railroad assisted the Pittsburgh Steamship Company transporting 2.5 million tons of iron ore to Carnegie’s blast furnaces.

After the formation of United States Steel in 1901, six Lake shipping companies were consolidated into the Pittsburgh Steamship Company, and, in its first year it operated 112 vessels and moved 10 million tons of iron ore. The new company became the innovator of shipping on the Great Lakes by continually designing newer classes of ships to transport even greater tonnages. In 1904, the company designed the Gary class and the Morgan class followed in 1906. In 1972, the company introduced the ROGER BLOUGH , with an overall length of 858’ and a beam of 105’, which dwarfed all the other ships on the Great Lakes. It was especially designed to handle pelletized 32

The Maritime Executive - Second Quarter 2003

First shipment of Mesabi range iron ore was dug and moved by rail to the docks in Duluth, Minnesota in Oct. 1892.

The discovery of iron ore would become the foundation of the Oglebay Norton Company. The first iron ore brought into Cleveland was shipped by Henry Tuttle for the Lake Superior Iron Company in 1854. The growing company caught the eye of Earl W. Oglebay, the son of iron-maker Crispin Oglebay, and, in 1884, the firm of Tuttle, Oglebay and Company was formed. After Tuttle was killed in a railroad accident, Earl Oglebay continued alone as head of the enterprise.

John D. Rockefeller commissioned his friend, David Z. Norton, head cashier for Commercial National Bank, to sell iron for the lands he had bought on the Mesabi Range. In 1890, Oglebay Norton and Company was formed and prospered as a manager and agent for the Rockefeller Empire. The Bessemer Fleet (Oglebay Norton) eventually grew to 58 vessels and carried 3.2 million tons each season.

In the years to come, Oglebay Norton diversified into coal and fluorspar mines, and into manufacturing as well. With the diversification of products and increasing tonnage shipped, the

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Great Lakes Fleets’, Edwin H. Gott

company formed the Columbia Steamship Company in honor of the first ship to transit the Soo Canal, and, by 1979 the fleet grew to 20 vessels, many of them self-unloaders. As older ships were phased out, the fleet became efficient with its current fleet of 13 ships.

Recently, the company acquired Erie Sand and Gravel, which furthered its holdings in the stone market. The company also purchased the quarries of Michigan Limestone, which were bought in 2000. In addition, the company owns the Great Lakes Minerals Division that includes Cleveland Bulk Terminal, which has 44 acres and 1,800 feet of dockface bulkhead.

Oglebay Norton Marine Services Company is managed by Michael J. Siragusa, Vice President and General Manager. The company recently became the alliance partner of American Steamship Company, which has brought the company more transportation efficiencies and increased market share.

The Interlake Steamship Company:

The Interlake Steamship Company celebrated its 90th anniversary on April 25, 2003. However, the company’s roots go back another 30 years with the formation of the Pickands Mather & Co. partnership in 1883.

In February of 1883, Civil War veteran Colonel James Pickands and Samuel Livingstone Mather founded Pickands Mather & Co. to mine iron ore from Minnesota’s Mesabi Range and Michigan’s Upper Peninsula and delivered it by ship to Cleveland, Chicago, and other Great Lakes ports.

The first ship in the fleet was the V.H. KETCHAM , a 1,700-ton, 243-foot sailing ship with 3 masts. Sails would

remain on the Great Lakes for another 20 years, but Alexander McDougall’s “whaleback” design in 1888 would signal the end of sailing ships in commercial shipping. However, these ships would be replaced in the 1920s by the flat-deckers with their forward wheelhouses.

In 1913, The Interlake Steamship Company incorporated and consolidated the Provident, Standard, and Acme Steamship Company, the Mesaba Steamship Company, Interlake Company, Huron Barge Company, and Lackawanna Steamship Company and increased its fleet to 39 ships.

Over the years, Interlake continued to grow and modernize its fleet. In 1976, the M/V JAMES R. BARKER became Interlake’s first 1,000-foot ship. The company continued to build 1,000-foot ships at a construction cost of $60 million per ship.

Following several corporate changes, The Interlake Steamship Company became privately held by James R. Barker, Chairman. Under the direction of Barker and Paul R. Tregurtha, Vice Chairman of the Board, the company continued to maintain its standing as a transportation leader on the Great Lakes.

Lake Carriers’ Association:

Lake Carriers’ Association (LCA) has been the voice of the U.S.-flag carriers on the Great Lakes for more than 122 years and is one of the oldest active trade associations in the United States. In promoting the common interest of its members and their customers, LCA has been the workhorse on legislative and regulatory issues.

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question facing carriers on the Lakes is, “Will the market ever Recently, James H. I. Weakley was elected as LCA’s rebound enough for them to re-capitalize their fleets and, most President. The Association's officers are Richard W. Hawkins, importantly, take profits from their endeavors?”

Vice President-Operations; Glen G. Nekvasil, Vice PresidentLake Carriers’ Association has a renewed sense of its purCorporate Communications; and Carol Ann Lane, Secretarypose with the election of James Weakley as its President. The Treasurer. These people are responsible for dealing with everytask before him is great, as he endeavors to persuade the thing from Aids to Navigation to Zebra Mussels but, their job Federal government to acknowledge that continued taxation is much more , as their Mission Statement clearly shows. without investment in the navigational system will devastate The eleven members are: American Steamship Company, its membership.

Cement Transit Company, America’s Fourth Central Marine Logistics, Coast is in need of repair Inc., Cleveland Tankers LCA’s 2003 Mission Statement includes a and investment.

It also Ship Management Inc., bold list of objectives: requires a boost in the Grand River Navigation 1) Ensure that Federal ballast water regulations recognize that Lake carriers have never economic conditions of Company, Inc., Great introduced non-indigenous species to the Great Lakes. Therefore, they should not be an industry in peril. The Lakes Fleet, Inc., Inland subject to the same operational and equipment requirements that are applied to ocean-going vessels. turnaround of the steel Lakes Management, Inc., industry is paramount, The Interlake Steamship 2) Repeal the Harbor Maintenance Tax and restore full Federal funding for deep draft and as the protection of Company, ISG-Burns Operation and Maintenance dredging (O&M). steel import tariffs are Harbor Division, Oglebay 3) Oppose additional user fees on commercial navigation. lifted, everyone is aware Norton Marine Services 4) Ensure that the U.S. Coast Guard remains the Federal regulation authority for comthat the day of reckoning Company, and Vanmercial navigation in all U.S. waters. will be sooner rather than Enkevort Tug & later. The carriers are cogBarge Company.

5) Promote the economic and national security benefits of the Jones Act and other Cabotage laws. nizant of their customer’s LCA has played a key plight and have posirole in the evolution of 6) Secure full Federal funding for the Great Lakes/St. Lawrence Seaway Study by tioned themselves to shipping on the Great the U.S. Army Corps of Engineers. meet those demands.

Lakes, and has assisted in 7) Gain full appropriations to build a second Poe-sized lock at Sault Ste. Marie, What the lake carriers establishing the waterway Michigan. have on their side is as the world’s safest and 8) Support funding for electronic navigation charts produced by NOAA and the Physical a vision of the future, a most efficient. The Oceanographic Real-Time System (PORTS). mission statement that is self-loading ship was 9) Continue research of ballast water filtration and other treatments to stop ocean-goconcise, and a history of invented to serve the Great ing vessels from introducing more non-indigenous species into the Great Lakes. tradition. There are many Lakes limestone trade, and U.S.-flag carriers that every ship in the LCA’s 10) Stress environmental benefits of waterborne commerce. have called upon membership is a self-load11) Support strengthening and streamlining of U.S. Fair Trade Laws. the Federal government er. While the technology to provide incentives to of these ships is immensemove cargo off the ly efficient, it is alien to roadways and onto our most other maritime coastal marine highway system. The Maritime Administration nations. continues to hold short-sea conferences concerning highway LCA has been a leader in coalition building and has maincongestion, air-quality solutions, and rebuilding of the U.S. tained long standing relationships with Federal, State, and Merchant Marine.

Provincial governmental agencies, maritime labor, and indusRepresentative James L. Oberstar (D-MN), a 15 term trial and environmental organizations in the U.S. and Canada.

Congressman and staunch advocate of U.S.-flag shipping, said, “The Great Lakes States represent 20 percent of the manufacturing jobs in this country, 45 percent of the nation’s agriculture, and one-third of the nation’s exports. There The operation of ships on the Great Lakes is burdened with should be a greater U.S.-flag and foreign-flag presence in the onerous operating taxes, rising fuel and labor costs, navigationLakes. We in Congress must do everything possible to al restrictions at aging locks, and a contracting customer base. improve conditions on the Lakes and establish them as the As all the operators will admit, there aren’t too many competination’s Fourth Coast.” tors lining up at Heaven’s Gate to add new tonnage into the market and compete with them. Yes, times are lean. And, the MarEx

Measuring the Playing Field:

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The Maritime Executive - Second Quarter 2003

A New Tradition in Great Lakes Shipping

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The Combined Fleet Operations of American Steamship Company and Oglebay Norton Marine Services Company 500 Essjay Road Williamsville, New York 14221 716-635-0222 FAX 716-635-0220

1301 East Ninth Street, Suite 3737 Cleveland, Ohio 44114-1800 216-861-8700 FAX 216-861-2315

We handle the most challenging cargoes at the Lakes’ most challenging ports.

We deliver solutions.

ISO 9002 Certified The Interlake Steamship Company Interlake Corporate Center 4199 Kinross Lakes Parkway Richfield, Ohio 44286 Telephone: (330) 659-1400 FAX: (330) 659-1445 e-mail: sales@interlake-steamship.com

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Oglebay Norton is the largest producer of aggregates and related products on the Great Lakes and we needed to make sure that we could bring this limestone to the market in the most efficient manner that we could. The Alliance helps us with this goal by realizing cost savings, operating only the most efficient vessels, reducing delays, and improving our logistics.

executive interview

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Michael J. Siragusa Vice President & General Manager, Oglebay Norton Marine Services Company

MX: What is the background of the Oglebay Norton Company?

Siragusa: The company began in 1854 as Lake Superior Iron Company when Henry Tuttle brokered iron ore . In 1890, Oglebay Norton was formed by David Z. Norton and Earl W. Oglebay and prospered as manager and agent for the Rockefeller Empire. They utilized the Bessemer fleet for the transportation of the iron ore and the fleet eventually grew to 58 vessels and carried an average of 3.2 million tons of product each season.

For most of its history the Company was focused on businesses that served the integrated steel business.

However, in the mid 1990s, the Company began shedding most of its steel related assets.

Now, the company is mostly involved in the industrial minerals and aggregates business. The Company has three major segments: Great Lakes Minerals which operates limestone quarries, docks, and vessels on the Great Lakes, Global Stone which operates limestone quarries and processing plants in the South, Southeast and

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Mid-Atlantic areas of the country and Performance Minerals which mines and

processes sands and mica primarily in the Southwest.

MX: Tell us about the company’s affiliations and ownership?

Siragusa: Oglebay Norton has been affiliated with the likes of John D. Rockefeller, David Z. Norton, and Earl W. Oglebay. We are a publicly traded Company with over 5.0 MM shares traded on the NASDAQ stock exchange.

MX: How many vessels does your company operate?

Siragusa: The Company owns 13 vessels, and we operated 11 of them last year. This year we’re operating eight ships, as a result of the economy and steel industry downturn. One of the benefits of our Alliance with American Steamship Company is it allows us to operate the most efficient vessels in the fleet which lessens the impact of fewer vessels operating.

MX: Explain the affiliation with American Steamship Company?

Siragusa: The industries in which we serve have changed drastically in the last few years and the United Shipping Alliance was formed as a result of the fact that both Companies realized that we could take advantage of some very important efficiencies by working together. Oglebay Norton is the largest producer of aggregates and related products on the Great Lakes and we needed to make sure that we could bring this limestone to the market in the most efficient manner that we could. The Alliance helps us with this goal by realizing cost savings, operating only the

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Fuel has also been a real big issue for us and all the vessel carriers. We’ve attempted to control our costs through some fixed pricing mechanisms with our fuel vendors which allows us to at least have a fairly good idea of what our fuel costs will be, however we need fuel pricing to come back down to more historical levels.

most efficient vessels, reducing delays, and improving our logistics.

It’s important to understand that each company still maintains its independent financial interest in its respective fleet. However, management of the Alliance is done collaboratively between American Steamship corporate offices in Buffalo and Oglebay Norton in Cleveland. As an Alliance, we’re implementing best practices, and establishing volume discounts and synergies from our suppliers. It’s been quite successful over the past year and a half.

MX: All the Great Lake carriers’ revenues are based on three basic commodities: iron ore, coal, and limestone. Is there enough tonnage to keep the fleets of the companies moving?

Siragusa: Five years ago, I’d say “yes,” but with the demise of the steel industry, we’ve had some tonnage that has just gone away. Acme Steel has closed, Wheeling Pittsburg and AK Steel, who was one of our largest customers in 2002, have gone offshore or to Canada for their iron ore requirements. So, the amount of tonnage available for the “big four” carriers has shrunk.

This is why the Alliance with American Steamship is so important.

The benefits grow for Oglebay Norton and American Steamship as total tonnage levels dip by only operating the most efficient vessels.

MX: If the “steel tariffs” are supposed to make domestic steel more competitive, then why are the steel companies buying iron ore from places like Brazil?

Siragusa: The tariffs are for imported finished steel or slabs. In terms of going offshore to buy iron ore, there are no tariffs on the raw bulk commodities.

MX: What will be the great challenges that your company will face in the near term?

Siragusa: As our labor, health care, and pension costs continue to escalate, these will remain our biggest issues. We have been successful in reducing our labor costs recently by automation. This directly impacts and helps offset our labor and health care costs.

These costs are a serious issue that we must attempt to reduce. Rising costs are escalated as a result of the current tonnages and rates being reduced on the Great Lakes.

Fuel has also been a real big issue for us and all the vessel carriers. We’ve attempted to control our costs through some fixed pricing mechanisms with our fuel vendors which allows us to at least have a fairly good idea of what our fuel costs will be, however we need fuel pricing to come back down to more historical levels.

MX: What’s your position on the Jones Act? Siragusa: First, I believe that the Jones Act promotes an efficient U.S.-flag fleet that meets the needs of commerce, helps ensure a vibrant economy and, in light of the Iraqi War, the Act provides Americans with a high level of security.

Furthermore, it maintains environmen-

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tally sound policies for domestic transportation. I think that the Jones Act will remain a solid part of the US Maritime Policy and with the fleet continually increasing its efficiencies I have no reason to think that will change.

MX: What does your organization have to do in the future to become more efficient and remain solvent?

Siragusa: The challenges we face today are economy and cost based, and I believe we have made a step in the right direction with our Alliance with American. Unfortunately we cannot control the economy, water levels and fuel prices, however, we must continue in our attempt to reduce all costs in order to maintain our competitiveness.

We’re well positioned in the market place and have created a great platform in which to grow from with the fleet, quarries, and docks.

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For 90 years, the Great Lakes Transportation companies were owned by U.S. Steel. The GLT businesses were part of its manufacturing process. In 1988, U.S Steel and Blackstone Capital Partners entered into a joint venture in which Blackstone purchased the majority of the transportation related assets. A company named “Transtar” was established to manage the railroads, barges, docks, and vessels.

executive interview

John E. Giles

President and Chief Executive Officer, Great Lakes Transportation MX: Can you give a brief synopsis of your company?

Giles: Great Lakes Transportation (GLT) is owned by Blackstone Capital Partners and operated by managers located at each of our four businesses. Having a local management team to oversee shipping operations keeps us focused on what’s important – our customers and our employees.

Our Great Lakes Fleet operation has eight vessels, four of which are 1,000 feet in length and four ships in the 750 foot range.

Our

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larger ships are used to transport taconite pellets and coal, which is our core business. GLF is the primary carrier for U.S. Steel, and we also ship pellets for Stelco.

The 750-footers, Triple-A class, are engaged in moving limestone, coal, coke, and salt.

That’s the business segmentation for our fleet.

MX: What is the base of operations for your fleet on the Great Lakes?

Giles: We only operate on four of the Great Lakes. Most of our pellet business comes from Northern Minnesota’s Mesabi Range and is shipped from Two Harbors and Duluth.

GLT is a total transportation operation, as we own the railroads, the docks, and ships that move commodities to U.S. Steel in Gary, Indiana; to Republic

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Technologies in Lorain, Ohio; and to Conneaut, Ohio, where we offload and store pellets for U.S. Steel in Pittsburgh.

MX: Explain the railroad operations of your company.

Giles: Our railroad operation is part of the virtual conveyor belt, which starts at the mines, where the pellets are put into railcars that take them to our docks. The pellets are loaded into vessels that take them to steel mills or to storage on our docks.

MX: What is Great Lakes Transportation’s relationship with the steel industry?

Giles: For 90 years, the Great Lakes Transportation companies were owned

by U.S. Steel. The GLT businesses were part of its manufacturing process. In 1988, U.S Steel and Blackstone Capital Partners entered into a joint venture in which Blackstone purchased the majority of the transportation related assets. A company named “Transtar” was established to manage the railroads, barges, docks, and vessels.

In March of 2001, Blackstone took complete ownership of four companies that operated under the Transtar umbrella. The four companies that are now part of GLT are Great Lakes Fleet; the Duluth, Missabe and Iron Range Railway; the Bessemer and Lake Erie Railroad; and The Pittsburgh and Conneaut Dock Company.

MX: What impact has the down spiral of the steel industry had on your company?

Giles: There has been a mutual reliance between GLT and U.S. Steel. In other words, we depend on them for one-half of our revenue base, and they rely on us to move the pellets from the mines to their blast furnaces. It’s symbiotic, if you will.

As you are well aware, the history of steel has been one of steady decline for the last 20 years. In the last year, there has finally been the long awaited reorganization of integrated steel, which is well underway. It began when Wilber Ross, the financier, bought the former LTV steel assets and put together a new labor

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The limestone industry is another business that has been growing by 3 to 5 percent a year. This commodity is used in roads, in the production of taconite pellets, and as a chemical in various manufacturing processes. It’s a major commodity in the Great Lakes region and moves at a rate of 35 million tons per year.

contract and got a fresh start in the steel business as International Steel Group (ISG).

The ISG agreement with labor has become the pattern which other steel companies are now following. For example, ISG just acquired Bethlehem Steel, which was bankrupt, and U.S. Steel recently purchased National Steel.

Eighteen months ago, there were the big six steel companies: U.S Steel, Bethlehem, LTV, National Steel, IspatInland, and AK Steel. In the next month, there will be the big four, as U.S. Steel will own National, ISG will emerge from LTV and Bethlehem, and both AK Steel and Ispat-Inland will remain independent.

The consolidation in the steel industry means that inefficient properties, or blast furnaces that are no longer economically efficient, will fall by the wayside and what will emerge will be a strong and competitive integrated steel industry with a new labor compact.

MX: How has the steel industry been able to pull itself together recently and become competitive again?

Giles: When you think about it, it’s been a tough time for the steel industry, and something had to be done. About a year ago, Bethlehem was in bankruptcy, and LTV had already shuttered their facilities as part of Chapter 7. The CEOs of these companies and the steel industry called upon the Bush Administration to give them some breathing room in which to consolidate and rebuild a competitive foundation.

It was no secret that the foreign steel manufacturers were poaching U.S. markets. As a result American steel companies were being challenged by low prices and high costs. The Bush Administration imposed the “201 Tariffs” that became effective in the first quarter of 2001.

The “201 Tariff” was meant to provide the American integrated steel industry with a three year window to get its house in order -- to consolidate and to merge where necessary, and to work out new labor agreements with its unionized

work force. The tariffs will allow integrated steel time to heal itself.

MX: Explain GLT’s railroad business.

Giles: Our railroad’s main client is U.S. Steel. However, our railroads are common-carriers and have a diverse business base. Our fleet has 5,000 railcars, 75 locomotives, and operates 750 track miles in four states.

MX: Would you consider the Great Lakes shipping business to be a growth business or a static business?

Giles: No, I don’t think it is a growth business. But neither is U.S. railroading as a whole. What we have is two secular patterns. One is the Powder River Basin coal, or Western coal from Montana and Wyoming, which is consumed in utilities as far away as the East Coast.

Approximately 18 million tons of Western coal moves by rail to Superior and is shipped on vessels to utilities on the Great Lakes. This is a growing business and will continue to be so.

The other large secular business is that of taconite pellets, mined in both Michigan and Minnesota and shipped to the blast furnaces along the lower Great Lakes, in places like Northwest Indiana; Lorain, Ohio; and Pittsburgh.

This business is declining at a troublesome rate. However, it has flattened out a bit, but the bankruptcies in the steel industry have been terribly disruptive. Hopefully, it will become a stable business in the future, as the industry works itself out and becomes more globally competitive.

The limestone industry is another business that has been growing by 3 to 5 percent a year. This commodity is used in roads, in the production of taconite pellets, and as a chemical in various manufacturing processes. It’s a major commodity in the Great Lakes region and moves at a rate of 35 million tons per year.

MX: What are the challenges that your company and the industry face in today’s marketplace?

Giles: I see four major challenges for the Great Lakes carriers. First, we are serving distressed industries, and there are lots of

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them out there today. Distressed industries bring about immense pressures on prices and stimulate hyper-competition.

Serving these industries represents enormous challenges, because all of the carriers are competing for the business, and no carrier is really making enough to substantially reinvest back into the fleets.

Our second major challenge is the price of fuel. Between the four GLT companies, we consume 28 million gallons of fuel a year. The cost of fuel is 40 to 50 percent higher than it was a couple of years ago. This is tough to swallow at the same time that you’re also having rate compression. Fuel has become the second major cost factor in our business.

The third challenge is an interesting phenomenon of water levels on the Great Lakes. Water levels, in some cases, are ten to twelve inches lower than they were just a few years ago. It’s been due to heavy evaporation rates, lower snowfall in North America and overall consumption, all of which have contributed to this being a major issue.

For every inch of water loss, we lose the ability to move 240 tons of cargo.

Remember, we still have all of our fixedcosts, and the lower water levels means less revenue because of less cargo capacity.

Now, high fuel costs and the low water impact on revenues is a tough tandem to deal with.

The last and most political challenge is the cost of labor. It is the biggest cost there is in shipping on the Great Lakes.

And, it is restrictive and expensive.

Therefore, our equation of restrictive labor costs, higher fuel cost, lower water levels that have impacted our revenue opportunities, and serving distressed industries has created a very difficult business environment for the Great Lakes carriers. We all have challenges in the shipping industry, and these are just ours.

We also have opportunities – and the model set by the steelworkers in the integrated steel plants may guide us as we deal with the same labor-cost issues here on the Great Lakes.

MarEx Second Quarter 2003 - The Maritime Executive 39

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Having a private owner, committed to growing the business, created a unique opportunity for the company. When we talk to Jim Barker, we’re talking to the Board and the stockholders all at once. It is especially rewarding to have such a dedicated and knowledgeable individual in the transportation industry take ownership.

executive interview

Robert F. Dorn Senior Vice President, Interlake Steamship Company MX: What is Interlake’s base of operations?

Dorn: Interlake Steamship’s corporate offices are based in Richfield, Ohio which is located outside of Cleveland. We operate eight vessels exclusively on the Great Lakes. We have a diverse fleet able to service most of the ports across the Lakes. Our fleet is comprised of three of the largest ships on the Lakes. In fact, the “Paul R.

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Tregurtha”, Interlake’s flag ship, is the largest ship on the Great Lakes.

MX: Who owns the company?

Dorn: The Company is closely held by the Barker and the Tregurtha families.

MX: Isn’t there ownership of Moran Towing Company?

Dorn: Correct. The Tregurthas and the Barkers are involved with Moran Towing which is our sister company.

Moran bought Turecomo Towing a few years ago, and it is now the largest tug and barge operator on the East Coast.

MX: Isn’t there some relationship with Mormac Lines?

Dorn: Today, Mormac Marine Group continues to exist, however all the assets of the what was, many years ago, Moore McCormac Lines and more recently the Mormac Tankers have been sold.

Mormac operates under Jim Barker’s leadership with continuing

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interests in marine projects and maritime issues.

MX: Explain the history of the company?

Dorn: Our roots go back to 1913. At that time, Pickands Mather organized the Interlake Steamship Company by bringing together various Great Lakes vessel companies. At the culmination of this organization, 39 vessels were either owned or operated by Interlake Steamship whose parent company was Pickands Mather. Pickands Mather had its origins in 1883, with an interest in iron rights in the Upper Peninsula of Michigan and fractional ownership of a wooden hulled steamship the V. H. Ketcham. Since then Interlake Steamship has continued to grow and succeed.

MX: When did the current ownership purchase the company?

Dorn: Interlake was in purchased in 1986. The story is a long one. In 1972, Jim Barker was the Chairman of Mormac Resources which owned Pickands Mather. When LTV filed its first bankruptcy in the mid-eighties, Barker decided to retire from Mormac Resources. It was at that time that he purchased Interlake Steamship, then a subsidiary of Pickands Mather. Jim Barker grew up in Lakewood, Ohio, a suburb of Cleveland and always had a passion for sailing on the Great Lakes.

In fact, when he was in college, he sailed on the “Arthur M. Anderson,” a U.S. Steel ship.

Having a private owner, committed to growing the business, created a unique opportunity for the company.

When we talk to Jim Barker, we’re talking to the Board and the stockholders all at once. It is especially rewarding to have such a dedicated and knowledgeable individual in the transportation industry take ownership.

MX: What is the core business of your company?

Dorn: Prior to the company’s purchase by Jim Barker, we carried 80 percent iron ore. Now, we have a good balance between

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Coal has been great for us, as we made the transition from being primarily an iron ore carrier. We’ve been very fortunate to have a sound relationship with Detroit Edison, Ontario Hydro, Wisconsin Electric Power Company and Superior Midwestern Energy…These customers were the springboard which helped us expand into other coal markets… It doesn’t take us a long time to make capital expenditures that may need to be made to meet customer requirements.

iron ore, coal and stone. Today, we are much more diversified in the commodities that we transport throughout the Great Lakes MX: What are your major ports of operation?

Dorn: The company serves the entire Great Lakes region. However, our major ports are Detroit, Chicago, Indiana Harbor, Duluth, Superior, Marquette, Nanticoke and Sault Ste. Marie, Ontario. We have a broad range of business which covers the Lakes of Superior, Michigan, Huron and Erie.

MX: With the downward spiral of activity in the steel industry, what has your company done to increase lost tonnage and revenues?

Dorn: Coal has been great for us, as we made the transition from being primarily an iron ore carrier. We’ve been very fortunate to have a sound relationship with Detroit Edison, Ontario Hydro, Wisconsin Electric Power Company and Superior Midwest Energy to name a few.

These customers were the springboard which helped us expand into other coal markets. Being privately held has allowed us to react to market changes quickly. It doesn’t take us a long time to make capital expenditures that may need to be made to meet customer requirements.

We have also aggressively pursued new stone customers to increase our presence in this market. Our customer base has expanded giving us opportunities to better service existing customers.

Shipboard, we have maximized vessel carrying capacities by identifying areas for dredging. Through an integrated purchasing system, predictive maintenance and sound management we have reduced vessel operating costs. We have reorganized our crewing which, in some cases, has resulted in manning reductions. These manning reductions have been done through an attrition process so that, although the position may have been removed and tasks changed, the employee does not lose his or her ability to continue employment with Interlake.

We constantly look for ways to utilize

the latest technology to offset declining revenues and to improve vessel performance.

MX: Today, what is the biggest obstacle on the Great Lakes for your company?

Dorn: There are a number of significant challenges facing this industry. Today, we are coping with depressed freight rates, unprecedented low water levels and ever increasing vessel operating costs. In addition, our revenues have been significantly reduced with the downturn in ore production. It is now difficult to initiate a capital expenditure program, which we need to do to improve vessel productivity. It is imperative that we take advantage of the new technologies that will improve our effectiveness as a carrier.

Another issue is the continued request of the Corps of Engineers, in concert with the major stakeholders on the Great Lakes, to undertake a study that identifies the current requirements for dredging through out the Great Lakes.

There needs to be a coordinated analysis of all of the segments of shipping, the ports and connecting waterways within this region so that design depths are increased and the water way infrastructure improved. This is essential for the Great Lakes vessel operators to be able to move more tonnage and thus increase the efficiencies of transporting bulk commodities on the Lakes. The Lake Carriers’ Association has told us that there has been progress in terms of doing this analysis. Once that has been completed, perhaps then there can be some coordinated process for solving this problem. But, right now, it’s a problem that affects our ability to carry full loads.

There are a number of environmental issues which must be addressed. One of the major issues is the ballast water transportation of non-indigenous species.

There must be a continuation of this Great Lakes Operator’s voluntary ballast water management program to prevent the spread of non-indigenous species that have been brought onto the Great Lakes by foreign vessel traffic. We must ensure the continuation of this sound manage-

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ment program and our industry’s adherence to its guidelines while a technological solution is sought to prevent further importation of non-indigenous species to the Great Lakes.

MX: What is the future of shipping on the Great Lakes and your operation?

Dorn: No doubt today we are undergoing an evolutionary process similar to that of the steel industry and the manufacturing sector. There will be more consolidation within our industry. It is clear that some of this consolidation will occur before the end of this year. Let there be no doubt, that while there may be consolidation, Interlake Steamship intends to be a long term Great Lakes vessel operator. We see a future in this business and a transportation need that cannot be filled by others. We are looking forward to the challenges that the future may hold in this industry.

MX: What have been some of the outside issues that have had an impact on your profitability?

Dorn: Water levels across the Great Lakes are at historically low levels causing us to light load many of our ships.

When compared to 1998, when water levels began to decline, we are loading each thousand foot class ship with approximately 2,800 fewer gross tons of cargo.

Illegal dumping of steel and ore in the United States has had an adverse affect on our ore tonnages. We must provide a strong domestic steel industry which fosters growth from our ore mines to our mills.

MX: What do you see as the future for Interlake Steamship Company?

Dorn: Interlake Steamship, an ISO and ISM company, has a clear vision of what it will take for us to be a long term player in this business. Our owner, Board of Directors and the entire organization of Interlake Steamship are committed to achieving this vision, expanding this business and remaining a leader in this industry. Most important to us is providing safe, reliable and high quality service to our customers.

MarEx Second Quarter 2003 - The Maritime Executive 41

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We’ve also taken a forward thinking step and decided to collaborate with a former competitor. In 2002, ASC and Oglebay Norton Marine Services, L.L.C. entered into a pooling transaction and we formed the United Shipping Alliance. Our combined fleets and customer base have generated operating efficiencies that could not have been achieved by either company on a stand-alone basis.

executive interview

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Jerome K. Welsch, Jr. President & CEO, American Steamship Company

MX Please explain American Steamship

Company’s (ASC’s) operation on the Great Lakes?

Welsch: ASC is engaged in the transportation of dry bulk commodities on the Great Lakes. Most waterborne shipping companies on the Great Lakes provide a similar service with similar equipment. Consequently, one of our challenges is to distinguish ourselves

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from our competitors.

MX: Who owns American Steamship Company?

Welsch: Our company is owned by GATX Corpor-ation (GATX). GATX is a specialized finance and leasing company headquartered in Chicago, Illinois.

MX: How long has American Steamship Company been in existence?

Welsch: We’ve actually been around for quite some time. Our business was founded around the turn of the 20th century. The operation began as a partnership between two local Buffalo N.Y. businessmen named John J. Boland Sr. and Adam E. Cornelius Sr. Our founders initially participated in the grain brokerage business and later found greater opportunity by becoming vessel owner/operators. This was an era which preceded construction of the St. Lawrence Seaway. At that time, Buffalo was a major seaport and distribution center due to its location at the western end of the Erie Canal. American Steamship Company was incorporated in 1907 and was ultimately purchased

by GATX in 1973.

MX: How many ships do you operate and what is your base of operations?

Welsch: We are currently operating eleven vessels. Our primary commodities include iron ore, coal and limestone aggregates which we transport for the steel manufacturing, electric utility and construction industries. Our home office is located in Williamsville, New York.

MX: What are the major challenges that American Steamship faces in its sphere of operation?

Welsch: In a word, - survival.

Market demand has been

steadily declining over the past five years and some of that decrease is clearly permanent. Our fortunes are significantly impacted by iron ore demand and that commodity is directly tied to the fate of the domestic integrated steel industry.

More than 30 steel producers have declared bankruptcy in the past five years and that number will likely continue to grow. As a consequence, freight rates have plummeted and the Great Lakes vessel industry currently finds itself with too much capacity chasing too little demand.

Like other vessel operators, we’ve responded by taking steps to reduce operating costs. We’ve downsized our back office operation and reevaluated business systems on a company wide-basis in an attempt to implement best practices.

We’ve also taken a forward thinking step and decided to collaborate with a former competitor. In 2002, ASC and Oglebay Norton Marine Services, L.L.C. entered into a pooling transaction and we formed the United Shipping Alliance.

Our combined fleets and customer base have generated operating efficiencies that could not have been achieved by either company on a stand-alone basis. We believe that the United Shipping Alliance allows us to offer our customers an improved value.

MX: Is the Alliance much like an international shipping consortium between carriers that share ships, but maintain their separate marketing functions?

Welsch: The parent companies of ASC and ONMS continue to maintain ownership of their respective shipping assets.

From an operating standpoint, however, the Marketing, Sales and Traffic functions have been combined. In other words, we are marketing ourselves as an Alliance and our vessels are now dis-

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…the most significant cost to our business has been the opportunity cost of business lost due to an influx of unfairly traded steel imports. Each ton of imported steel means the loss of 1.3 tons of iron ore and one half ton of flux limestone. Absent unfairly traded imports, Great Lakes freighters could otherwise carry these commodities.

patched over our combined book of business. This arrangement provides the Alliance with greater flexibility and more trade pattern options. A broader array of options enables us to enhance our vessel scheduling efficiency. In the future, I think you will continue to see further collaboration and the elimination of redundancy in areas where our efforts may currently overlap.

MX: What costs impact your business the most?

Welsch: I’m tempted to become introspective here and talk about our internal cost mix. Nevertheless, in my opinion, the most significant cost to our business has been the opportunity cost of business lost due to an influx of unfairly traded steel imports. Each ton of imported steel means the loss of 1.3 tons of iron ore and one half ton of flux limestone. Absent unfairly traded imports, Great Lakes freighters could otherwise carry these commodities. Given the contraction in demand caused by the decline in domestic steel manufacturing, all vessel operators have understandably sought to reduce the cost structure of their operations. It’s been said, however, that no one ever “shrank to greatness”. Cost control is an imperative in any business, yet cost control is not a strategy that can guarantee success by itself. What we need are stronger customers and more of them.

MX: What’s your attitude about the challenges facing the Jones Act? Welsch: I think the fact that the Jones Act has stood the test of time only serves t o confirm the logic of ensuring our right to fair trade. On a level playing field, I’d match the talent of our marine and shoreside employees and the strength of our asset base against anyone. I’d do this, of course, assuming that all participants would pay US taxes, provide health care benefits equivalent to our standard, adhere to our domestic safety and regulatory

requirements and of course, forgo any cabotage laws that currently apply to the countries that wish to enter our market.

Anything less isn’t competition; it’s circumvention. I’m aware that the Jones Act often becomes a contentious issue with special interest groups and I expect that the Jones Act will continue to be challenged. In my opinion, the best way to preserve the benefits of the Jones Act is to continue to provide economical and efficient transportation solutions to our customers.

MX: What are the outside influences that could impact your business and the maritime industry on the Great Lakes?

Welsch: We can’t lose sight of the fact that a major segment of our market (the steel industry) competes in a global arena. As such, we can be impacted by international trade agreements, global economic developments and the value of the U.S. dollar versus other currencies.

There’s not much that we can do about these factors except to ensure that we continue to do our part to help our customers succeed.

There are also a host of back yard issues that directly affect our industry.

These include environmental and regulatory requirements such as ballast water management, controlling the spread of invasive aquatic species, maritime security and the need to comply with other safety and operating regulations. We must also begin to focus on preserving and improving our own transportation infrastructure. We are fortunate that we don’t carry these burdens alone. We have very effective industry representation in the form of the Lake Carriers’ Association and the Transportation Institute that bring

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attention to these issues while keeping the best interest of commerce and the private sector in mind.

Finally, we are also impacted by the weather. Ice formation on the Lakes prevents us from operating year round.

Moreover, we’ve recently been suffering from low water levels relative to longterm averages. Lower water levels means less cargo per trip and consequently a higher cost per ton delivered.

MX: What is the future of shipping on the Great Lakes?

Welsch: Change! I think that a core segment of our market will ultimately survive but I think that this core segment will demand to be served by the most efficient assets guided by the most adaptable management. Our industry is blessed with long-lived assets. The long life of our vessels is made possible primarily because we operate in fresh water. While that’s a good thing, I believe this fact tends to delay the impact of economic reality. All vessel operators will eventually need to reinvest in their equipment.

When that moment arrives, you must be able to demonstrate that you are an attractive investment. Otherwise, you won’t be able to access the capital necessary to support your existence.

I see the Great Lakes vessel industry eventually shedding older less efficient capacity that has already become marginalized. Continuing maintenance of these assets simply can’t be justified at current rates of return. Eventually supply and demand will be brought into balance. Our challenge is to position the Alliance so that it remains a viable and integral part of that equation.

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Second Quarter 2003 - The Maritime Executive 43

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We work with the legislators who represent the Lakes Basin on issues ranging from adequate icebreaking resources to stopping future introductions of non-indigenous species into the Lakes via the ballast water on salt-water vessels. We have a lot of respect for the work done by Representative Jim Oberstar (D-MN), not only because he represents the Duluth area and Mesabi Iron Range so well, but he’s also been in Congress for a long time, so he clearly understands the issues.

executive interview

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James Weakley

President, Lake Carriers’ Association MX: Explain what the Lake Carriers’ Association is and what its mission is.

Weakley: Lake Carriers’ Association represents U.S.-flag carriers on the Great Lakes. Currently, we have 11 member companies with 57 ships under their control. LCA dates back to 1880, which makes it one of the oldest associations in the United States.

Our mission is to promote the safe and efficient transportation of cargo on U.S.flag ships on the Great Lakes.

We work in partnership with various organizations in building coalitions on Capitol Hill to defend the Jones Act… to defeat

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The Maritime Executive - Second Quarter 2003

additional taxes on waterborne commerce… to gain funding for dredging and navigation improvements… We have a good working relationship with the Coast Guard’s Ninth District, which pioneered the streamlined inspection program for deep-draft vessels. We also work with the Canadian Shipowners’ Association and Canadian Coast Guard concerning issues that we all face on the Lakes.

MX: Explain one of the issues LCA dealt with recently.

Weakley: One of the key roles we’ve played so far this year was holding daily conference calls to coordinate icebreaking operations. We brought together

Association members, non-members, and the U.S. and Canadian Coast Guards to determine where the icebreaking needs were most pressing and what environmental conditions were so we could best use our resources to keep commerce moving.

MX: What agendas does LCA carry forward for its members politically?

Weakley: We work with the legislators who represent the Lakes Basin on issues ranging from adequate icebreaking resources to stopping future introductions of non-indigenous species into the Lakes via the ballast water on salt-water vessels. We have a lot of respect for the work done by Representative Jim Oberstar (D-MN), not only because he represents the Duluth area and Mesabi Iron Range so well, but he’s also been in Congress for a long time, so he clearly understands the issues.

We work with various organizations such as the American Iron and Steel Institute to promote policies that strengthen America’s iron and steel industries.

LCA is a major player in the Great Lakes Maritime Task Force, a coalition of labor, maritime groups, shipyards, and other organizations involved with the maritime industry in the Great Lakes Basin. Each year, GLMTF recognizes a legislator from each party to be honored for his or her efforts in moving forward maritime issues for the Great Lakes region.

Congressman Bart Stupak (D-MI) was selected as one of our Legislators of the Year for 2003. He represents Michigan’s 1st District and is a champion of the mining and maritime industries. The Locks at Sault Ste. Marie are in his district, and the Congressman has been tireless in seeking appropria-

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The American public is well served by the Jones Act. Our members move a ton of cargo the 800-plus miles from Duluth/Superior to Cleveland for less than the cost of lunch at a popular fast food restaurant. But critics like to cloak themselves with the “Free Trade” Banner. In theory that’s all well and good, but we have to remember that free trade isn’t necessarily fair trade. There’s not a level playing field versus foreign operators, particularly given the tax structures that U.S. corporations have to operate under.

tions to build a second Poe-sized lock.

Although there are no steel mills in his district, his iron ore miner constituents have been impacted by the industry’s plight.

Our other honoree this year was Senator George V. Voinovich (R-OH), a Lakes champion if ever there was one.

His commitment to Lakes shipping dates back to his days as Mayor of Cleveland.

MX: Does LCA have an active role in protecting the Great Lakes regarding the “Invasive Species” issue that has been highlighted on the national and international levels?

Weakley: Rick Harkins, our Vice President of Operations, has worked with the Northeast Midwest Institute concerning the technical aspects of the invasive species issues that we’re facing here on the Lakes. We’re doing the analysis on filtration systems and UV systems, and are taking the lead on other technical issues as well.

On the political side of the issue, I’ve got the lead on working with the Great Lakes Task Force, which Senator Carl Levin (D-MI) heads up with his key staffer Joy Mulinex. We have also contacted Congressman Vernon Ehlers’ (R-MI) staff regarding the issue. He introduced one of the two House bills and is committed to the issue. We are clearly focused on prevention, and are trying to stop the introduction of additional aquatic species into the Basin.

Since our ships never leave the Great Lakes, we feel that we’re being victimized by the problem and don’t want to be victimized by the solution.

MX: Regarding your new position as President of LCA, what will be your greatest focus in the near term?

Weakley: There are three issues that are at the top of my agenda as the President of LCA: First is moving the Navigation System Study forward, which, by the way, the U.S. Army Corps of Engineers has renamed the Great Lakes/St. Lawrence System Review. The second issue concerns the need for another Poesized lock at Sault Ste. Marie, Michigan.

There needs to be twin locks there to

accommodate LCA’s largest ships. The third issue is the aquatic nuisance issue, because we need a solution to that problem that we can live with.

MX: What’s the state of the replacement lock at the Soo? Weakley: The U.S. Army Corps of Engineers is still reconfirming the cost/ benefit ratio, an undertaking necessitated by the depressed conditions in our steel industry. I believe the project will still have a positive cost/benefit ratio. Iron ore shipments are starting to rebound and the western coal trade has grown for nine consecutive years. There may be an important announcement concerning the second Poe-sized lock in June.

MX: Explain LCA’s position concerning the Jones Act. Weakley: The American public is well served by the Jones Act. Our members move a ton of cargo the 800-plus miles from Duluth/Superior to Cleveland for less than the cost of lunch at a popular fast food restaurant. But critics like to cloak themselves with the “Free Trade” Banner. In theory that’s all well and good, but we have to remember that free trade isn’t necessarily fair trade. There’s not a level playing field versus foreign operators, particularly given the tax structures that U.S. corporations have to operate under. If you take away the protections for the domestic industry and the barriers for entry without leveling the playing field, the U.S. Merchant Marine would disappear rapidly. I don’t think that’s good for the economy or for national security and Congress and the Bush Administration agree.

We are members of the Maritime Cabotage Task Force (MCTF), which is a nationwide labor/management coalition that focuses on defending the Jones Act from legislative threats. Our current focus is on the members of Congress who were elected since a majority of the House endorsed a pro-Jones Act resolution circulated in the 105th Congress.

Members of the MCTF are touching bases with these legislators and their staffs to make sure that they’re aware that the Jones Act is vital to our interests

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and must remain the foundation of U.S. maritime policy.

There was an aggressive attack on our Cabotage laws by a group that audaciously called itself the Jones Act Reform Coalition (JARC) in the mid1990s; in fact, that’s why MCTF was formed. The JARC attacked the law head-on and had significant resources at their disposal, but MCTF was so successful in gathering support from Congress and the Administration that JARC folded up their tent in 1999. There are still challenges to our Cabotage laws and we don’t take any of them lightly, but there is no shall we say “coordinated” effort right now to repeal or amend the Jones Act. MX: Is U.S.-flag shipping on the Great Lakes stable now?

Weakley: The annual U.S.-flag float on the Great Lakes is now stable at around 100 million tons per year. That means 60 plus ships see service during the year.

Iron ore tonnage is down: Surprise, surprise. Steel imports set an all-time record in 1998 and haven’t come down much since then. We’re tied to the steel industry. It takes 1.3 tons of iron ore and 400 pounds of fluxstone to make a ton of steel.

On the other hand, coal has been stable. Economic conditions are still tough, but the tide’s turning. I like to joke, tongue-in-cheek, that our members are just humble steamship companies trying to eek out a meager existence in an increasingly hostile economic and regulatory environment, but seriously, I think U.S.-flag shipping on the Great Lakes will always be here, and it’s our mission to ensure that it remains that way and stays healthy. We have 70 percent of the steelmaking capacity and 55 percent of the heavy manufacturing capacity of our nation right here in the Great Lakes Basin, so cargo will always need to move on the “Fourth Sea Coast” and it’s our job to make sure domestic commerce is conducted by vessels that are U.S.-owned, U.S.-built and U.S.-crewed.

MarEx

Second Quarter 2003 - The Maritime Executive 45

united states coast guard

ICEBREAKERS LEADING THE WAY The Perfect Model: Return on Equity for Taxpayers

by Joseph A. Keefe Mother Nature Delivers a Body Blow The winter of 2002 - 2003 marked the worst ice season for the Great Lakes transportation system in at least 30 (possibly 50, depending on who you talk to) years. The season was defined by both the amount of ice coverage in the region, as well as the thickness of that ice itself. Always a wild card, the wind was also a huge factor. Ice is a wind-driven commodity, and, because of this, Duluth/Superior Harbor at the western end of Lake Superior in Minnesota and Wisconsin, was clogged for at least three weeks, a condition virtually unheard of in the recent past. On April 24th, as MAREX interviewed Admiral Ronald Silva, Commander of the Ninth Coast Guard District, ice-breaking was still being performed in Duluth/Superior Harbor. The need for, and presence of, an ice-breaker in Chicago was also a first. Putting the situation into real perspective, some cargo owners and shipping concerns expecting to get started on March 19th, did not see action until March 31st. As a result, the Lake Carriers’ Association (LCA), representing U.S.-flag vessels on the Great Lakes, reported anemic, almost disastrous March cargo totals. Some coal terminals moved only one or two cargoes in March, and the stone trade was completely stymied.

The LCA reports that the cost of idling the typical 1,000 foot laker can approach $50,000 per day.

Extrapolating this figure to almost 60 vessels over a ten-day period brings real clarity to the terrible cost to commerce, the economy, and the livelihoods of thousands of workers. In a place where the shipping season is a finite period of time, those days and dollars are lost forever. And, says Jim Weakley, President of the LCA, “In 1996, there were ice-breaking operations underway until May 17th. This year was worse.”

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united states coast guard

It sometimes takes a defining event to underscore the absolute need for something everyone takes for granted. If so, then this was the winter which brought into clear focus the deep dependence of the Great Lakes shipping community on ice-breaking operations provided by the U.S. and Canadian governments. As the ice-breaking season comes to a close, it was also apparent that a unique spirit of communication, cooperation, and coordination exists here on the Great Lakes.

That spirit, combined with the extraordinary efforts of the ice-breakers, was instrumental in keeping the shipping lanes open and the goods flowing, despite conditions that otherwise would have made a tough situation even worse.

Herculean Effort / Extraordinary Cooperation Jim Weakley contends that the key to this year’s ice season efforts was communication; plain and simple. In the face of the worst ice conditions in at least 30 years, Weakley reports the best industry/Coast Guard cooperation that he had ever seen. During the ice season, a daily conference call takes place, consisting of the U.S. Coast and Canadian Coast Guards, U.S. and Canadian shipping companies, and now, even the customers themselves. The purpose of these calls is to ensure the most efficient, and equitable use of limited ice-breaking resources, as well as discussions regarding “ice management” and other variables. Weakley adds, “Before you start breaking up ice, you better be sure that you know where it’s headed afterwards.”

Beyond this, ensuring the right ice-breaking hull is assigned to the right task is all important. Finally, all of this is integrated with the operational and logistical needs of the individual vessels and shippers, and a decision process is undertaken. And, while the Coast Guard(s) have the ultimate and final say as to how and where a particular ice-breaking asset will be placed, Weakley says that they are good listeners, and are fully cognizant of the experience represented by the personnel of LCA member companies. Weakley further praises the U.S. Coast

Guard for being fully ready for this year’s brutal ice season, recognizing the challenge that lay ahead, and for having the foresight to bring in the ice-breaker “MORRO BAY” from New England (as did the Canadians from another location) to assist and augment local efforts.

Typically, the morning conference call will commence - 7 days a week - at 1000 hours local, and starts by securing the latest satellite imagery of ice formations, and then interpreting the data by appropriate personnel (usually a Canadian Coast Guard ice expert). The two dimensional imagery is then transformed into a three-dimensional graphic which provides real guidance. Actual and expected conditions are discussed by regional authorities, after which deployment of assets is actively discussed. The process is both complex, but also highly successful, but inevitably, disagreements about when and where a cutter should be dispatched do happen. LCA’s role as a prime facilitator of the conference call format requires the use of “on and off-line discussions between all participants, anticipation of problems in advance, and the brokering of conflicts before they escalate.” This is especially true where there are American assets assisting and breaking ice for Canadian shippers, and conversely, the other way around.

A common misconception about Great Lakes shipping is that the entire region shuts down during a set period during the winter months. While this is certainly true for the St. Lawrence Seaway, nothing could be further from the truth as far as some areas within the Lakes themselves are concerned.

Shippers and operators will operate for as long as possible, and, partly as a result of this, the LCA Annual Report is now being formatted on a calendar year basis, and not on the “traditional” navigation season, as had been the case in the past.

All of this further underscores the important role of ice-breakers and the need for cooperation between all parties in the midst of a highly competitive shipping climate. That it works at all, with a minimum of fuss, is a tribute to all involved.

Second Quarter 2003 - The Maritime Executive 47

united states coast guard Making it Work: Now and Down the Road At this time, the United States Coast Guard does not charge “User Fees” for their ice-breaking services, but budget shortfalls and the ubiquitous search for new Federal dollars always makes this a perennial subject for discussion at OMB. Canadian authorities, on the other hand, do have a fee schedule, which dictates that dues are paid when calling at a Canadian port, unless that port call is strictly for the purposes of loading bunkers. Ironically, the ship will pay the fee whether or not they received assistance on that particular port call, AND regardless of whether assistance was received by a Canadian or American ice-breaker. The Canadian ice-breaking assistance fees apply only during the ice navigation season, which stretches from December 15th until April 15th.

Although the costs levied by the Canadians are not prohibitive, Weakley cautions that “margins are so thin that any additional surcharge or tax imposes a significant burden on any shipping company.” Nevertheless, he adds that the fees haven’t yet stopped anyone from operating on the Lakes.

In the “good news” department, a fledgling movement in Canada to end the user fees on that side of the Great Lakes may be gathering some steam. On the U.S. side, the Coast Guard is embarking on an ambitious and long-awaited program of replacing its aging platforms with more efficient, modern, and more powerful hulls. This is especially important, given the World War II vintage of the U.S. Coast Guard’s current ice-breaking fleet. The Coast Guard’s current heavy ice-breaker, the “MACKINAW,” will soon be replaced by a new vessel of the same name. The new hull, in keeping with the multi-missioned doctrine of today’s Coast Guard, is configured to perform more than one task. Notably, it will also handle buoy tending operations, giving it year round value and providing additional economy of scale to the Ninth District.

Modernizing the U.S. ice-breaking fleet was no small feat in a climate in which port security grants, the Coast Guard’s new Deepwater Initiatives, and the buildup to the war on Iraq have quickly siphoned off a large chunk of potential funding.

The end result will be a more flexible and reliable Coast Guard ice-breaking force, although smaller (minus one hull - from 5 to 4). Jim Weakley of LCA is clearly concerned over the loss of this hull, but maintains that if the flexibility shown by Washington (reassigning the MORRO BAY to the Great

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Lakes from New England) during this ice season can be continued into the future periods of similar need, then the end result will be a good one.

Getting Out the Word: High Value to Consumers / Low Costs If the lifeblood of America’s midsection is represented by the marine transportation system on the Great Lakes, then it is also true that a large percentage of this commerce would simply not be possible without efficient and timely ice-breaking operations. But, the relationships go much deeper than that.

Ice-breaking performed by the U.S. Coast Guard is provided at the direction of the President to meet the needs of commerce.

In terms of specific Federal expenditures, there is little or no “pork” on the Lakes, and, unlike their salt water cousins, American flag carriers represented by LCA receive no subsidies from the Federal Government. While the return on investment to the government and the people it serves is difficult to calculate, ice-breaking expenditures provide immediate and direct benefit to Federal coffers and taxpayers alike - through job creation, and corporate and personal income taxes.

It is the position of the LCA that the corporate taxes and job creation caused directly by the shipment of goods to a myriad of end-users more than offsets the costs of ice-breaking. It is a difficult position to argue against. Typically, hundreds of millions of dollars in cargo was transported over the course of as many as 1,000 vessel movements during this ice-navigation season. Beyond this, U.S.-flag carriage can top more than 125 million tons in a given year.

Ice-breaking and Great Lakes commerce are irrevocably linked. The goal of maintaining an efficient, cost-effective (read: affordable) ice-breaking system is everyone’s business.

Fostering the unique spirit of cooperation between shipping interests and the Federal and Provincial entities that provide these services is the mandate of the Lake Carriers’ Association. In the wake of the most difficult ice-navigation season in recent memory, and marked by extraordinary ice-breaking efforts on the part of the U.S. and Canadian Coast Guards, there is every reason to believe that both tasks are in good hands.

MarEx

great lakes maritime task force John D. Baker

Patrick J. O’Hern

Daniel L. Smith

James H. I. Weakley

President

1st Vice President

2nd Vice President

3rd Vice President

American Maritime Officers; American Maritime Officers Service; American Shipbuilding Association; American Steamship Company; Bay Shipbuilding Company; Central Marine Logistics, Inc.; Faulkner, Muskovitz & Phillips, LLP; Fraser Shipyards; Great Lakes District Council - ILA; Great Lakes Fleet, Inc.; Hannah Marine Corporation; Hathaway & Hathaway; The Interlake Steamship Company; International Brotherhood of Boilermakers; ILA Lake Erie Coal & Ore Dock Council; ILA Local 1317; ILA Local 1768; International Organization of Masters, Mates & Pilots; International Ship Masters’ Association; Lake Carriers’ Association; Lake Michigan Carferry Service; Lake Michigan Contractors; Lakes Pilots Association, Inc.; Luedtke Engineering Company; Marinette Marine Corp.; Metro Machine Corp.; Michigan Maritime Trades Port Council; Midwest Energy Resources Company; Oglebay Norton Marine Services Company; Preston Gates Ellis & Rouvelas Meeds, LLP; St. Lawrence Seaway Pilots’ Association; Seafarers International Union of America; Toledo Port Council, MTD, AFL-CIO; Toledo Shiprepair Company; Transportation Institute; United Steelworkers of America: District 1, AFL-CIO-CLC and Local 5000; Western Great Lakes Pilots’ Association.

One Maritime Plaza Toledo, Ohio 43604 Phone: (419) 255-3940 Fax: (419) 255-2350

united states coast guard

Focus: Invasive Species Threaten the Great Lakes Working to Maintain & Foster Commerce While Protecting an Ecosystem

by Joseph A. Keefe

Ballast Water Management: Cooperation Will Be the Key The concept that species from other parts of the globe such as mussels, miscellaneous fish, plants, and organisms could make their way into a particular geographical area through man’s carelessness, and cause irreparable harm, is not a new one. The damage caused by these invasive species is far reaching and impacts commerce, shipping, and the general public alike. Since 1996 (started as voluntary in 1993), the effort to eradicate or at least minimize the problem of invasive species in Great Lakes waters has included a unique, mandatory ballast exchange program. The joint program, fostered by the U.S. Coast Guard and Canadian authorities, involves an exchange of ballast for inbound vessels via the St. Lawrence Seaway. Eventually, and as a direct function of the unique cooperation among industry, the general public, and environmental concerns, the battle to save the sprawling ecosystem known as the Great Lakes will involve much more.

This is by no means a regional issue. Research and development of appropriate standards is underway, here in the Great Lakes through the Great Lakes Waterway Management Forum (consisting of 26 organizations stretching from maritime shippers to U.S. and Canadian authorities), and, on a national level, in Washington. The United States Coast Guard is active in partnering the various interested parties to facilitate the scientific research that will eventually lead to a long-term solution. One of those “interested parties” is, of course, the Lake Carriers’ Association (LCA), which represents the operators of U.S.-flag vessels on the Great Lakes. Even though their ships never leave the Lakes and, hence, have never introduced a non-indigenous species to the system, they have assumed one of the key, lead roles in defining the problem at hand, and are helping to develop the ultimate solution.

Invasive Species: Impact and Origin So-called “invasive species” enter the Great Lakes from a 50

The Maritime Executive - Second Quarter 2003

number of different sources. The Asian Carp approaching from the Mississippi and Illinois Rivers can be just as insidious as the Zebra Mussels and other fish introduced from sea-going vessels traveling to and from the Lakes via the St. Lawrence Seaway. Once introduced, any of these species can and do spread from the point of entry to any one of the Great Lakes.

According to Stephen B. Brandt, Director of the Great Lakes Environmental Research Laboratory (NOAA), “Ship-borne ballast water is the most significant vector of introductions for aquatic invasive species worldwide.” Research has also shown, however, that vessels declaring no ballast on board (NOBOB) may actually be a more significant contributor to the problem.

The residues and slops contained within these ballast tanks which can never be completely emptied by conventional pumping systems - also contain potentially harmful creatures and living organisms, all of which can be released when the particular vessel takes on ballast in one port and discharges it in another. But, salt water ships are only one of the many “vectors” of possible introduction. Inadvertent releases from aquariums, live bait releases, and recreational boating all contribute to the problem, as well.

The ultimate impact of invasive species is yet to be determined, and is the subject of at least six different studies now underway. Lake Erie, for example, because of its position as the most shallow of the five Lakes, is potentially at greatest risk. As a general statement, invasive species can and do clog water

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Admiral Ronald F. Silva, “The problem of invasive species is the highest priority marine environmental issue for the U.S. Coast Guard, … He adds that while the problem is certainly not confined to the Ninth District, the Great Lakes, being a source of drinking water for 37 million North Americans, potentially have the most at stake in this regard”.

intakes for various industrial applications, eliminate or replace native species, change contaminant and nutrient cycles, negatively affect ecosystem productivity, and impact fishing industries. It is safe to say that the problem cuts across all spectrums of society and affects industry, economies, and lifestyles alike.

And, says USCG Ninth District Commander Admiral Ronald F. Silva, “The problem of invasive species is the highest priority marine environmental issue for the U.S. Coast Guard, not just here in the Ninth District, but nationwide, as well.” He adds that while the problem is certainly not confined to the Ninth District, the Great Lakes, being a source of drinking water for 37 million North Americans, potentially have the most at stake in this regard.

Prevention: Defining Standards / Developing Proactive Solutions Solving any problem of this magnitude will always involve compromise between all concerned parties, and this situation is no different. For its part, LCA is deeply committed to ensuring that any solution takes into account “the vast and inherent differences between foreign salt water vessels and domestically-trading Lakers.” With this in mind, Jim Weakley, President of LCA, says, “Prevention of additional introductions by salt water vessels is our number one priority.” He goes on to reiterate that while not one invasive species has ever been introduced by any Lake vessel, LCA remains committed to being one of the linchpins of the effort to control, and hopefully, eventually, prevent introductions of new invasive species into the Great Lakes.

As Weakley stresses, the issue of invasive species is clearly a matter of salt water traffic, involving as many as eight states, five Lakes, and the international community comprised of Canada and any number of foreign shipping companies. The focus, says Weakley, “must be on salt water traffic, and the solution, a Federal one.” A worst-case scenario, he adds, is one that involves a different standard, and a solution mandated individually by eight different states, two Canadian provinces, and perhaps two different sovereign nations. A perfect example of the potential pitfalls of conflicting statutes and regulations can be found in the Federal Oil Pollution Act of 1990 (OPA90) and the myriad of individual state(s) laws, from Florida to California, Oregon and Washington, which sometime conflict with one another. And no meaningful, lasting solution can be put into place until the standard of prevention is explicitly defined. The great debate, says Weakley, centers on whether the solution applied to salt water ships should define the problem in terms of a micron based or a biological standard. According to LCA, micron based solution-testing represents only a fraction of the costs that involve the alternative, biological method. And, there are other proposed solutions, but very few which have been tested to the rigors and industrial standards fostered by LCA and its partners here in the Great Lakes.

united states coast guard The Great Lakes Aquatic Nuisance Species Panel - on which LCA is well represented - concerns itself with rapid response, early detection, and education of the general public and environmental groups. Through this and other organizations, LCA is working towards a viable, effective, and economical solution that can be installed on salt water vessels. Some proposed technical solutions include filtration, hydrocyclones, and even ultraviolet applications. Testing these systems in a real, industrial, shipboard environment presents its own list of challenges, however. Testing of filtration systems, with the cooperation of Great Lakes based vessels, began in 1996. Because this testing, involving filters of designs varying from 50, 100, and 150 microns, proved to be very expensive, research was transferred to a barge designed especially for this purpose. The barge testing, aptly named the Great Lakes Ballast Technology Demonstration Project, and co-chaired by LCA’s Vice President of Operations, Richard W. Harkins, along with the Northeast Midwest Institute, is yielding valuable data, which will no doubt some day fit into both the defined standard for prevention and the Federal legislation and ensure that effective prevention and control of invasive species comes to pass.

Prevention has to be the first line of defense against the introduction of unwanted species. It has been documented that prevention is almost always far less expensive than the control of invasive species after their introduction. It is also true that prevention will ultimately hit the bottom line of vessel owners the hardest - even for those who do not create the problem. In 1993, the LCA wrote and introduced the first voluntary ballast water management policy designed to limit the spread of invasive species within the Great Lake basin, after they have been introduced by others. Lakers from the Canadian side and salites endorse and adhere to these rules.

Although the rules are voluntary, Weakley reports 100% compliance - audited and documented - among all parties, and the policy is updated yearly and has been expanded many times.

The spread of these species will inevitably occur, however, via natural pathways. For example, the Ruffe in Duluth/Superior harbor at the western end of Lake Superior is slowly making its way along the southern shores, and will likely make it to Lake Erie at some point. LCA is adamant that shipping not be a contributor to this vector, and so far, they have achieved that goal to the greatest extent possible, using management practices to do so.

There is a lot of work to be done, and research is ongoing.

Richard Harkins reports that one filter system of Israeli design has shown particular promise. Efforts are now ongoing to install the filter on a FEDNAV vessel, one of the salt-water operators that ply the Lakes on a regular basis. According to Harkins, FEDNAV is the perfect platform for such a test, in that FEDNAV represents 50- 60% of the salt water tonnage that enters the Great Lakes each shipping season. The task, despite excellent cooperation from this first class operator, is easier said than done. It is also worth saying that this project is Second Quarter 2003 - The Maritime Executive 51

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The new regulations and laws designed to prevent, control, and, hopefully, eliminate the problem of invasive species are coming. This is certain. LCA and Jim Weakley are clearly engaged in the process, maintaining a weather eye on the process unfolding in Washington.

united states coast guard

mately responsible for the lifeblood of one of the few shipboard-testing initiathe other. Jim Weakley is clear that, tives occurring in the world today, and “Carriers want to solve the problem of has received international attention invasive species, but they can’t move from the IMO and other organizations. the technology forward until there’s a Naval architects and marine engistandard to build to and apply to salt neers are now trying to devise a way to water vessels.” LCA, he says, sees three fit the filter system into the vessel’s big hurdles in implementing a pump room, and to adapt its 1,500mechanical, shipboard filter solution: gpm capacity to the vessel’s 2,000 gpm (1.) the standard for size of the micron pumps. Just as the first marine chrofilter standard has to be defined, (2.) nometers which allowed sufficient reconciliation of the gpm capacity of accuracy for determining longitude these filters to existing ballast pump calculations were far too large for praccapacities, and (3.) sizing of the equiptical shipboard use, the challenge facment so that it can fit into the designs ing shippers hoping to eradicate the of existing (and planned) merchant scourge of invasive species is to fit the vessels. Beyond this, some sort of stansolution into the cramped confines of dardization for the generic equipment the typical merchant vessel. (The chalrequired will be necessary. Only in this lenge would be even greater for vessels Admiral Ronald F. Silva, U.S. Coast Guard. way can there be some economy of of Laker design, as they boast ballast scale that will allow all carriers to afford the solution. pumps with a total capacity of 79,000 gpm.) LCA (and others) Everyone understands the reality that ballast water are continuing their research while awaiting the development exchange, the current method of minimizing introduction of and definition of the final standard and requirements for cominvasive species, is only partially effective, despite thorough pliance, so that the final technical solution can be built and put enforcement and good cooperation from salt water operators. into play.

Whatever comes next absolutely has to be better, and should augment, but not necessarily replace, the current efforts.

What’s Coming - And When Controlling invasive species and ensuring the integrity of the The new regulations and laws designed to prevent, control, waters of the Great Lakes is all-important, but none of this will and, hopefully, eliminate the problem of invasive species are be achieved without a cost. According to engineering studies coming. This is certain. LCA and Jim Weakley are clearly commissioned by the Great Lakes Ballast Technology engaged in the process, maintaining a weather eye on the proDemonstration Program, the cost of implementing a ballast cess unfolding in Washington. When asked if he envisioned technology solution aboard the typical merchant ship can start and supported a new rule that would mandate clear steps for, at approximately $500,000 for small ships and easily escalate and improvements to, salt water vessels plying the Great Lakes, into the millions for larger vessels. Although the absorption of but endorse existing management practices on Lakers, he these costs will be borne primarily by the ship operators themreplied, “Absolutely. Senate Bill 525 defines many of these selves, the cost of doing business always trickles its way down issues with regard to enclosed aquatic ecosystems, and focuses to the lowest common denominator: industrial output and the on prevention. Further, although LCA members are not part every day consumer of finished goods. of the problem, we are a big part of the effort to find a soluJim Weakley talks about “incentivizing ship owners” to tion. But the solution has to be something that we can live implement a solution to the critical problem of invasive spewith - as shippers and as citizens. We have a vested interest in cies. And, while this issue is not confined or indigenous to the the Great Lakes.” Weakley, who is also part of the Ballast Water Great Lakes, this would appear to be a logical place to start the Coalition, an organization deeply concerned with the invasive process. Through the years, the Great Lakes shippers and LCA species issue, is optimistic that Senate Bill 525 (H.R. 1080 and have together pioneered, devised, and implemented many 1081) will pass during this Congress. firsts in the world marine transportation. These innovations include the first self-unloading vessels, traffic separation Pioneering New Technologies and Living With schemes, the first bow thrusters, marine diesel engines, and, of the New Regulations course, many proven and other potentially useful solutions to In addition to being an important commercial waterway, the problems of invasive species. There is no doubt that, whatthe Great Lakes are also the world’s largest body of freshwater. ever the final solution to this challenge entails, LCA and its The needs of the industrial economies served by LCA can and members will have been an integral part of the process, and will coexist, side by side, with the ecosystem. The two are intertheir labors an indelible part of the solution. woven, dependent on one another for survival, and are ultiMarEx

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