MarEx 13

F i rst Q ua rt e r 2 0 0 3

Making Way in Turbulent Waters

The Port of Houston Presses Ahead in Times of Uncertainty

by Joseph A. Keefe

American Waterways Operators-USCG Safety Partnership

by Thomas Allegretti allegretti

Interview: Dennis Kirwin, President, Waterways Work!

Interview: Senator John BreauX, inland waterways Editorial: ASPHYXIATED on capitol hill

Craig Philip President & CEO Ingram MARINE GROUP Ingram MARINE GROUP Case Study: A Tradition of People Perseverance & Pride

Offsite Training Specifically Designed for Inland Waterways and Near Coastal Operators.

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Our offsite training program provides numerous benefits for your company and employees. Employee

travel expenses are eliminated, employees can be trained at their normal location, whether on board a vessel during a passage/port call or at a shoreside facility. Familiar equipment (e.g. Radar, Medical, STCW, TOAR Designated Examiner courses) can be utilized during training, customized courses can be developed and competitive pricing packages made available. MITAGS and PMI: training mariners anywhere, anytime, anyplace, on any subject.

MITAGS/PMI, Your In-house Training Department.

MITAGS: (443) 989-3358

MITAGS is certified as a Maritime Education & Training Center by Det Norske Veritas

e-mail: cthomas@mitags.org 5700 Hammonds Ferry Road Linthicum Heights, MD 21090 www.mitags.org

■

PMI: (206) 441-2880

e-mail: info@mates.org 2333 Third Avenue Seattle, WA 98121-1711 www.mates.org

MITAGS the leader in STCW-95 training offers 29 USCG approved courses including: Electronic Navigation ■ Damage Control ■ Confined Space Entry ■ Bridge Resource Management & Shiphandling ■ Medical Person in Charge ■ Basic Safety Training ■ Basic & Advanced Firefighting ■ Tankerman Person in Charge (PIC) ■ Personal Safety ■ Heavy Weather Avoidance ■ Diesel Control Systems

First Quarter 2003

Editor & Publisher:

Tony Munoz Senior Editor:

MarEx

CONTENTS

Volume 13

A R T I C L E S

14 REVIEWING MITAGS’

COMPANY/SHIP SECURITY OFFICER TRAINING COURSE

Joseph A. Keefe Art Director:

Evan Naylor

Tony Munoz

16 u.s. coast guard–awo

safety partnership Thomas A. Allegretti

Editors:

Paul Smith Hugh Jardon

22 executive interview

Senior copy Editor:

24 executive interview

Bill Greenthal Counsel :

Timothy C. Cronin Circulation:

TM Marketing

senator john breaux: inland waterways dennis kirwin, president: waterways work!

28 CASE STUDY

INGRAM MARINE GROUP

38 executive interview

CRAIG PHILIP, PRESIDENT & CEO, INGRAM MARINE GROUP

TO SubscRIBE:

call: 866 884 9034 or go to our website: www.maritime-executive.com or email: tony@tmmarket.com

44 making way in turbulent waters

the port of houston presses ahead in a climate of uncertainty Joseph A. Keefe

54 SEA SERVICES COOPERATE

ON LCS & DEEPWATER PROGRAMS

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DEPARTMENTS 3

EDITORIAL ASPHYXIATED ON CAPITOL HILL

4

Letter to the Editor

6

Executive Achievement

9

Washington Insider

c o ver P HO T O : T ra c ie M o rris D o nn Y o u ng P h o t o grap h y o f N ew Or l eans

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Michael Seymour

President & CEO, Ingram Marine Group Nashville, TN

President & CEO, Seabulk International, Inc. Ft. Lauderdale, FL

Chairman, President & CEO, ABS, American Bureau of Shipping Houston, TX

Chairman, President & CEO, Crowley Maritime Corporation Oakland, CA

Executive Director, MITAGS/PMI Linthicum Heights, ML

President & CEO, P&O Nedlloyd New York City, NY

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EDITORIAL The U.S. maritime industry hasn’t done a good enough job in getting its message across to Congress—that the most significant way to alleviate traffic congestion, oil dependency, and pollution is by creating financial incentives that will move cargoes off the roadways and onto our coastal and inland waterways.

A

SPHYXIATED ON CAPITAL HILL…America’s

urban centers are overpopulated, and its roadways are paralyzed by motor vehicles. Yet, this country continues to import approximately 60 percent of its annual oil consumption.

Meanwhile, the probability of being held hostage by disruptions in foreign oil production has the U.S. Government involved with what our allies call a questionable level of global brinksmanship in the Middle East. Fear not; an elite group, led by social activist Arianna Huffington, wants to force every American to drive European styled mini-vehicles and has begun lobbying Congress to ban all SUVs, or, better yet, tax the hell out of them. Additionally, Senator John McCain stated that the reason he voted against oil exploration in the Arctic National Wildlife Refuge (ANWR) was because Americans need to learn how to conserve oil consumption and not to have more to burn frivolously.

The U.S. maritime industry hasn’t done a good enough job in getting its message across to Congress— that the most significant way to alleviate traffic congestion, oil dependency, and pollution is by creating financial incentives that will move cargoes off the roadways and onto our coastal and inland waterways.

The industry has all the facts, such as: If all the domestic freight were to move by truck, it would require 41 million more trucks on our roadways, use 9.9 billion more gallons of fuel, and would put an additional 7.8 billion pounds of pollution into the air.

Furthermore, one tug pushing 15 barges moving along the Upper-Mississippi River is the equivalent to 870 trucks or 225 railcars, and a tug with a 40-barge tow in the Lower-Mississippi is equivalent to 2,300 trucks or 600 railcars. We can also take this a step further; one tug can move one ton of cargo 522 miles on one gallon of fuel. Whereas, that same gallon will transport one ton of cargo 386 miles by rail and 59 miles by truck.

The reason that the U.S. maritime industry has been ineffectual in its campaigning of Congress, and, most importantly, the American public is that there isn’t a unified message of urgency.

“Waterways Work!” is the only national maritime campaign that has attempted to educate the general public about the ability of waterborne transportation to alleviate many of the nation’s social problems. The United States is an energy-consuming nation that is far too vulnerable to global energy resources. Furthermore, if the American public understood that another 20,000 trucks are predicted to gridlock the Eastern and I-5 corridors by the end of the decade, they’d storm Capitol Hill.

The American public has no concept as to who owns and operates the marine vessels that come and go from U.S. harbors. They don’t realize that the U.S. government legislated away its flaggedfleet through taxation by repealing operating and construction differential subsidies, and by wiping out heavy industry’s capital

First Quarter 2003

depreciation expense. The Singaporeans, Danes, and Canadians scooped up the remnants of the U.S. Merchant Marine fleet for a song, and now own our deepwater fleets. And, in a stroke of irony, they are being paid “big bucks” to operate this nation’s Military Security Program (MSP).

Fifty years ago, there were 1,238 U.S. flagged ships on the high seas. Today, there are just 94 sailing in the U.S.-foreign trades, and foreign companies own these ships. Foreign shipping companies control almost all of the 47 ships in the government’s MSP fleet, and own and operate 70% of this country’s intermodal capacity, which is essential to the Voluntary Intermodal Sealift Agreement (VISA). Furthermore, Marad has determined that to replace the MSP vessels would cost $9 billion, and an estimated $1 billion in annual operating and maintenance expense, which doesn’t include crews, training, and building and managing the intermodal infrastructure.

Is there cause for concern that foreign companies own the government’s MSP and VISA infrastructure? Many might be saying “No,” because American ship management companies are responsible for the operation and management of these foreign-owned U.S. flagged fleets. However, last year at an House Arm Services sub-committee hearing in Sacramento, California, John Clancy, President and CEO of Maersk Lines, expressed to the committee that his American ship management company, U.S. Ship Management, was an extremely expensive buffer between the government and his company, and he owes a fiduciary responsibility to his stockholders and owners to reduce costs and show a profit. Additionally, he suggested that re-flagging these ships to foreign flag to reduce costs might be an event that cannot be avoided (Read these comments in the Federal Register).

Furthermore, the Socialists within the Danish Government are going absolutely nuts about its “flag-line” owning U.S. flagged supply ships that will ultimately be deployed into a war that they don’t support. And, the Danes join a long list of Allies who don’t support the U.S. going to war, to say nothing about the Turks who are demanding $28 billion for the privilege of defending them.

Support this war or not, we now have thousands of young American soldiers in the Middle East that absolutely, positively have to be supplied.

The U.S. Government is about to hammer another death-nail into the coffin of the U.S. maritime industry. In 1986, Congress passed legislation that established the Inland Waterways Trust Fund, under which commercial inland waterways users pay a 20 cents-per-gallon fuel tax, with matching funds coming from the Federal government. The Trust Fund is to be used to underwrite the cost of modernizing locks and dams, while all costs for operations and maintenance (O&M) is borne by the Federal government in its The Maritime Executive | 3

EDITORial annually appropriations for the U.S. Army Corps of Engineers.

The government pays for O&M, because it benefits from flood control, water supply, hydropower, taxpayer recreation, and transportation. The concept of the Trust Fund is to modernize the greatest inland waterway system in the world. Since 1986, the Trust Fund has grown to approximately $400 million, and the Inland Waterways Users Board have been appealing on bended knee for the government to release these funds for a number of critical and high-priority projects. However, the fund has been used to balance the Federal budget. Sure, the inland users have governmental I.O.U.s, but getting them to spend these legislative monies on their intended use is like pulling teeth from a great white shark during a feeding frenzy.

The Bush Administration has proposed in its 2004 Federal Budget that the Trust Fund be used to finance 25-50% of O&M for the inland waterways. This federal raid on the Trust Fund is essentially a cleverly disguised tax increase that clearly violates the 1986 Water Resources Development Act, which affirmed the government’s responsibility for O&M while establishing the Trust Fund to be used for all future construction and major rehabilitation projects. The Clinton Administration also tried to raid the Trust Fund in its attempt to raise the fuel tax to $1.00 per gallon for the purposes of offsetting the O&M budget expense.

If the proposed 2004 federal budget is passed, the Trust Fund will be bankrupt in about three years, and all future fuel tax revenues would be inadequate to manage the high priority projects on the inland waterways. Additionally, the demise of the Trust Fund would increase costs for the tug and barge industry, which transports over $31 billion of commodities annually. This ill-thought-out

Letter to the Editor

Dear Editor he Associated Branch Pilots of the Port of New Orleans is a group of skilled vessel pilots, providing service since the 1800s on the Mississippi River. Known as the ‘Bar Pilots,’ a name derived from the sandbars of their route, they navigate ocean-going vessels from the Gulf of Mexico through the shallow confines of two passes and an outlet channel.

The lower Mississippi River is the longest inland passage for deep draft vessels in the country. This system represents the nation’s largest port system, with five separate port authorities, three of which are among the nations largest.

The Bar Pilots are in the business of risk management navigating the tightrope between the needs of private business and public safety. They move thousands of vessels of all types and characteristics and in as varied a number of river and weather conditions. Bar Pilots move vessels 24/7, and 365, using their stations at the Head of Passes and Southwest Pass as full time homes.

T

4 | The Maritime Executive

raid would also impact the costs of the grain, coal, and petroleum and chemical sectors, which are influenced by pennies-on-the-dollar.

This ill-advised raid on the Inland Waterways Trust Fund will cripple numerous industries by making them non-competitive, devastate an anemic economy, and destroy a vibrant sector of the marine industry. And, in the end, Americans will end up paying more for energy and food. The Federal government has an inherent responsibility to operate and maintain this nation’s inland waterways, and shouldn’t be allowed to offset its fiduciary responsibility by stealing monies that were promised to rebuild the great waterways and tributaries of this nation.

The United States of America has no deepwater capacity, and, soon, it will have no inland waterway capacity. Roadway congestion will continue to gridlock our deteriorating highways and streets, which costs billions in taxpayer dollars to maintain each year, and increasing vehicle pollutants will finally asphyxiate us all.

Hear ye, all you Senators and Representatives on the Hill. By rebuilding the U.S. maritime industry, we can proactively move cargos and trucks off our roadways, and create more taxpaying jobs within the U.S. Merchant Marine, the shipbuilding and repair industry, and in our port complexes. This will ultimately decrease our dependency on foreign oil and pollutants in the air, while increasing the competitiveness of our goods and commodities on world markets, stimulate our ailing economy, rebuild the greatest waterway system in the world, and, finally, increase the quality of life for all Americans. Are you listening?

Tony Munoz Editor

They see their physical presence as vital to maintaining situational awareness, and as a result, have achieved a safety record of 99.98%. But efficiency is also critical. The Bar Pilots recommend a transit draft in excess of the 45’ project depth maintained by the U.S. Corps of Engineers. This continued movement of excess draft facilitates additional annual revenue for industry.

Bar Pilots provide one of the most reliable, timely and safe movements of vessels anywhere in the world. Unlike some Gulf ports, the Bar Pilots’ presence and commitment allow movement of ships both day and night, with one pilot where other ports require two, even as weather, traffic, and channel conditions literally change by the minute.

As proud as the Bar Pilots are of their proven skill, it may surprise some that they believe that skill alone is insufficient to maintain an impressive 99.98% safety record. Only when coupled with continual presence on location and continuing education in excess of federal requirements is that safety mark maintained. Those components become sufficient because presence allows the Bar Pilots to monitor weather and river conditions as well as the ebb First Quarter 2003

LetterTOTHEEDITOR “…the Bar Pilots, have an excellent safety record. They maintain a level of service envied by industry by progressively raising their level of qualification, training and standards. The Association continues to maintain an open door policy for the industry they serve. The Bar Pilots fee commission, comprised of equal representation of industry and pilots, negotiated unanimous decisions on tariffs for thirty years.” and flow of traffic on the river. The essence of presence is that service begins before entering a pilot’s name in a ship’s logbook.

Service also requires professional relationships with industry, governmental bodies and associations of the port system. The pilots routinely attend meetings of the United States Coast Guard and United States Corps Of Engineers. That participation allows Bar Pilots to provide daily information regarding navigational aids, obstructions and channel conditions. To that end, the Bar Pilots gladly sit on several industry committees and safety associations. An example of this commitment is our support of the Sea Marshals, dispatched after the 9/11 tragedies.

The Bar Pilots provided logistical support, lodging, marine transportation, and vessel coordination information. Anything less is not in the Bar Pilots nature.

A maritime minority scholarship program was established by the Bar Pilots in an effort to help promote the maritime profession. This program provides the incentive and funding necessary to pay the tuition and expenses of an interested participant to open up an opportunity in the maritime field.

Applicants for apprenticeship must have a college degree and deep-sea experience. Once accepted, the apprentice pilot follows a graduated and structured program of at least three years before consideration for a state pilot commission. They are required to participate in classroom instruction, take written and oral tests, obtain a first class pilot license from the United States Coast Guard, attend a manned ship model course and log nearly eight-hundred trips under the guidance of seasoned pilots. These trips all take place along the Bar Pilots routes. This last but most important stage allows the individual student to gain direct and hands on training from every Bar Pilot. This means that the apprentice pilot obtains the guidance and training from pilots who together have hundreds of years of experience piloting ships of all types under various conditions on the Mississippi River.

Association members are required to participate in continuing education to maintain their state commission. Bridge resource management is required every five years and last year all pilots attended a fatigue management seminar. They also attend manned ship model courses. Bar Pilots have been trained in the use of AIS equipment, and participate in a random drug-testing program. No Bar Pilot has ever failed.

The Bar Pilot qualifications, training, testing and continued education far exceed the requirements to retain a federal pilot license.

Traditionally the port system the Bar Pilots serve has been a bulk cargo hub, since the long river passage is a natural conduit for commerce. Yet, this length and traditional infrastructure put First Quarter 2003

this natural system at a disadvantage when it comes to other cargo, containers being one such example.

Keeping this in mind, the Bar pilots recently presented an incentive package to help attract new liner business to the Port of New Orleans. Bar Pilots also met with shipping company executives in Greece last year to promote the Mississippi River and answer questions regarding the movement of maritime commerce on the river. A similar meeting in Connecticut was also recently attended.

Today, the Bar Pilots find themselves in a political debate that threatens to undo all that has proven to work well for the international maritime industry. At a pivotal time in pilot history on the river, when change and reform have been most forthcoming and implemented, a handful of attorneys and hired spokespersons are seeking to destroy that system. Being spearheaded primarily by Citgo and Conoco, the proposed legislation advanced by this group, called Pilot Users Group of Louisiana (PUGL), was summarily defeated by the Louisiana legislature in 2001. Some viewed the legislation as more about control than about legitimate reform.

False statements and misleading statistics have been systematically pumped out to the news media and the legislature. And, while PUGL is apparently well funded and its “propaganda” machine well-oiled, Bar Pilots are determined to answer the false, misleading and counterproductive campaign with something that PUGL seems either unwilling or incapable of appreciating– the truth about our record.

The truth is The Associated Branch Pilots, the Bar Pilots, have an excellent safety record. They maintain a level of service envied by industry by progressively raising their level of qualification, training and standards. The Association continues to maintain an open door policy for the industry they serve. The Bar Pilots fee commission, comprised of equal representation of industry and pilots, negotiated unanimous decisions on tariffs for thirty years. This speaks volumes about the high level of respect between the Bar Pilots and the Maritime community.

The Bar Pilots realize the safe and efficient movement of vessels on the Mississippi River is not inexpensive. But it is far less expensive than the cost of even a single major mishap, at the hands of an inexperienced pilot, on the most strategically positioned river in America.

Sincerely, Michael R. Lorino, Jr. President, Associated Branch Pilots, Metairie, Louisiana MarEx The Maritime Executive | 5

EXECUTIVEAchievement

Executive Achievement John Rose Promoted to U.S. General Manager, Shell Trading. Mr. Rose, recently Shell’s Manager of

Business Assurance based in London, has been named U.S. General Manager, Shell Trading. He is responsible for governance of Shell and its joint venture shipping operations in the U.S. Rose will oversee the company’s 800 contracts, which include 3,790 vessel trips by tankers, ocean-going and inland barges.

Mr. Rose was recently elected to Chair the American Petroleum Institute’s Marine Committee. The API Marine Committee is involved with the transportation by water of crude oil and its products. The committee represents oil companies, terminal owners/operators, ship owners/operators, shipyards, and classification societies.

A significant milestone in the massive $17 billion transformation of the U.S. Coast Guard recently took place at the Bollinger Shipyard in Lockport, LA. with the decommissioning of the 110-foot Island Class Patrol Boat, USCG Matagorda.

The Matagorda will undergo extensive modifications and re-emerge as a larger 123-foot cutter with enhanced capabilities in command, control, communications, computers, and intelligence and reconnaissance (C4ISR).

The importance of this phase of the Deepwater Program was demonstrated by the presence of Admiral Thomas H. Collins, Commandant of the Coast Guard, who officiated at the decommission ceremonies hosted by Donald “Boysie” Bollinger, Chairman and CEO of Bollinger Shipyards, Inc. The Halter-Bollinger, JV. is a subcontractor to a joint venture between Northrop Grumman and Lockheed Martin called Integrated Coast Guard Systems.

General (Ret.) John Coburn, CEO and Chairman of VT Systems Inc., announced the appointment of Boyd 6 | The Maritime Executive

E. (Butch) King as CEO of VT Halter Marine Inc. at a company event celebrating the acquisition of VT Halter Marine.

“Mr. King brings tremendous experience to his new position,” stated Gen. Coburn. “He will be at the forefront to ensure that VT Halter Marine contributes to the profitability of our marine sector.”

Most recently a senior associate with Booz, Allen and Hamilton, Mr. King consulted on various logistical support projects. Among other projects, this included the study and recommendation to revamp the Balkan Military Support initiative for the United States Army Europe. Mr. King also played an instrumental role in developing the Capstone Training Course for the first Interim Brigade Combat Team command and staff for the Army’s Training and Doctrine Command.

Previously, Mr. King had a successful 35-year career in the U.S. Army, culminating in his appointment as Director of Transportation, Energy and Troop Support on the Army staff. In this position, he was responsible for a $3.9 billion dollar program to improve power projection platforms in the United States.

During his Army career, Mr. King was at the helm of various logistic operations, which included the shipping of combat equipment in support of operations in Haiti to meet National Command Authority requirements for deployment. Mr. King was also in charge of the management and tracking of 12,000 ocean shipping containers worldwide, and the movement of Department of Defense cargo and personnel through Army and civilian seaports worldwide. He retired in 1998 as a Brigadier General.

Mr. King received a Masters of Business Administration with a concentration in Logistics from the Florida Institute of Technology and a Bachelor of Arts degree from Auburn University. He also graduated from the Army War College and the Industrial College of the Armed Forces.

The AOTOS award, the maritime industry’s most prestigious recognition, honors those within the shipping industry who have made significant contributions to American shipping and American Seafarers.

The candidates are chosen from more than 160 maritime management, labor, and government officials.

Captain Timothy A. Brown, President of the International Organization of Masters, Mates & Pilots, and Thomas B. Crowley, Jr., Chairman, President & CEO of Crowley Maritime Corporation, were honored in New York City with the 2002 AOTOS awards. Both men spoke of rebuilding the U.S. Merchant Marine and of their support for the Jones Act. First Quarter 2003

EXECUTIVEAchievement “ There is an overwhelming lack of knowledge about our Merchant Marine among the general population. These same people have absolutely no idea how great the threat of economic blackmail is if we become totally dependent on foreign flag vessels and foreign crews to carry the exports and raw materials that drive our national economy.”

In his acceptance speech, Capt.

Brown said, “There is an overwhelming lack of knowledge about our Merchant Marine among the general population. These same people have absolutely no idea how great the threat of economic blackmail is if we become totally dependent on foreign flag vessels and foreign crews to carry the exports and raw materials that drive our national economy.”

This lack of public awareness even extends to the role we play in the defense of our country. People have forgotten that our Merchant Marine is our nation’s fourth arm of defense or that our merchant marine is a national asset that needs and deserves the support of all Americans. It is our challenge and our responsibility to make sure they learn that the only way to ensure that American vessels and American crews will be available in time of war is to support a peacetime Merchant Marine.”

In his speech, Mr. Crowley said, “I’ve always thought of this award as honoring a lifetime of achievement in the maritime industry. I think about the people who have received this honor before – certainly my father in 1988, Malcom McLean in 1984 and many others. These are people who devoted much of their lives to this industry, were pioneers and accomplished some very amazing things. Toward the end of their long and distinguished careers, this very fine organization would put them in a tuxedo and recognize them for what they’ve done.”

“If my father were here today, he would be hitting us all with a baseball bat saying what the hell is happening to the Jones Act. There is no question now that the last chance for the survival for the US Merchant Marine is right here in our own backyard,” Crowley said. “We must all work together to ensure that the Jones Act is preserved. I truly believe, and I was trained by one of the best, that this is the last chance for the US Merchant Marine.”

Seafarers’ House at Port Everglades, Florida announces plans to recognize Gerhard E. Kurz as the 2003 recipient of the International Golden Compass Award. Gerhard E. Kurz, Chairman, President and Chief Executive Officer of Seabulk International, will be honored for his outstanding contributions to the maritime industry at this year’s prestigious gala dinner in Fort Lauderdale on April 5, 2003.

Gerhard E. Kurz was named Chief Executive Officer and a Director in April 2000, President in September 2000, and Chairman of the Board in September 2002. Widely recognized First Quarter 2003

within the international maritime industry, Mr. Kurz was formerly President of Mobil Shipping and Transportation Company (MOSAT), a Mobil Oil-affiliated company, from which he retired in March 2000.

Mr. Kurz is past Chairman of the Marine Preservation Association from 1995-2000, and the Oil Companies International Marine Forum from 1991-99.

He serves on the Board of Directors of the American Bureau of Shipping and previously chaired its Finance and Nominating Committees. He also serves on the Boards of the Seamen’s Church Institute of New York & New Jersey, the Coast Guard Foundation, and the Newport News Mariners’ Museum. He is a founding member and Chairman of the Massachusetts Maritime Academy’s International Business Advisory Council and a member of the International Advisory Board to the Panama Canal Authority.

Mr. Kurz is the recipient of numerous awards and honors presented in recognition of his leadership role and efforts on behalf of the maritime industry. Among these awards are the International Maritime Hall of Fame Award, the U.S. Coast Guard Award and Medal for Meritorious Public Service, the Seamen’s Church Institute Silver Bell Award, the Order of the USS St. Mary’s Medal from the State University of New York Maritime College, and the 1999 SeaTrade “Personality of the Year” Award. He holds an Honorary Doctoral Degree from Massachusetts Maritime Academy.

This year’s Golden Compass Award Committee Chair is Michael Y. Hopkins, Vice President of Crowley Liner Services. Mr. Hopkins was recently appointed to the board of Directors of Seafarers’ House at Port Everglades.

The prestigious International Golden Compass Award was first bestowed in 1997 to Hans J. Hvide, founder of Hvide Marine, Inc. Since then, awards have been presented to John Bowers, President of the International Longshoremen’s Association (1998); A. Kirk Lanterman, Chairman and CEO of Holland America LineWestours (1999); Tom Crowley Jr., Chairman and CEO of Crowley Maritime Corporation (2000); Cliff Berry Sr., founder of Cliff Berry, Inc. (2001); and, jointly to Alan Kehrer, Director of Cruise Marketing for Port Everglades and the late Carl Thorsen of Eller & Company (2002).

Information about Seafarers’ House can be found on the agency’s web site at www.seafarershouse.org. The International Golden Compass Award Dinner, an annual black-tie event, will be The Maritime Executive | 7

EXECUTIVEAchievement held at the Radisson Bahia Mar Beach Resort in Fort Lauderdale on April 5, 2003. For further information, contact Gerard Andrews at (954) 467-7330 or (800) 732-6367 or email: Gerard@ seafarershouse.org.

Seabulk International, Inc. (Nasdaq: SBLK) announced the appointment of Larry D. Francois as President of Seabulk Offshore, the Company’s offshore marine services subsidiary, effective immediately. Mr. Francois, who most recently served as Area Manager of domestic offshore marine operations for Tidewater Inc., will also become a corporate Senior Vice President, reporting directly to Chairman, President and Chief Executive Officer Gerhard E. Kurz. In his new positions, Mr. Francois will have executive responsibility for the Company’s worldwide offshore operations.

“We are pleased to welcome Larry to the Seabulk management team,” commented Mr. Kurz. “He is a well-known figure within the maritime industry and has extensive experience in all phases of the offshore business, both domestic and international.

He joins our organization at a time when the competitive environment in the offshore business has never been more intense, and his leadership will be critical to our future success.”

Prior to his tenure at Tidewater, Mr. Francois served as division manager for Zapata Gulf Marine Corporation in Mexico. His other overseas assignments included International Marketing Manager in London for Western Oceanic, Inc., a subsidiary of the Western Company of North America, with responsibility for Europe, Africa and the Middle East; and Area Executive for Tidewater in Egypt.

With more than 25 years experience in the maritime industry, he also served as Marketing & Sales Manager for Dillingham Maritime, a division of the Dillingham Corporation.

A Vietnam veteran, Mr. Francois served in the United States Air Force and was honorably discharged with the rank of Captain.

He is a former member of the Board of Directors of the Morgan City Chapter of the American Petroleum Institute. Mr. Francois holds a Bachelor of Science degree from Saint Louis University and an M.B.A. in International Management from Pepperdine University.

John Graykowski has joined Kvaerner Philadelphia, as Senior Vice President and General Counsel. Mr. Graykowski is a former senior official at the US Maritime Administration and a top 8 | The Maritime Executive

Washington maritime lawyer.

Mr Graykowski was deputy administrator at MarAd from 1994 to 2000. He was a partner with the law firm of Blank Rome, formerly Dyer, Ellis & Joseph. While at the law firm, he was closely involved with the long process leading up to Kvaerner Philadelphia signing its first commercial shipbuilding order last year - a $220m contract from Matson Navigation of San Francisco for two 2,600 TEU containerships customized to its Hawaii trades.

George J. Ryan will end his 20-plus year

career as President of Lake Carriers’ Association. As such, he retires as one of the longest serving presidents in the Association’s 123-year history.

Succeeding him is James H. I. Weakley.

Ryan was appointed President of LCA on January 1, 1983. He previously was Director–Great Lakes Region, Maritime Administration, a position he assumed in 1975 when he opened the Region Office in Cleveland. Ryan came to the Great Lakes from the American Embassy in London, where he served from 1971 to 1975 as Maritime Administration Representative for the United Kingdom and Scandinavia.

Prior to joining MarAd, Ryan was associated with Grace Lines, where, after serving as a ship’s Captain, he was Assistant Port Captain, Safety Director, and Manager - Supporting Services – Marine Division.

Ryan graduated from the U.S. Merchant Marine Academy, Kings Point in 1957, and was awarded a Masters Degree from the School of International Affairs, Columbia University in 1964.

As an officer in the U.S. Naval Reserve, he served on the guided missile cruiser U.S.S. CANBERRA and in several U.S. Naval Reserve units.

Ryan is a Great Lakes Commissioner from the State of Ohio, and a member of the American Bureau of Shipping, The Propeller Club of the United States, the National Cargo Bureau, and the National Waterways Conference. He is Chair of the Board of Visitors of Great Lakes Maritime Academy. He has been an officer of the Great Lakes Maritime Task Force and the Maritime Cabotage Task Force since the organizations were founded in 1992 and 1995 respectively.

The Connecticut Maritime Association will First Quarter 2003

EXECUTIVEAchievement present Mr. Stelios Haji-Ioannou with its 2003 Commodore Award. Mr. Stelios Haji-Ioannou, Chairman of easyGroup, joins a distinguished list of maritime executives who have received the Award, which is given each year to a member of the international maritime community who has demonstrated leadership, vision and commitment to the business. The Award is to be presented March 19, 2003 at the conclusion of CMA Annual Trade Show and Conference After receiving his MSC in Shipping Trade and Finance from the City University School of Business in London, he joined his father’s shipping company, Troodos, and, then, in 1992 founded his first venture, Stelmar Tankers. Stelmar has a fleet of 36 tankers that are either in operation or on order. Stelmar has been listed on the New York Stock Exchange since March 2001.

Mr. Haji-Ioannou has been as prolific as he has been creative under the “easy” brand. In 1995, he founded easyJet which revolutionized air travel in Europe, taking advantage of Intra European deregulation to provide low cost point-to-point jet travel on a fleet of new aircraft.

Mr. Haji-Ioannou joins an illustrious list of former CMA

Commodores who include: 2002 recipient Frank Tsao, Group Chairman of the IMC Group of companies; Marc Saverys, Managing Director, CMB; Per Heidenreich, President, Heidenreich Marine; Richard du Moulin, Chairman, Marine Transport Lines; William O’Neil, Secretary General, IMO; Gerhard Kurz, ex-President of Mobil Shipping and Transportation; Dr. Helmut Sohmen, Chairman, World Wide Shipping Agency; Gregory Hadjieleftheriadis, President of Eletson Corporation; Philip Loree, Chairman of the Federation of American Controlled Shipping; Jacob Stolt-Nielsen, Chairman Stolt-Neilsen, Inc; George P. Livanos, Ceres Hellenic; and Ole Skaarup, Chairman, Skaarup Shipping Company.

The Award is given each year at the Gala Dinner concluding the Association’s annual Trade Show and Conference. The event takes place this year over the days of March 17, 18 and 19, 2003 at the Westin Hotel in Stamford, Connecticut.

MarEx Correction: In the previous issue of MarEx, Mississippi River pilots were incorrectly identified as having petitioned the LPSC for increases in tariffs. The Maritime Executive regrets the error.

Washington Insider

Handicapping and Critiquing the Beltway Players & Their Politics

by Joseph A. Keefe

About six months ago, a certain Federal employee (in response to a certain line of questioning) patiently explained to me that “there was a lot more going on in Washington than just MARAD and Ghost Fleet stories.” While I had to concede that point, I scrambled my brain to find a better or more interesting story, and finding none, I went ahead with my original story line.

Now well into the first quarter of the New Year, MARAD’s struggle to find disposal solutions for its deteriorating reserve fleet(s) is no less newsworthy now, than it was then.

Their efforts, fueled partly by inadequate funds appropriated by Congress, have reached new levels of creativity (read: desperation).

First Quarter 2003

Ghost Fleet: Scary Disposal Solutions Tested by Wary Skeptics…

The current mindset at MARAD appears to be moving in a new direction now, with some disposal proposals (arguably) indicative of a reversal in longstanding U.S. environmental policy. The two most recent ideas to be floated by the U.S. Maritime Administration include the intentional sinking of up to 100 of the outdated, so-called “Ghost Fleet” hulls (read: artificial reefing) in Louisiana wetlands, and more recently, a plea to the Environmental Protection Agency (EPA) to relax export restrictions on toxic materials known to be on board the rusting ships. Both proposals have been met with an immediate firestorm of criti-

cism from environmental concerns.

Beyond this, there are credible reports that plans are well underway to dispose of up to 40 ships currently located in the Suisun Bay reserve fleet by towing them under private contract to China. Under this scenario, MARAD’s overtures to the EPA make perfect sense, and likely provide just a taste of what is to come. As MAREX went to press, FOIA requests for data on a specific proposal related to foreign disposal solutions were, for the most part, “withheld in their entirety pursuant to exemptions (b) (3) of the The Maritime Executive | 9

WASHINGTONINSIDER For some, the idea that EPA rules should be relaxed so that MARAD can dispose of a few hulls is about as appetizing as allowing “just a few” foreign built vessels into service in the Jones Act trades (oh, wait: that’s already happened…)

FOIA.” We did receive, from MARAD, the Safety Manual for the Xinhui Shuanghui Ship-breaking & Steel Company. MAREX readers who are concerned as to safety and environmental issues at foreign breaking yards will be pleased to learn that “Gas-cutters should never be pointed at any person at any time.”

By itself, the disclosure that MARAD is asking for exceptions to export rules for mothballed vessels is innocuous enough.

It should come as no surprise to anyone that any environmental regulations previously enforced by the Clinton Administration would now come under scrutiny, or worse, be rescinded. Behind the scenes, however, and contrary to MARAD statements which indicate that foreign scrapping would only be done “on a very limited basis,” the Maritime Administration may be gearing up to implement a quick, if not popular, solution to the disposal of their three reserve fleets. In fact, MARAD spokesperson Robyn Boerstling says that “MARAD is actively vetting overseas scrapping yards” in anticipation of just such an eventuality. She also cautioned that “No final decisions had been reached, but MARAD is working with the EPA on the matter.” Meanwhile, Boerstling also indicated that MARAD is looking at Brownsville, Texas as another option, with the possibility of using a facility there as a dedicated scrapping facility.

And now, according to industry and MARAD sources, it looks like an initial pilot program of at least four of the most decrepit hulls will be sent, perhaps as soon as March or April of this year, to an undisclosed domestic scrapping yard.

For some, the idea that EPA rules should be relaxed so that MARAD can dispose of a few hulls is about as appetizing as allowing “just a few” foreign built vessels into service in the Jones Act trades (oh, wait: that’s already hap10 | The Maritime Executive

pened…). Either scenario literally opens the floodgates for additional exceptions to the rule. Just as allowing limited foreign access to U.S. coastwise trades could eventually spell the end of the Jones Act, the resumption of export of Ghost Fleet hulls to foreign yards will set a precedent that will be hard to break.

For the time being, the financial picture for MARAD’s efforts to dispose of the rusting hulls got just a little bit better, with a total of 31 million dollars (finally) appropriated from the FY-03 budget, of which 20 million dollars is money transferred from the Navy, and $11 million earmarked primarily for mitigation of issues at the James River fleet. For FY-04 budget, the President has proposed just $11 million dollars, but it’s likely that Congress will up the ante for what will ultimately entail a compromise figure that will be somewhat higher.

More than 40 responses to numerous MARAD Program Research and Development Announcements (PRDA) have been received from private industry, a few of which contain truly innovative and worthwhile ideas. The new party line at MARAD, however, is apparently geared towards a quick and cheap solution to the crisis. Lost amidst all of this is MARAD’s (December 18, 2002) “provisional acceptance” of Spiro Vassilopoulos’ innovative, 3-phased solution to the ship disposal question. As first reported in the 3rd quarter 2002 edition of The Maritime Executive, Vassilopoulos’ 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 to alternative operational uses. As MarEx went to press, Vassilopoulos reported “significant interest and progress” on several fronts, including active discussions for placement of floating

LNG storage hulls and the use of shuttle LNG vessels at Vancouver Island, the California south coast, and in Hawaii. In other words, there may actually be a market for some of these renovated, Ghost fleet hulls. In another development, Vassilopoulos disclosed that “an innovative partnership with the State of Virginia was being formulated,” for the express purpose of making his dismantling proposals at the James River fleet economically viable. Vassilopoulos and Commonwealth officials declined to be more specific. Although the MARAD letter lists six significant contingencies and further prerequisites, the possibility that this plan may come to fruition is apparently very real, but not if the wholesale export of the rusting hulls to foreign yards is revived.

The bid to sink up to 100 vessels in wetlands located in Louisiana’s St. Bernard parish was presented at the Breaux Task Force, and would have consisted initially of a one-ship pilot program. Working in concert with the U.S. Army Corps of Engineers, the program was designed to see if the sunken vessel could assist Louisiana in addressing its barrier island erosion problems. The idea had merit, at least as a conceptual model, following similar guidelines and procedures for an already established artificial reefing program. Unfortunately, because the plan was poorly explained to the public (and in part as a result of poor and biased reporting in the press), it was virtually “dead on arrival” in Louisiana.

MARAD Administrator William Schubert, of course, had no intention of sinking toxic, contaminated, or unclean vessels in the swamps of the Sports-man’s Paradise.

But local residents, fed only snippets of the plan, couldn’t help but conjure up visions of a watery junkyard off the coastline. The idea that Louisiana’s St. Bernard parish would soon resemble First Quarter 2003

T HE N UMBER O NE O FFSHORE M ARINE S UPPORT C OMPANY

GLOBAL STRENGTH SAF E TY P RE SE N CE I N TE GRI TY I N GE N UI TY P RO F E SSI O NAL I SM

P: 504.568.1010 or 800.678.8433 E: connect@tdw.com W: www.tdw.com

WASHINGTONINSIDER …Norwegian Cruise Line accomplished in relatively short order what opponents of the Jones Act could not, in many years of trying. The provision grants (NCL) the exclusive right to operate cruise ships in the US coastwise, specifically Hawaiian, trades.

Airline Highway, between the MSY airport and the French Quarter on the day after the end of Mardi Gras, was just too much to endure. Despite this, MARAD spokesperson Robyn Boerstling reports that “MARAD continues to pursue the Louisiana proposal with the Army Corps of Engineers.” She went on to say that MARAD hopes to help and participate in local efforts to save coastal Louisiana from erosion problems. No doubt, the next time MARAD floats another brilliant idea, the release of information to the public will be much better controlled and choreographed.

Fore River Shipyard: The Story That Keeps on Giving…

When the gavel came down on MARAD’s auction of the long shuttered Fore River Shipyard in Quincy, Massachusetts, more than one party breathed a sigh of relief. Local officials were outwardly thankful that the long vacant industrial eyesore would finally be producing badly needed tax revenue (if not large numbers of jobs), and the winner, car dealer Dan Quirk, was upbeat about possible uses for his new acquisition. On the other hand, local marine construction contractor Jay Cashman was anything but pleased after his bid fell some $3 million short of the winning hand. Cashman minced no words in characterizing MARAD’s sale of the property as “a poor process, which resulted in the fire sale of the most important marine industrial site in New England.” After filing suit in Boston federal court to contest the results of the auction, Cashman also alleged that the entire procedure “showed no long term vision (on the part of MARAD), and was inconsistent with their core mission.”

Cashman went on to explain that his marine contracting, dredging and offshore contracting business was a perfect 12 | The Maritime Executive

match for the property, and would have provided significant employment opportunities in the local communities.

Answering critics who say that if he had really wanted the property, then he should have submitted a bid which was in excess of that put forth by Quirk, Cashman responded by saying that his bid “was the appropriate amount of money,” given his intended use of the property. Further, he says, the additional $3 million that MARAD pocketed by accepting the highest bid paled in comparison to the prospects of future job creation and related tax revenues. He may be right on that score.

It is somewhat ironic that a maritime application for the checkered property, which Cashman complains will be lost if Quirk’s bid is allowed to stand, was included in one of MARAD’s original ideas for the shipyard’s future. MARAD’s proposal to turn the property into a ship-scrapping site (see: Ghost Fleet problem) was met with local opposition, based on fears that ship scrapping was environmentally incorrect for the area. MARAD officials would not comment on the lawsuit, except to say that the Justice Department was meeting to discuss the issue. As MAREX went to press, a U.S. District judge had blocked the sale of the shipyard until at least March 17, so as to allow arguments intended to stop it.

MARAD’s hurry to divest itself of another federally backed (loan guaranteed) white elephant is understandable, especially since the shipyard project was a loser from the outset, and forced upon the agency by Congress. The Massachusetts Congressional delegation is (now) strangely silent on the issue, and Jay Cashman’s position that MARAD is “abandoning its original mission” is a bit of a stretch. MARAD’s mission statement, as posted on their WEB site, “is to promote the development and mainte-

nance of an adequate, well-balanced United States merchant marine,” with secondary goals which include ensuring adequate shipbuilding / repair capacity.

Nowhere in that mandate is there an expressed or implied requirement for them to favor one business proposal over another because it stipulates a peripheral marine agenda. Final note to local leadership: Be careful of what you wish for, because you just might get it.

Aloha: Foreign Cruise Ships in Hawaii–Adios Jones Act? With the stroke of a pen, and contained as an obscure rider to a federal spending bill, Norwegian Cruise Line accomplished in relatively short order what Midwest grain shippers and other opponents of the Jones Act could not, in many years of trying. The provision grants one company (NCL) the exclusive right to operate cruise ships in the US coastwise, specifically Hawaiian, trades. At least one of the foreign built vessels was originally started for the now defunct American Classic Voyages and acquired by NCL for just $2 million, leaving MARAD holding the bag for $185 million in loan guarantees. The deal, in which the ships will be reflagged and crewed by Americans, was initiated and pushed through by Senator Daniel Inouye (D-H). Apparently, MARAD had little to do with it, and would only say that “they received courtesy notification, and remain neutral on the matter.”

As a minimum, exempting just one foreign operator from certain requirements of Jones Act compliance allows the unfinished American Classic hull to serve in its intended trades, creates tax revenues to offset the huge losses from the Project America debacle, and employs thousands of Americans in the process. Not everyone is happy, though.

Senator John McCain (R-AZ), while no fan of American protectionist, cabotage First Quarter 2003

WASHINGTONINSIDER laws, has also gone on record as opposing the provision of waiving existing laws for just one company. Beyond this, the move is likely to ramp up the pressure on lawmakers to reconsider repeal of Jones Act statutes in other cruise markets and coastwise trades, particularly where the predominantly single-hull American flag tanker fleet is concerned.

If it’s good enough for the Hawaiian cruise market, as some will reason, why not for American grain shippers as well?

In the end, and in the absence of a viable US flag cruise line, the measure does little more than eliminate the need for a side trip to a minor foreign destination.

It is, however, now an open can of worms that some American operators and shipbuilders may soon come to lament.

Slow Death: Title XI Look for Title XI to survive, once again,

but just barely. The Bush Administration has not funded the program for its proposed FY-04 budget, and continues to describe it as an unnecessary subsidy program. The annual Congressional fight will likely result in another year of administrational funding, with nothing allocated for new loans. Hence, Matson’s successful application for financing of its new US-flag containerships is good news, but MARAD spokespersons also advise that the loan guarantees stem from FY-02 money. The status of other loan guarantee applications, however, is less than certain. In the case of the Fastship, applications for Title XI financing guarantees for its proposed fleet of transatlantic containerships remain, according to MARAD officials, “alive, and in a pending application status.”

The chances that future Title XI financing awards will be made are fading fast, especially if the Bush

Administration has its way, and then gets re-elected in 2004. Faced with this climate of uncertainty, MARAD is exploring alternate methods of financing domestic shipbuilding, including, but not limited to, the Capital Construction Fund (CCF). They need to hurry. Any incentive for American shipbuilders and potential operators to build domestic hulls for the Hawaiian trades has already completely evaporated against the competition of low-cost foreign shipbuilding. If these types of exemptions spread into other sectors of the US coastwise trades, very soon there may be nothing left worth financing.

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

America’s tugboat, towboat and barge industry, the safest, most economical and environmentally –friendly mode of cargo transportation, carries: 60% of U.S. grain exports, helping American farmers compete overseas; ■

20% of America’s coal – enough to meet 10% of U.S. electricity needs; ■

■

m ost of New England’s home heating oil and gasoline.

The American Waterways Operators America's Tugboat, Towboat and Barge Industry w w w.americanwater ways.com

Our compass always points to safety.

REVIEWC/SSOTRAINING

Reviewing MITAGS’ Company/ Ship Security Officer Training Course

By Tony Munoz, Editor

The Port of Aden is an innocuous, if somewhat exotic place, with scruffy buildings and wharves nestled in a basin of volcanic hills, where schooners and dhows, cargo vessels, and war ships have been docking for centuries along Yemen’s craggy southern coast.

It was 9:45 a.m., as the 95-degree heat shimmered across the silent waters of the new day.

The U.S.S. COLE sat tethered to a buoy and planned to be in port for just a few hours bunkering, before moving into the Persian Gulf. The threat level was “Force Protection Condition Bravo” (FPCon Bravo), which is considered an increased and more predictable threat level. How-ever, the COLE itself was not specifically under threat.

Two people aboard a fiberglass boat puttered slowly by the COLE, as deck officers looked on, unconcerned about its proximity. They knew the ship’s layout and capabilities, which was easily available on the Internet at the time.

As the boat glided by the COLE, the two men detonated an enormous amount of explosives that burst through the steel hull, leaving a 40 X 40 foot gap.

The explosion ripped through the engine room, mess deck, chief mess and galley with a torrent of steel, water and flame that killed 17 and wounded another 33 American sailors.

Commander Kirk Lippold, a Naval Academy graduate, made the most important decision that saved the COLE from sinking to the bottom when they first entered the harbor. He had ordered all below deck 14 | The Maritime Executive

hatches “closed and dogged.”

Several terrorist outfits, including the Al Qaeda organization led by Saudi exile Osama bin Laden, had specifically vowed to strike at U.S. military targets in the Arabian Peninsula. Just two weeks prior to this incident, a satellite TV station in Qatar broadcast a video in which bin Laden himself, flanked by two Egyptian lieutenants, made veiled threats against the United States. It would not be the last time the U.S. would encounter bin Laden’s wrath of hatred.

To most Americans, terrorist attacks took place in some far away corner of the world. They were spontaneously gruesome and killed only handfuls of innocent bystanders. However, when Al Qaeda boldly attacked the United States on 9/11 using commercial jetliners as weapons, Americans quickly understood that the terrorism of the Middle East was now on our doorstep and we were all in danger.

After September 11th, the entire Western world has been on high alert; yet, it didn’t stop the recent bombing of the French Tanker “LIMBERG” in the Persian Gulf or other despicable acts around the world. Terrorism and First Quarter 2003

REVIEWC/SSOTRAINING

MITAGS based their Company/Ship Security Officer (C/SSO) course on the regulations and guidelines found in the International Ship and Port Security code (ISPS) and USCG NAVIC 10-02. The core instruction includes threat analysis, suspicious behavior, crowd management, the ship security plan, security inspections, physical searches, mitigation, and training and drills. piracy have been a global problem for quite some time. It is widely acknowledged within the shipping industry that the global “hot spots,” such as West Africa, the Horn of Africa, the Persian Gulf, Malacca Straits and the seas around Indonesia, are dangerous areas for ships, no matter what flag they fly.

The Maritime Institute of Technology and Graduate Studies (MITAGS) has designed a new course in which ships officers are instructed in the art of shipboard security. In the weeks before the first class (February 3, 2003), the Institute developed a course syllabus that provided the students with an understanding of new Security regulations and policies, and an intricate curriculum pertaining to securing a vessel. The course has been designed to teach companies how to comply with the new security regulations in a cost effective manner. The lessons learned from MITAGS’ first beta courses have been forwarded to the U.S. Coast Guard and the International Maritime Organization (IMO) to assist in their development of model Security training courses.

Twelve maritime executives attended the first class, a few of whom came from Australia and Canada. It was a cross section of company executives and marine operations managers, masters, pilots, and educators.

The beta course dialogue among the students and instructors was open and full of insightful discussions regarding the course content and risks to commercial marine operators.

MITAGS based their Company/Ship Security Officer (C/SSO) course on the regulations and guidelines found First Quarter 2003

in the International Ship and Port Security code (ISPS) and USCG NAVIC 10-02. The core instruction includes, threat analysis, suspicious behavior, crowd management, the ship security plan, security inspections, physical searches, mitigation, and training and drills.

The class spent one day aboard the S.S. JOHN BROWN, the historic World War II Liberty ship, in Baltimore Harbor for more realistic onboard training, including search-the-vessel drills. The CBS affiliate, WJZ TV, sent a field reporter and cameraman to cover this first-ever commercial shipping training event.

If companies, mariners, and vessel operators are to be secure from the treats of terrorism, they need to clearly understand: (a) the new international and national regulations, (b) how to establish a detailed security plan and (c) company/ship security from professional instructors.

MITAGS is to be commended for its innovation, detailed syllabus, quality instructors, knowledge of the art of security, and their ability to pass this information on to the commercial marine community.

MarEx The Maritime Executive | 15

COASTGUARD-AWOSAFETYPARTNERSHIP

U.S. COAST GUARD-AWO SAFETY PARTNERSHIP

By Thomas A. Allegretti

In 1995, the American Waterways Operators (AWO) launched a historic safety initiative

together with the U.S. Coast Guard. The Coast Guard – AWO Safety Partnership was the first-of-its-kind government-industry partnership sponsored by the Coast Guard. Aimed at improving marine safety and environmental protection through non-regulatory initiatives, the partnership has created more than two dozen quality action teams (QATs) and working groups to examine the most serious safety challenges facing the tugboat, towboat, and barge industry.

The Coast Guard – AWO Safety Partnership brings together the expertise of Coast Guard leaders and representatives from the inland and coastal tugboat, towboat, and barge industry, the largest segment of the U.S.-flag commercial vessel fleet. The partnership is rooted in the belief that both the Coast Guard and the barge and towing industry share a common interest in improving marine safety and environmental protection, and that these causes are best served by a cooperative approach which emphasizes open dialogue and results-oriented action through partnership. That vision is embodied in both in the AWO strategic plan, and in the Coast Guard’s Marine Safety and Environmental 16 | The Maritime Executive

Protection Business Plan, which emphasizes the twin goals of “Prevention Through People” (PTP) and “Quality, Safety, and Environmental Protection Through Partnership.”

Establishing the Partnership

Discussions between the Coast Guard and AWO about how to establish a partnership began in the fall of 1994. A QAT of Coast Guard and industry leaders was put together to develop the structure of the partnership.

The QAT was tasked with “developing a non-regulatory process for communication and problem-solving, and fostering the use of that process to advance common goals.” The leadership group recommended to then Assistant Commandant for Marine Safety, RADM Jim Card and AWO President Tom Allegretti the establishment of the Coast Guard – AWO Safety Partnership.

In September 1995, the AWO Board of Directors voted unanimously to endorse AWO’s participation in the Safety Partnership. Later that month, Admiral Card and Mr. Allegretti signed a mutually binding Memorandum of Understanding (MOU).

When the MOU was signed, Admiral Card remarked, “With over 80 percent of vessel mishaps First Quarter 2003

COASTGUARD-AWOSAFETYPARTNERSHIP attributable to human error, and given that human error, for the most part, cannot be regulated away, reducing the frequency of these mishaps is achievable only through the cooperative efforts of all parties.” The partnership recognizes that regulations alone cannot ensure safety; active cooperation from industry is needed as well.

After the formal agreement establishing the partnership was signed, the National Quality Steering Committee (QSC) was established to identify safety or environmental issues to be addressed by informal QATs comprised of experts from the Coast Guard and the barge and towing industry. The National QSC set to work quickly and out of its first meeting the first subject-specific QAT was formed to study causes of deckhand fatalities on inland towing vessels. The National QSC has since spawned three regional QSCs (RQSCs)—the Atlantic RQSC, the MidAmerica RQSC, and the Pacific RQSC—each of which brings together the talents of Coast Guard District personnel and AWO member leaders to address safety and environmental protection challenges of regional and local interest.

USCG–AWO Safety Partnership Has a Record of Progress

The Safety Partnership has achieved measurable progress in marine safety and environmental protection since its inception. Projects relating to crew fatalities, pollution prevention, and industry best practices have occupied much of the time of the National and Regional QSCs. The Coast Guard and AWO have deliberately undertaken work on issues that reflect the two parties’ missions and priorities. The following are highlights of the partnership’s most significant work to date.

■ Crew Endurance Management Working Group Under the auspices of the Coast Guard-AWO Safety Partnership, the Coast Guard and AWO have worked together to promote crew alertness in the 24-hour-a-day environment of the tugboat, towboat, and barge industry since 1999. Since that time, the Coast Guard and AWO have collaborated in the development and roll-out of the Crew Alertness Campaign and “Stay Alert for Safety” brochure, conducted research into the application of the Crew Endurance Management System (CEMS) to the inland barge and towing industry, and worked together to educate AWO member companies on CEMS principles.

In 2002, the Coast Guard-AWO Pacific Region Quality Action Team on Crew Alertness and the congressionally authorized Towing Safety Advisory Committee endorsed CEMS as a holistic, sciFirst Quarter 2003

ence-based, nonregulatory approach to improving safety by enhancing crew alertness in the towing industry. The Pacific Region QAT has recommended that AWO’s Board of Directors add a requirement for CEMS to the AWO Responsible Carrier Program. In October 2002, AWO’s Board of Directors authorized the formation of a Coast Guard-AWO Working Group to develop a plan to facilitate widespread implementation of CEMS throughout the barge and towing industry.

■ Bridge Allision Working Group

The Coast Guard-AWO Bridge Allision Working Group was formed following the tragic barge-bridge accidents in South Padre, Texas in September 2001 and the Interstate 40 Bridge allision in May 2002.

The focus of the Working Group was to examine bridge allision casualty data and identify measures that could be taken to prevent and reduce the risks of bridge allisions. By studying the database of barge/bridge allisions from 1992-2001, the Working Group developed a profile of bridge allisions. It will present its conclusions in a final report for the QSC to review this spring.

■ Towing Vessel Crew Fatalities Quality Action Team The Maritime Executive | 17

COASTGUARD-AWOSAFETYPARTNERSHIP

Because safety of life at sea is the paramount concern of the partnership, this QAT was commissioned in 1996 by the National QSC to determine the causes of crew fatalities and generate recommendations to eliminate such incidents. The QAT undertook the most comprehensive study ever done on the incidence and causes of inland towing vessel crew fatalities.

The QAT concluded that the majority of towing vessel crew fatalities result from crewmembers falling overboard during routine operations, with deckhands and crewmembers under the age of 25 incurring the highest fatality rates. Several factors were found that contribute to these fatalities, including lack of training, skill assessment, communication, safe work practices, supervision and teamwork. The QAT urged implementation of the report’s recommendations to help achieve the paramount goal of protecting mariner safety. Upon completion of the study, the QAT produced the “S.A.F.E. Decks” brochure, urging crewmembers to “Stay Alert for the Edge.”

A new study on crew fatalities was undertaken in 2002 by the QSC to determine if the fatality cases from 1995-2000 showed patterns and causes similar to those found by the former study. The findings showed that there has been no clear trend upward or downward in the number of crew fatalities over the last eight years. Therefore, the fatality cases were reviewed by region – ocean, coastal and inland – to see if the data were more telling. For the inland industry, the casualty reports revealed that line handling accounted for nearly three-quarters of the 113 inland fatalities. In a comparison to the 1996 QAT report, it was found that there was a decline in the 18 | The Maritime Executive

percentage of deaths caused by slips, trips and falls and an increase in the percentage of fatalities caused by line-handling accidents. The data also revealed that AWO membership appears to be a mitigating factor in crew deaths. AWO members own and operate approximately 75 percent of the towing equipment in the U.S., yet less than half of the fatalities cases involved employees from AWO member companies. It was recommended to the QSC that future action to reduce the number of crew fatalities be targeted based on the specific activity being performed and by region. Outreach to non-AWO members is also needed to improve the safety record for the entire industry.

■ Tank Barge Transfer Spills Quality Action Team

This QAT was commissioned by the National QSC to discover the causes of transfer spills and develop solutions to reduce them. To achieve this end, the QAT used a proven methodology to outline vessel loading and discharge processes, analyze available data, summarize the data, and finally, develop root cause diagrams. Through this process, the QAT identified five root causes of transfer spills, and developed comprehensive lists of solutions to address them.

The QAT concluded that most transfer spills can be prevented, and that the responsibility for prevention performance falls mainly on the management of marine operating companies. The QAT developed several resources to aid marine companies in reducing spills during transfer operations, including an action register for company management, consisting of comprehensive lists of recommended actions to reduce spills. The QAT believes that the use of these resources will help industry achieve its goal of zero spills.

■ Towing Vessel Boarding Program Quality

Action Team

This QAT was commissioned by the National QSC to develop a national towing vessel examination program based on the success of similar programs implemented at regional and local levels. The program would recognize existing industry safety and First Quarter 2003

COASTGUARD-AWOSAFETYPARTNERSHIP quality programs and standards; TA B L E 1 leverage Coast Guard and indusNational Quality Steering Committee Status try resources to maximize comCrew Endurance Management Working Group In progress pliance with safety regulations; Coast Guard-AWO Bridge Allision Working Group In progress and, reduce the disruptive effect Towing Vessel Crew Fatalities QAT Completed on industry of random enforceTank Barge Transfer Spills QAT Completed ment boardings by the Coast Towing Vessel Boarding Program QAT Completed Guard.

Major and Medium Tank Barge Spills QAT Completed With these guiding principles Mid-America Regional Quality Steering Committee in mind, the QAT developed a Pollution Prevention Regulations Study Completed two-phased voluntary dockside Inland Towing Vessel Guide to Federal Oil Transfer Procedures Completed examination program. The first River Crisis Action Plan Completed phase is a straightforward examCooperative Towboat Examination Program Completed ination of a single towing vessel.

Aids to Navigation QAT—Upper Mississippi, Illinois, and Missouri Rivers Completed The second phase would recogAids to Navigation QAT—Ohio, Tennessee, Monongahela, Allegheny, nize operators who have institutCumberland, and Tombigbee Rivers Completed ed company-wide safety and Barge Fleeting on the Mississippi River QAT Completed quality practices. In this phase, Recommended Practices for Bunker Barges Completed the Coast Guard would allow Regional Examination Center Consistency QAT Completed companies to self-certify their Barge Inspection Consistency QAT Completed vessels through a third party Downstreaming QAT Completed auditor. This would reward comIndustry Orientation Modules QAT Completed panies that abide by strict indusGulf Intracoastal Waterway Aids to Navigation QAT Completed try-sponsored safety and quality programs like the AWO Streamlined Inspection Process QAT Completed Responsible Carrier Program.

Atlantic Region Quality Steering Committee Hurricane Preparedness Plan QAT Completed Under both phases a vessel sucVisibility Standards for Pilothouse Personnel QAT Completed cessfully passing an examination Industry Training and Orientation Program QAT Completed would receive a decal ensuring Regional Risk Assessment of Petroleum Transportation that the Coast Guard would not on the Waters of the Northeast United States Completed board it unnecessarily for the Pacific Region Quality Steering Committee Towing Industry Incident Reporting System QAT Completed period of one year. Also, no penVessel Safety Alerts: Lesson Learned Information Exchange In progress alties would be assessed for deficiencies discovered during the Crew Alertness and Work Hours QAT Completed examination if needed repairs are clear definitions of communication responsibilities; made within a reasonable time accurate descriptions of hydrological and meteoroframe. The QAT believes these initiatives will best logical effects on the river system; and, an outline of utilize the combined resources of the Coast Guard how federal, state, and local government agencies, and industry to further their mutual aim of improvand industry river organizations should interact ing towing safety and quality.

■ River Crisis Action Plan during a crisis. The report also calls for establish Brought together by the MidAmerica RQSC, the ment of a Waterways Management Committee River Industry Executive Task Force (RIETF), the (WMC) to coordinate future responses to river criCoast Guard, and the Army Corps of Engineers ses. If a crisis occurs, the WMC would be responsicommissioned a working group to develop a ble for assembling a staff from government and response plan for marine transportation emergenindustry to address the situation. cies on the Mississippi River. The group began its ■ Downstreaming Quality Action Team work by analyzing the response actions taken on the The MidAmerica QSC commissioned a QAT to Mississippi River during the floods of 1993 and evaluate a long-standing safety concern - towboat 1995, and the drought of 1988. sinkings and fatalities resulting from the practice of From analysis of these events, the group develdownstreaming. The QAT found that underpowered oped a model Crisis Action Plan (CAP) emphasizing towboats and human factor causes, such as a lack of First Quarter 2003

The Maritime Executive | 19

COASTGUARD-AWOSAFETYPARTNERSHIP

awareness of proper downstreaming techniques, and the risks involved in downstreaming under adverse conditions to be the major contributors to these accidents.

An exceptional video of downstreaming operations and the recommended ways of safely downstreaming was developed and distributed to vessel operators throughout the industry.

■ Hurricane Preparedness Plan Quality Action Team

This QAT, formed by the Atlantic Region QSC, examined the hurricane and storm preparedness plans for various ports on the Atlantic Coast of the U.S. and developed recommendations that improve plan consistency and address the unique needs and safety concerns of the tug and barge industry.

The QAT developed a set of core guidelines, which should ensure consistency in policy and procedures from one port to the next. These guidelines address the unique challenges that tug and barge units confront in severe weather conditions.

■ Towing Industry Incident Reporting System Quality

Action Team

This QAT, sponsored by the Pacific Region QSC, developed a voluntary system that can capture information about unsafe occurrences that involve near-casualties, near-misses, and related precursor events that, without some corrective action in the chain of events, could have resulted in an unsafe occurrence, accident, or casualty.

This information is being collated by the AWO Pacific Region office and disseminated without attribution to AWO Pacific Region members. Information on 20 | The Maritime Executive

events of potential national significance is distributed to the entire industry.

Table one is a comprehensive list of the completed and on-going activities of the National and Regional QSCs: In 1998, the Safety Partnership’s achievements received national recognition from Vice President Al Gore’s National Partnership for Reinventing Government, which singled out the Coast Guard – AWO S.A.F.E. Decks campaign, a product of the Towing Vessel Crew Fatalities QAT, in its publication, Businesslike Government: Lessons Learned from America’s Best Companies. The S.A.F.E. Decks program also earned recognition from the American Society of Association Executives (ASAE) as one of 50 nationwide winners of the Award of Excellence for outstanding association contributions to American society. The Safety Partnership’s award winning tradition continued when it won a spot on ASAE’s 2003 Associations Advance America Honor Roll.

Current Partnership Projects Focus on Coast Guard and AWO Priorities

Reflecting the partnership’s focus on results, the Coast Guard and AWO have spent the last two years developing a methodology to track towing industry safety performance over time and pinpoint areas where further improvement is needed. To this end, the partnership instituted a process of collaborative data sharing and analysis, using statistics from the Coast Guard and U.S. Army Corps of Engineers to measure industry progress in eliminating accidents, spills, and crew fatalities. The first collaborative statistics report was released in the summer of 2001. The data will be updated annually and serve as a valuable source for ideas about future work for the partnership.

The partnership’s recent work on environmental issues includes the results of a long-awaited QAT analysis of major and medium tank barge spills.

Looking Ahead

As the Coast Guard – AWO Safety Partnership enters its eighth year, the parties look forward to continued success in finding non-regulatory, cooperative solutions to industry-wide challenges, in order to better protect people, property, and the environment.

MarEx First Quarter 2003

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EXECUTIVEINTERVIEW

Executive Interview SENATOR JOHN BREAUX: inland waterways MX: As the senior senator from Louisiana, a state whose economy is dependent on inland waterway transportation, you have a unique understanding of just how essential our nation’s inland waterways are to the U.S. economy, manufacturers, agricultural, bulk product concerns, and to the towing and barge industry, which transports more than 16 percent of the nation’s cargoes.

In 1986, Congress established the Inland Waterways Users Fund to support inland waterway infrastructure development and rehabilitation.

Commercial users are required to pay 20 cents per gallon surcharge on diesel fuel and, these funds are to be matched by the federal government. Today, there is over $400 million in the Trust Fund. However, the government has used these funds to instead balance the budget, while the inland waterways infrastructure continues to deteriorate. Can legislation be proposed to use these funds solely for their intended purpose?

BREAUX: The policies enacted in 1986 were the product of a hard-fought compromise that was intended to relieve the federal government of some of its responsibilities to construct and modernize our inland waterways and maintain our channels into coastal harbors.

Prior to 1986, the government promoted use of our waterways system to a greater extent, and our pre-1986 policies were rooted in a desire to maintain the international competitiveness of certain sectors of the U.S. economy, such as the export of agriculture products or coal.

The export and sale of these sorts of commodities depend on the most cost-efficient transportation of materials and products so they can compete in a fiercely competitive international marketplace. Waterborne transportation is the most efficient and environmentally friendly mode of transport, and the inland system is crucial to the fortunes of our export of agricultural products, and other lower value commodities.

In 1986, the compromise on funding inland waterways was intended to shift some of the responsibility of 22 | The Maritime Executive

funding the construction and modernization of inland waterway infrastructure from the government to the users of the system. Ultimately, over the objection of users of the system, who claimed extra costs would ultimately be reflected in the diminished ability of exporters to compete internationally, Congress enacted a 20 cent per gallon surcharge on diesel fuel to be matched by the federal government and held in trust to help pay for the waterways infrastructure development and rehabilitation. The collections included in the Inland Waterway Trust Fund are intended to cover only those costs identified in the Waterways Resources Development Act of 1986, however the problem has been that Congress, in an effort to adhere to budgetary discipline, has capped the amount of funds appropriated each year, including funds re- dedicated for waterway development that have been collected from the waterway users.

Logically it would seem to follow that the funds collected in trust for use in waterway infrastructure development and rehabilitation could be spent as they were collected, but in reality, budget rules and spending requirements make it very difficult to free these funds up for this use. Furthermore, congressional rules on taxing make it difficult to reduce a tax so an existing surplus could be spent down without further burden on the users. While it is very difficult to get support to protect and use trust fund proceeds, Congress has taken steps to protect and use the proceeds of both the Highway and Aviation Trust Funds, so there is hope that similar steps can be taken to protect the Maritime Trust Funds.

MX: The Inland Waterways Trust Fund was set up for new projects and to underwrite the modernization of locks and dams. Contrary to existing law, President Bush’s proposed budget for 2004, proposes that the Trust Fund be used to finance 25-50 percent of the inland operations and maintenance (O&M). The use of the Trust Fund for O&M will essential become a new tax on First Quarter 2003

EXECUTIVEINTERVIEW agricultural, energy, and the transportation sectors that will adversely effect the Nation’s economy. Will you oppose the administration’s raid on the Trust Fund?

BREAUX: I do not support the President’s proposal to use the proceeds of the Trust Fund for 25-50 percent of inland operations and maintenance. Development of the waterways system is vitally important to my home state of Louisiana, and jeopardizing the development of our waterway system would severely harm the economy of my state and states of the inland waterways system.

Louisiana is the leading state in waterborne commerce, with almost 516 million tons being shipped and received in the year 2000. The state contains or borders 507 miles of the lower Mississippi River, including deep draft navigation for 236 miles to the Baton Rouge area.

Additionally, the state also includes over 310 miles of exposure to the Gulf of Mexico through the Gulf Intracoastal Waterway System.

I would like to stress, however, that I am not necessarily opposed to all user fee proposals. For instance, I supported the proposal to extend a user fee to help pay the costs of complying with the port security bill. I can support user fees if they are designed to address an important mandate, if they are assessed in a fair and impartial fashion and dedicated to be used expressly for the use for which they are collected. In the case of the President’s proposal however, this is not talking about the assessment of a user fee, it is changing the rules for user fee funds that were collected from the public on the condition that they be used in a specific fashion.

MX: Highway congestion and pollution are major concerns in urban areas throughout this nation. The federal and state governments spend untold billions of dollars each year on roadway rehabilitation. The Maritime Administration has already had a “Short Sea” conference to review using coastal waters to elevate highway congestion and pollution. Meanwhile, the inland barge operators have statistically offered that a single tug with a 40-barge tow would be the equivalent of elevating 2,300 trucks or 600 railcars from the roadways. What do you think of these new proposals and opportunities to reduce highway traffic and pollution?

BREAUX: I commend the Maritime Administration on its efforts to develop momentum to maximize the use of our waterways, and to further develop potential Jones Act shipments. Anyone who has driven down I-95, or in my state I-10, has expressed frustration at the amount of freight on the roads. I would prefer to see barges moving that cargo down the coast. Ultimately, it is a win-win for all aspects of transportation, because truckers will ultimately pick up all local cargo delivery, but by maximizing the use of our waterways we could First Quarter 2003

move cargo out of congested areas of highway traffic, and allow cargo to be picked up at more appropriate and less congested areas where local trucking could be done more effectively. It is a shame we haven’t done more to try to develop our potential use of our waterway system to rationalize congestion and minimize adverse environmental considerations.

MX: You have always been an advocate of continuing the Jones Act, rebuilding the U.S. Merchant Marine, making U.S. shipbuilders more competitive on world markets, and maintaining our inland waterways as the best in the world. Yet, the federal government tends to be schizophrenic in its policies towards the maritime industry.

What must be done within government to regain our prominence as a vibrant maritime nation?

BREAUX: Our nation is incredibly reliant on the maritime industry. For instance, the recent West Coast labor strike cost the economy close to $ 2 billion a day in economic loss. Recently Booz-Allen-Hamilton, in conjunction with federal, state, and local port security personnel, conducted a Port Security War Game Scenario simulating an attack of a dirty bomb through a U.S. port.

This scenario projected that within 20 days of the initial dirty bomb attack, Wall Street trading would temporarily halt, as more than half of the Fortune 500 firms issued earnings warnings. Although this is only a simulation, it gives a glimpse at the incredible importance of this sector of our economy.

Despite the fact that this segment of the economy is vitally important, there is not enough government recognition of its importance. For instance, this year’s budget only identifies $200 million in grants for port security. The same thinking can be said about the importance of the U.S.-flag fleet and the U.S. shipbuilding industry. Our policy makers all agree the United States must be able to act in a unilateral fashion anywhere in the world to protect our strategic interests.

Unfortunately, our policy makers do not often make the connection that 95 percent of all overseas movement occurs by ship, and do not make the connection that in order to do what we want overseas, we must have people who know how to build ships, operate ships, and run our ports.

I am from Louisiana, and most of the people in my state recognize the importance of the maritime industry. We have lived for years with the economic benefits of the Mississippi River trade and maximize our use of the Gulf of Mexico. It is important to support our maritime trade, and recognize what the U.S. maritime industrial base means to our nation and to our MarEx strategic interests.

The Maritime Executive | 23

EXECUTIVEINTERVIEW

Executive Interview Dennis Kirwin, President Waterways Work!

MX: Inland barge transportation moves approximately 16% of America’s freight. How would you characterize the condition of our inland waterway system?

KIRWIN: In my view, the overall condition of the inland waterway system is good. However, there are several choke points and deteriorating locks and dams that are in immediate need of repair. In some places, it is absolutely amazing how boats and barges can traverse the degenerating locks.

The Army Corps of Engineers has done a fabulous job keeping some of these locks operational.

Now there are some issues regarding various environmental groups who have attacked The Corps of Engineers over its management of the system. But, I believe that the Corps has done a great job, considering their budget constraints. However, there is a particular point at Lock and Dam 12 in the upper Mississippi, which is near the Rock Island, Bettendorf, Davenport, and Moline, Iowa, area. Lock and Dam 12 is leaking severely, and it must be repaired immediately.

Compared to the rest of the world, the U.S. inland waterway system is the best system in the world. But, it’s in need of a lot of work; it’s in need of some new locks and dams; it’s in need of some major rehabilitation; it’s in need of a lot of maintenance, and all of these cost a lot of money.

Throughout the world — in Brazil, Argentina, China, Europe – many countries are promoting their waterways systems, and we here in the United States are not doing enough to improve ours. We must address these issues now, because, over the next 10 to 20 years, waterborne trade is expected to double, and the highway and rail systems cannot handle the growing volumes of tonnage.

MX: The Inland Waterways Trust Fund, which was legislated in 1986, prescribes that barging companies pay a tax on diesel oil burned by each boat. That tax today is 24.3 cents per gallon. Today, the Trust Fund has a sur24 | The Maritime Executive

plus of approximately $412 million, but the funds have not been spent as anticipated to improve the inland infrastructure. Why? KIRWIN: In the early 1990s, the government did allocate the funds more appropriately. However, over the last decade or so, the government has not been using the fund efficiently because, instead of being spent as intended, the funds surplus has been used to offset budgetary issues and the deficit. The industry has an IOU, so there’s money in the coffers, but it’s being spent in other places. Now, with that said, the 2003 budget that has been sent to Congress has spending increases from the fund. They did fully fund three navigation projects, and, we were very pleased with that.

It is our mission to have the Administration and Congress spend those funds at a fully efficient level. The Corp is capable of spending $300 million per year.

That’s $150 million from the Inland Waterways Trust Fund and $150 million from General Revenue Funds, which is mandated by the Water Resources Development Act of 1986.

So, if they spend $300 million for the next 10 years, they will not deplete the fund, and they should make significant progress toward completing the Inland Waterways User Board’s priority projects, which currently number 13. They will still have money left and, at the end of the 10-year period, there will be other projects that, hopefully, will be approved and appropriated, and they can go on to those projects.

MX: If the Inland Waterways Trust Fund monies were released and in conjunction with the Army Corps of Engineers’ annual appropriations, would these funds be enough to meet the necessary maintenance of the inland waterways?

KIRWIN: Let me clarify something here. The Fund, as its purpose was written into legislation, is to be dedicated for new construction and major rehabilitation to improvements on the inland waterway system, not for First Quarter 2003

EXECUTIVEinterview

“ On the Mississippi River, going from the junction of the Ohio River and the Upper-Mississippi River (Cairo) to Chicago, one tug with 15 barge tows; would be the equivalent of 870 trucks or 225 railcars. If you were to take those trucks and stretch them out on the highway, you’d have 35 miles of trucks.” maintenance. Maintenance costs are to come from the General Revenue Funds, but the maintenance backlog is approximately $480 million. Now, as we are telling people about our agenda and mission, we are also telling them about this tremendous maintenance backlog that needs to be addressed.

MX: Highway congestion is a national problem of nightmare proportions, especially in our urban regions.

Highway congestion is estimated to grow by over 40% during the next decade, and this will obviously have a severe impact on air pollution. MARAD is reviewing use of a coastal “Short Sea” transportation network to relieve congestion. Is something similar happening within the inland transportation industry?

KIRWIN: As far as the inland waterways go, we have heard repeatedly about our highway congestion, especially in the congestion of I-95 on the East Coast, I-5 on the West Coast, and I-70 going across country and so on.

Our nation’s highways have and are becoming overwhelmed with traffic congestion. Our national campaign has to make people aware that we have an underutilized waterways system, which has tremendous room for growth to relieve that congestion. Also, tugs and barges are the most environmentally friendly mode of transportation that we have.

Part of the problem for the inland waterways is that it is basically invisible to the public. People see trucks; they see trains and sit in traffic jams, but they don’t see tugs and barges transporting cargo up and down the river system. So, in further making the point, we are part of the solution, not the problem regarding congestion and pollution.

MX: In relative terms, explain what the capacity of a barge make-up is versus truck volumes?

KIRWIN: Let me give you three typical examples: In the Texas area, you could have one boat and one barge moving cargo from point A to point B. It would typically be a 1,500- ton barge, which is the equivalent of 58 trucks or 15 railcars.

On the Mississippi River, going from the junction of the Ohio River and the Upper-Mississippi River (Cairo) to Chicago, there would be one tug with 15 barge tows; First Quarter 2003

that would be the equivalent of 870 trucks or 225 railcars. If you were to take those trucks, for example, and stretch them out on the highway, you’d have 35 miles of trucks.

Now, another typical barge tow for the lower-Mississippi from, let’s say, New Orleans to Cairo, it could be a 40-barge tow, which is about 2,300 trucks or 600 railcars, and, again, stretching the trucks, you’d have 90 miles of trucks.

MX: The U.S. imports approximately 60% of its annual petroleum consumption. Can you explain the annualized fuel savings that might be gained by more investments in our inland waterways versus trucking?

KIRWIN: A tug can move one ton of cargo on one gallon of fuel 522 miles, whereas that same one-ton of cargo shipped on rail, with that same gallon of fuel, could be moved 386 miles, and by truck 59 miles. So, the fuel efficiency is pretty evident.

MX: The last Congress rejected the opening of Arctic National Wildlife Refuge (ANWR) because most legislators felt that saving fuel was a better alternative than providing another resource for more fuel consumption.

Has this political position provided your organization with more emphasis and exposure in Congress?

KIRWIN: We have always tried to promote the economic and quality of life benefits that inland waterways can and will provide to all Americans. We’ve tried to educate the public that one tug can move 40 barges, which can take 2,300+ trucks off the highway. This is a huge fuel and emissions savings that will add to the quality of life for everyone.

MX: The Inland Waterway Users Board, which is comprised of shippers and carriers, evaluates project funding to improve the inland infrastructure. Can you explain the major projects in review and their current status?

KIRWIN: The Users Board publishes a list of priority projects for review by the Corps, and currently there are 13 priority projects on that list.

The Corps evaluates the dollars it receives from Congress for its civil works appropriations. Congress then mandates where some of the money should be spent, such as on what dams or locks that they deem important. Then, obviously, there are some The Maritime Executive | 25

EXECUTIVEinterview “ If all the U.S. domestic freight were to move by truck, it would require 41 million more trucks on our roadways, use 9.9 billion more gallons of fuel, and would put an additional 7.8 billion pounds of pollutants into the air. These are startling statistics!” discretionary dollars that the Corps spends as it sees fit.

The Corps has recently received from Congress about $4.5 billion each year for their total program, of that about $1.5 billion is allocated to inland waterways and coastal navigation. From 1991 to 1998, the Trust Fund expenditures went from $149 million down to $75 million. We began a campaign on the Hill and told Congress that this lack of funds is not acceptable. The inland waterways require more financial support.

This year, the Bush Administration and the Office of Management & Budget (OMB) did come out and fully fund three key projects, and this is the first time this has happened.

MX: If all the U.S. domestic freight were to move by truck, it would require 41 million more trucks on our roadways, use 9.9 billion more gallons of fuel, and would put an additional 7.8 billion pounds of pollutants into the air. These are startling statistics! Since air quality has been one of the major concerns of environmental groups, are there any environmental organizations within your membership or supporting your agenda at the legislative and public levels?

KIRWIN: No, although we would like to continue a dialogue with these groups. We are the most environmentally efficient mode of transportation. And, that’s not said to denigrate the truck or rail industries, because they are absolutely essential to the overall distribution system of the United States. But, the facts are that we are more efficient in the use of fuel and containment of emissions, which makes us environmental stewards.

MX: There are 197 operating locks in the U.S. that handle more that 1.2 billion tons of freight each year. But, almost half of these are over 50 years old. A modern tow (tug/barge unit) is 1,200 feet long, but it must be broken down to get through many antiquated locks, as they are only 600 feet long. By modernizing the lock system in the U.S., what estimated level of increased tonnage could be put through the riverway system?

KIRWIN: The 197 operational locks handle about 630 million tons of cargo, and the other 630 million tons that are moved on the inland waterways are transported through non-locking systems. It’s not about moving more tonnage, because the current fleet of towboats and barges can move more tonnage now, if the tonnage were available or put onto the waterways. It’s really about moving the existing tonnage more efficiently.

26 | The Maritime Executive

Basically, it’s about replacing the older locks to move cargo more efficiently.

Rates are predicated on time. Time means money. If the operators could work more efficiently, then they could give the shippers a better rate for transportation, which ultimately provides better rates for the consumer and maintains U.S. global competitiveness.

Let’s talk about the coal and grain industries that are major exporters. If they could move their commodities to their export markets at better prices, then they can be more competitive, and, for grain, it doesn’t take more than a few cents per bushel to make them more competitive. We can put more tonnage on the inland waterways, but we need these antiquated locks to be replaced or rehabilitated. Grain represents about 250 million tons a year that gets exported. Coal is also about 250 million tons as well. So, we’re talking about 500 million tons from just these two industries.

MX: An obvious issue that concerns some Americans is the accident rate of tugs and barges on our rivers. Tug/ barge units have hit bridges with tragic consequences.

Therefore, are there statistics that demonstrate the tonnage moved and the accident rate of tug/barge units versus over the highway trucks?

KIRWIN: The number of tug/barge incidents versus trucks is much lower. It’s something close to 5,400 to 1, which vividly demonstrates how safety conscious the inland waterways industry is.

MX: What should this nation’s overall strategy and policy be for improving our inland transportation system?

KIRWIN: Our strategy from the point of Waterways Work! is, over the next 10 years, to have the Administration and Congress spend the Inland Waterways Trust Fund at the rate of $150 million per year, which is matched by the federal matching funds on the Users Board’s Priority List. We need fully efficient funding.

If this is done, most, if not all, of the priority projects would be completed in the next 10 years and the Trust Fund would not be depleted. This is for new construction and rehabilitation, but there is still the issue of maintenance. The backlog of maintenance needs to be reduced drastically to keep the system efficient. It is as important as new construction and rehabilitation.

Then, America would have a first-class waterways system.

MarEx First Quarter 2003

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marex case study

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28 | The Maritime Executive

P HO T O S

T HI S

A R T I CL E :

COU R T E S Y I N G R A M M A R I N E A R CH I V E

First Quarter 2003

marex case study

Ingram M A R I N E

G R OU P

The Ingram Legacy Begins

O.H. (Orrin) Ingram, born in 1830, learned about independence and determination at a very young age.

Orrin’s father died when he was eleven, and, to make ends meet, his mother had to literally farm out her children for chores at nearby farms. However, Orrin did not enjoy the life of a farmer, and began to pursue his desire to learn about machinery and took a job at Harris and Bronson, a milling company in upstate New York.

Orrin’s first job was to work as an edger who squared the corners and sides of boards. At the end of each day, Orrin would accompany Mr. Bronson on his nightly tour of the mill, checking all the machinery to ensure that it was ready for the next workday. Bronson took to the young apprentice whose mechanical knowledge was advanced, and during his absence at the mill, Bronson would assign Orrin to oversee the site and its machinery.

Ò The Mississippi River will always have its own way; no engineering skill can persuade it to do otherwise...Ó - Mark Twain in Eruption

First Quarter 2003

The Maritime Executive | 29

INGRAM

marex case study Orrin’s first job was to work as the movement of logs and lumber an edger who squared the corners products down the Chippewa and and sides of boards. At the end of Mississippi Rivers. each day, Orrin would accompany With the threat of the Civil War Mr. Bronson on his nightly tour of looming, the new firm struggled the mill, checking all the machinery for several years. Since Dole and to ensure that it was ready for the Ingram rarely agreed on company next workday. Bronson took to the matters, eventually Dole retired in young apprentice whose mechaniearly 1862. When things couldn’t cal knowledge was advanced, and get worse, the sawmill caught fire during his absence at the mill, and was destroyed. But the tenacity O.H. Ingram Bronson would assign Orrin to of the founders was strong, and oversee the site and its machinery. within two weeks they announced Soon, Ingram’s reputation as a that they would rebuild. hard working, quick-witted mill During the Civil War, the employee began to spread to other demand for lumber was rising, and, mills and several in Canada, where for a while, the supply for lumber he planned and constructed two could not keep pace with the steam-powered gang mills. In 1853, demand. Conditions continued to he returned to Harris and Bronson rise and fall, but the war kept to build and manage a mill in Ingram and Kennedy in business, Bytown, a town that later became and over the next few years the Ottawa, Canada. Salary issues with company thrived.

O.H. Ingram and Frederick Weyerhauser the mill sent him packing again, Ingram and Kennedy expanded and he went to work for another their lumber business throughout sawmill, Gilmore and Company. It the Chippewa Valley to include was here in his second year of sawmills, warehouses, and wholeemployment that his innovation sale lumberyards. When Kennedy and creative insight would change decided to leave the lumber busithe dynamics of the saw milling ness, he sold his share to Dulany industry forever. and McVeigh of Hannibal, Lumber milling in those days Missouri. Soon, Charles Horton, a was slow and tedious. An operator lumber owner from Winona, of an edger would manually direct Minnesota, was also asked to join boards past the edging saw to the company, and, eventually, the Seated: E.B. Ingram Right: “Hank” Ingram square off one side and then flip three companies consolidated the board to edge the other side. Young Ingram inventunder the umbrella of the Empire and Standard Lumber Company. ed the “gang edger” that would allow boards to be After years of logging, the availability of forest squared off on both sides at the same time. Soon, every resources in the Chippewa Valley was decreasing. mill in the country ordered the revolutionary mill saw, Ingram began investing in the rich timberlands of the but Ingram had not patented the piece of equipment south and in the Pacific Northwest. Ingram and and never earned a cent from it.

Frederick Weyerhauser’s paths had crossed before, as An Ingram Company Begins Weyerhauser, who owned the Mississippi Logging Orrin Ingram and two partners, Donald Kennedy, Company, had financially bailed out the northern loganother former Harris and Bronson employee, and gers during the floods of the 1880s.

Alexander Dole, an older man with the necessary cash, Eventually, Ingram sold these timber investments to formed a new lumber company. The men headed west Weyerhauser, and, during this period, Ingram purto Eau, Wisconsin and began to harvest and mill lumchased 2,160 shares of Weyerhauser stock. Today, the ber in the Chippewa Valley under the name of Dole, Ingram family still has a close association with Weyerhauser, and many of the family members have Ingram and Kennedy. This was the time that young Ingram was introduced to river transportation with served on Weyerhauser’s Board.

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marex case study

The New Ingram Generation

O.H. Ingram Company prospered for years under the guidance of his son, Erskine B. Ingram. Erskine diversified the lines of business and built a strong foundation for future generations of the family.

Wood River Oil & Refinery circa 1940’s

“Hank” Ingram

However, it was the founder’s namesake, O.H. (Hank) Ingram, who showed a keen sense of the original Orrin’s business traits. At age 23, Hank moved his new wife, Hortense Bigelow, from the family’s northern origins to Nashville, Tennessee where he managed one of the company’s new acquisitions, The Thomas Henry Company, a textile and spinning mill. Hortense Bigelow was the daughter of Frederic Bigelow, the Chairman of St. Paul Fire and Marine Insurance Company, which grew into one of the world’s largest property and casualty insurance companies.

The decision to manage a new company so far from home was made, in part, because the timber business in Wisconsin had been played out. And, because Hank had worked in a textile mill during summer vacation from Wharton School of Finance, he was the only family member who had any textile experience at all.

Over time, Hank Ingram changed the name of the textile mill and reorganized it into two separate entities: Ingram Spinning Company and the Tennessee Tufting Company, a manufacturer of tufted throw First Quarter 2003

rugs, bathroom rugs, and toilet seat and tank cover seats. Hank was also involved with many different companies, was a director of the Tennessee Railroad, a member of the advisory board of the American National Bank, and a member of the Board of Trust of Vanderbilt University.

As World War II loomed in Europe, our Allies and the war effort demanded an ever- increasing need for petroleum. Hank Ingram and Fred Koch (founder of Koch Industries) and another partner formed the Wood River Oil and Refining Company. The new Wood River refinery was completed on 1939 along the banks of the Illinois River near St. Louis.

The oil was produced on properties in Oklahoma and Kansas, but its transportation from the refinery was deficient. Hank took matters in his own hands and established the Wood River Oil Barge Company in 1942. And, in 1946, Ingram Products Company purchased the barge assets, and the Ingram family entered the river barging business. Additionally, new terminals were constructed in St. Paul, Minnesota and Louisville, Kentucky.

Eventually, Ingram and his partners sold Wood River Oil and Refining to Sinclair Oil Corporation in 1950, and the partnership was dissolved, but Ingram kept the terminals and transportation units which operated under the name of Ingram Products Company.

Throughout the 1950s, Hank Ingram expanded his barge business and reentered the refinery business. In 1951, he sold the company’s St. Paul terminal to expand the barging fleet, and the next year he bought a small skimming plant and terminal in Meraux, Louisiana. New river transport terminals were swiftly built in succession: Sheffield, Alabama in ’54; Nashville, The Maritime Executive | 31

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The venerable O.H. (Orrin) Ingram passed away in October 16, 1918, but the legacy that he built still continues today.

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marex case study Orleans, which required that Bronson move his family there.

While the barging division grew by leaps and bounds, the service stations proved to be unprofitable and were eventually sold to Murphy Oil Company and operated under the name of Spur.

A Time of Diversification and Sadness

Tennessee in ’54; Mobile, Alabama in ’55; Tampa, Florida in ’56; Freeport, Florida in ’57; and St. Marks, Florida in ’58.

During this time of terminal expansion, Hank reorganized the barge fleet under a new subsidiary, Ingram Barge Company. He also created another subsidiary, Ingram Oil Company, which acquired the service station business from Transamerica Oil Company.

Expansion Into New Areas

Since Ingram was a distributor of products, the venture into the retail end of the business was a totally different mind-set for the family, as it began competing with its own customers.

The next generation of the Ingram family took the company business into different directions. Hank and Hortense had four children: Frederic (Fritz) Bigelow, E.B. (Bronson), who was named after his grandfather, Alicia Louis, and Patricia.

The two sons were involved in the new refining and service station business. Fritz went to New Orleans to focus on the refining operations. While, Bronson stayed in Nashville to work in the retail operations. By 1956, Bronson managed the operation of fifteen company-owned service stations, which grew to 38 controlled units and 150 branded outlets. He was also an innovator in his construction of company truck stops that allow Ingram truckers to stop to sleep, shower, and eat at the restaurants. This was a groundbreaking idea for its time, and has since become a standard for truckers nationally.

At the end of the 1950s, Ingram Barge operated five towboats, two tugs, and 24 petroleum barges. By 1959, all Ingram operations were managed from New 32 | The Maritime Executive

By 1960, Hank Ingram’s business interest consisted of 12 corporations, almost all of which were related to the oil industry. As an independent refinery without its own sources of crude petroleum, the company had a difficult time competing with the fully integrated refineries, which is why the company merged with Murphy Oil Company in 1961. However, Ingram kept the barge transportation assets and formed the Ingram Corporation.

Ingram Corporation acquired Cumberland River Sand and Gravel, which later became Ingram Materials Company and Barrett Lines, which transitioned the company into hauling dry cargoes.

Using Barrett’s specialty barges, Ingram began hauling large stone from Reed’s Quarry near Paducah to Louisiana for the Army Corps of Engineers. Ingram also entered the offshore contracting business and sent its derrick barges to the Gulf of Mexico, the Bahamas, Indonesia, Brunei, and Australia.

While the company diversified and expanded, the Ingram family was hit hard with the unexpected death of Hank Ingram, who died of an aneurysm in April, 1963. He was only 58. However, Hank’s grandchildren, Orrin, John, David, and Robin would later become an important group in reshaping Ingram Industries in the 1990s.

After their father’s death, brothers Bronson and Fritz co-managed the corporation. Fritz was named Chairman and stayed in New Orleans, while Bronson returned to Nashville as President. While in Nashville, Bronson was approached by a friend to invest in the Tennessee Book Company, the state school depository.

This proved to be a critically important investment, as it became the foundation upon which Ingram Book Company was built. Today, the division is the largest book wholesaler in the world.

By the end of the 1960s, Ingram had expanded into offshore oil well installation, pipeline laying, marine land-based terminals construction, and ocean going tug-barge transportation.

The 1970s was a time of great prosperity for First Quarter 2003

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Ingram Barge Company, and one of the most important events was the signing of the Commonwealth Edison contract for the movement of #6 Oil to power plants in the Chicago area. The agreement was so significant that Ingram had to build six towboats and 48 heated tank barges in order to fulfill the contract requirements. At the time, John M. Donnelly managed the barging division, and today Ingram’s flagship towboat is named in his honor.

Ingram Book Company was making great strides as well during the ‘70s. At the time, bookstores could only order books from publishers. Publishers were only publishers and not distributors, so their customer service was not timely or efficient. Ingram Book used the Tennessee Book Company infrastructure, coupled with the creative use of placing its inventory on microfiche, to make ordering convenient for bookstores, and the book wholesale business took off.

In 1978, Bronson and Fritz divided the businesses of Ingram Corporation. The barge, book, and insurances businesses, as well as Ingram Materials went to Bronson who created Ingram Industries Inc. The rest of the entities remained with Fritz and continued with the Ingram Corporation name.

A Time of Growth for Ingram Barge and A few Surprises

In the early 1980s, government tax policies created a flood of investor-owned barges that brought over-capacity into the barging industry. As a medium sized barge operator, Ingram did not have the scale to First Quarter 2003

weather this type of downturn. The company understood that it either had to get out of the business or expand. It chose the latter.

In 1984, Ingram acquired Ohio Barge Line from U.S. Steel, which immediately doubled its barge business. In the late 80s and early 90s, they again expanded by purchasing American Barge and Towing and Georgia Transporters. In addition to purchasing a number of tank barges on the open market, they also bought some from Midland’s Chotin operation. And, in 1994, Ingram purchased the assets of M/G Transport Co., a dry cargo barge line headquartered in Cincinnati. These purchases made Ingram one of the largest commercial barge operations in the nation.

During the 1980s, Ingram entered into the wellhead assembly business through Gulfco Industries (later Ingram Cactus Company) and coal mining with Ingram Coal Company. Both these units were sold in the mid-1990s. Ingram Entertainment was established in 1982 to distribute videotape products to bookstores, which grew into a video distribution business to video stores. In 1985, Ingram Computer Inc. was formed to take advantage of the explosive growth in the microcomputer industry. This eventually led to the purchase of Micro D Corporation, which ultimately lead to the formation of Ingram Micro Inc. Ingram, for generations, had interests in the insurance industry, primarily to insure the inland and blue water maritime businesses of Ingram Corporation. In the late ‘80s, Ingram expanded its insurance interest into the non-standard auto insurance business operatThe Maritime Executive | 33

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marex case study ing under the name Permanent General.

A Death at the Helm and New Beginnings

Bronson Ingram was diagnosed with cancer in 1994 and died on June 15, 1995 at the age of 63. The Ingram family quickly developed a plan to reorganize the company and took Ingram Micro public, splitting off Ingram Entertainment as an independent company to David. Ingram Industries retained the book, barge, and insurance businesses, and Martha became Chairman of the Board, while Orrin and John were named Co-Presidents. Orrin currently serves as President and CEO, while John serves as Vice Chairman of Ingram Industries.

The 1990s saw the book business respond to a changing marketplace, which spawned the formation of Lightning Source, Inc., a print-on-demand and digital content pioneer. The barge business continued its growth through the purchase of the inland marine business of Occidental Chemical Corporation.

In 2002, Ingram purchased Midland Enterprises, making the combined companies the second largest operator of tugs and barges in the United States. Midland itself has a proud history, and we would be remiss not to discuss its origins and growth over its seventy-five years of existence.

In the 1920s, Ingersoll and the president of West Virginia Coal and Coke Company, C.E. Hutchinson, formed the Ohio River Company,

and, early on, they won an important contract with the Cincinnati Gas and Electric Company.

The company expanded throughout the years, and, in 1939, its flagship, the Omar, moved 28 standard barges carrying 24,000 tons, the largest tow ever recorded at the time. Today, the Omar, renamed the City of Clinton, now serves as a museum and tourist

Midland – Simple Beginnings Leads to Becoming An Industry Giant

The earliest origins of Midland can be traced to the first paddle wheeler of the Philadelphia and Cleveland Coal Company, the company that would become Midland Enterprises.

Albert Converse Ingersoll sold and delivered coal using a horse drawn wagon in Cincinnati, Ohio in 1915. He expanded his business interests into Indiana, where he delivered coal to industries and utilities, upgrading his transportation modes to trucks and railcars. It didn’t take him long to realize that he could reduce costs and reap profits by transporting coal through the rivers.

In 1917, he formed the Philadelphia and Cleveland Coal Company. The company began with five vessels and four wooden barges. He formed a partnership with an iron and steel businessman, W.W. Marting, and they acquired terminals along the Ohio River. They purchased properties in West Virginia and Addyston, Ohio.

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attraction.

In 1954, Simon Scheuer and 16 investors bought 44 percent of the common stock of West Virginia Coal and Coke Company (WCCC), the parent of the Ohio River Company. Scheuer now held all but four percent of the stock acquisition, and he made sweeping changes in the Board and senior management of the company.

Eventually, the company sold off all of its mining interests and renamed itself Midland Enterprises, and, in 1961, Midland merged with Eastern Gas and Fuel Associates and became a subsidiary of Eastern.

Scheuer sent Eli Goldston, a Harvard educated lawyer, to Eastern as its Executive Vice-President. Under Goldston, Eastern-Midland and the Ohio River Company experienced an exceptional renaissance.

During the 1960s, the Ohio River Company’s sister company, Red Circle Transport, began moving phosFirst Quarter 2003

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First Quarter 2003

However, it sold the remainder of its liquid fleet and sold its Port Allen Marine Service shipyard. When Eastern Enterprises announced its sale to KeySpan Energy, Midland faced impending divestiture, and the company was sold to Ingram Industries Inc. in 2002.

MarEx Information for this article was taken from the text of the 2003 Ingram Midland Commemorative Calendar authored by Judy Bumgarner.

SIDEBAR:

A Day on the Mississippi River

By Tony Munoz

I planned a day in New Orleans to do a photo shoot with Craig Philip, President and CEO of Ingram Marine Group for the front cover of the magazine. Getting Mr. Philip to formally pose for the cover took a few conversations and a heartfelt plea about the Maritime Executive’s image and standards, but he finally agreed. It didn’t take long to understand why he was so apprehensive.

Craig Philip is a hands-on executive who doesn’t manage from some ivory tower, dictating company policy and directing his field generals with an iron hand. Philip loves being in the field and rubbing elbows with his towboat and operating personnel.

A cold front had moved in from Canada, bringing gusting winds and a chill that New Orleans had not seen for a number of years. The Mississippi River was boiling with dangerous currents, and a choppy surface made the launch ride more than a little uncomfortable. However, we had promised Craig that we would shoot the interview shots on a tow that lay anchored along the far banks, opposite Ingram’s Triangle Fleet in Reserve, Louisiana.

As we hopped onboard the launch, the deck hand requested identification from each and every rider, including Bob Ory, general manager for the region, and Philip. And, as we The Maritime Executive | 35

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phate from Florida through the Gulf of Mexico. The company built a terminal in Tampa and one in Little Rock, Arkansas, which was supported by a long-term contract with Reynolds Aluminum. Midland also expanded on the Mississippi and Ohio Rivers with the formation of Orgulf Transport. Midland also acquired Chotin Transportation of New Orleans and then took over the management of an Eastern-run company, Boston Tow Company, whose history dates back to 1857.

In 1974, Eli Goldston died suddenly, and Lou Fiore was brought to Boston to manage Eastern, and John D. Geary, a Massachusetts Maritime Academy graduate with credentials from Boston University and Harvard Graduate School, became president of Midland. Geary also became the first chairman of the Inland Waterway Users Board, a federal advisory board established to recommend funding priorities on the inland waterway system.

Over the next two decades, Midland expanded and grew into one of the most respected operators on the river. In the 1980s, they purchased Hartley Marine, a fueling operator, Walker Boat Yard, and R&W Marine, giving Midland a repair yard, a midstream refueler, and towing operations in the strategic confluence of the Ohio and Mississippi Rivers. Midland also purchased Federal Barge Lines, which gave the company a presence in the grain industry. The purchase of Minnesota Harbor Services provided the company with a fleeting operation in St. Paul.

During the ‘80s and ‘90s, the entire inland transportation industry was in a state of tremendous change.

Issues as diverse as the state of the economy, taxes, grain export policies, difficult weather, and operating conditions had an impact on Midland.

Towboats and barges lay idle, and consolidation and bankruptcies took their toll on the industry. It was during the ‘80s that Midland led the industry challenge against CSX Railroad’s acquisition of American Commercial Barge Line. The Panama Canal Act of 1912 was originally passed to prevent this type of railroad action involved with water carriers, and Midland was instrumental in forming a challenge against the acquisition, although it was ultimately approved.

In the late ‘90s, Midland expanded again with its acquisition of Warrior River Towing of Mobile, Alabama, which became Orsouth Transportation.

boarded the M/V Sara Ingram (named after David Ingram’s wife) and her tow, we were again confronted by the mate, who again asked for our IDs while asking us a few questions about our business on his tow. It finally dawned on me that Ingram and its operating assets were under a very tight security policy.

As Tracie Morris and Susan Young, our contracted photographers from Donn Young Photography of New Orleans, and I entered the Sara’s galley, the smell of hot biscuits and chicken and dumplings captivated our senses, and the emptiness that I’d been fighting all morning became an overwhelming hunger.

While I scooped up my second plate, Hazel Hobbs, the towboat’s cook appeared. Hazel, without hesitation, said that she loved life on the river and had been working on towboats for almost ten years. The galley was spotless, and you could tell by the way the crew members addressed her that she was a vital and important member of the crew.

The crews live on these boats for 28 days at a time, and, while the conditions on the boat are comfortable, the work is hard and the operation runs 24/7. The 25 year-old Sara didn’t have a spot of rust on it, and was in impeccable condition from its engine room to the wheelhouse.

Craig Philip was in his element on the boat, and it showed. Ingram Marine Group operates 4,100 barges and 140 tugboats ranging from 1,800 hp to 10,500 hp. As Philip explained his operation, which includes transporting 100 million tons of every conceivable dry and liquid product, including coal, chemicals, stone, fertilizer, ores, alloys, steel products, and grain, the Mississippi 36 | The Maritime Executive

River raged below us.

The pilot showed us the sophisticated electronic navigation equipment which is essential for the safety of the tow operation. And, one had to think of the challenges of operating large tows before the days of electronic maps, charts, and radio equipment.

There was a great deal of enthusiasm in his voice as Philip talked about Ingram’s operational sphere along the Mississippi, Ohio, Illinois, Cumberland, Tennessee Rivers, and the Gulf Intracoastal Waterways. And, it was evident that he was personally involved with every boat and barge, every river way, and, more than likely, every employee in the Ingram organization.

As the employees went on about their work, it was evident from the interaction between him and the crew that he had been out here a hundred times, and they all possessed a great sense of pride and commitment in the work they do for a living.

Along with the millions of tons of coal they move to consuming plants and utilities and to New Orleans for export, Ingram is also a large transporter of limestone for construction purposes, and pollution control applications.

The company also provides barge service on the Green, Kanawha, Arkansas, Red, Monongahela, Missouri, and Tennessee-Tombigbee Waterway.

They operate an in-house repair operation and maintain their own fueling operation, which allows the company to keep moving all the time. Ingram’s fleet is monitored by a sophisticated computer system that allows dispatch to instantly pinpoint barge and boat locations, providing its customers realistic

Tracie Morris & Susan Young

Craig Philip and Hazel Hobbs-cook

Tracie Morris & Susan Young

Mr. Philip and M/V Sara Ingram crew

Tracie Morris & Susan Young

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Craig Philip and Tony Munoz

schedules for delivery.

Walking among the barges of Sara Ingram’s tow and watching the crew lash them together with wire and ratchets, you had a sense of the danger that these men work under and the training that must be involved to do the job.

Everyone moved along the barges in precision and with great timing; they all had an understanding as to where each crewmember is and everyone worked in coordination. Being a crewmember on a tow takes great physical strength and complete focus on your surroundings.

One mistake could cause serious injury or worse. Looking down at the raging river below us, you didn’t want to think of the fate of crewmembers if they fell off the tow, but these are professionals who make their living on the great rivers of America every day.

As Craig Philip stood in the wheelhouse speaking to us, his eyes searched the river beyond, and one could only think of the numerous stories that Mark Twain wrote over one hundred years ago, depicting life on the Mississippi.

Samuel Clemens became a Mississippi river pilot and spent a great deal of time learning the twelve-hundred miles of the river between St. Louis and New Orleans. Today, Philip who manages one of the largest inland operations in the nation was so absolutely comfortable here. And, as the launch returned us to the office, he stood on its deck in the howling winds watching another barge tow move slowly past, and the smile on his face said that he was proud of his company, his job, and that there was no other place that he’d rather be.

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Executive Interview

Craig Philip President & CEO

INGRAM MARINE GROUP

A LL P H O T O S T H I S A R T I C L E : T ra c ie M o rris & S u san Yo u ng , Donn Y oung P hotography of N e w O r l eans 38 | The Maritime Executive

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I N T E R V I E W

MX: This history of Ingram Industries dates back to

MX: As President and CEO, you manage one of the

1857, when the family began moving logs on rivers in Wisconsin. Today, the company is one of the largest privately held companies in America, and its spectrum of businesses is broad-based and dynamic. Will you briefly explain the diversity of the Ingram organization?

Philip: Today, in addition to Ingram Marine Group, Ingram Industries consists of Permanent General, Ingram Book Group, and Lightning Source.

largest marine operations on the inland waterways.

Explain the magnitude of the operation, the primary commodities transported, and the service base of your operations. Ingram recently completed the acquisition of Midland Enterprises, a leading inland marine transportation company that included The Ohio River Company and Orgulf Transport. Explain the significance of this acquisition to Ingram’s operations.

“ Today, in addition to Ingram Marine Group, Ingram Industries consists of Permanent General, Ingram Book Group, and Lightning Source. …

Ingram Industries is a family-owned business with roots that reach back three generations.”

Ingram Industries is a family-owned business with roots that reach back three generations. The Ingram family began transporting goods on the river in the 1900’s. Other interests included oil production and insurance. The barge business was the foundation of what would later become Ingram Industries. In the late 70’s, Ingram Book Company was formed, and in the 80’s became a wholesale distribution powerhouse.

Ingram Book branched out into the distribution of related products. Ingram’s computer products distribution business had grown to a $12 billion company in 1996 when it was taken public. The Ingrams maintain a large interest in Ingram Micro.

Permanent General provides specialty, non-standard car insurance to “high risk” drivers. High-risk drivers include people who are new to the auto insurance market or people who have been dropped by their former insurance carrier.

Ingram Book Company serves large national chain bookstores, independent bookstores of all sizes, and Internet and specialty booksellers, and maintains an inventory of over 700,000 titles from over 15,000 publishers. Ingram ships more than 140 million books and periodicals and audio products to customers around the world every year. Ingram distributes these same products to libraries and, the international market.

Finally, Lightning Source uses cutting edge technologies to print books with low sales volume on demand.

The books are scanned and then digitized to be stored indefinitely, never to go out of print.

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Philip: With the completion of the acquisition of

Midland Enterprises this past summer, Ingram Marine Group has emerged as one of the leading domestic marine carriers in the country and, measured in terms of tons carried, is the largest.

The company operates more than 140 towboats on the Mississippi River system and its primary tributaries. Operations are particularly focused on the Ohio, Mississippi, Tennessee, Cumberland, and Illinois Rivers and along the Gulf Intracoastal Waterway.

Ingram operates a fleet of more than 4000 barges, and is one of the few to have hopper, tank, and deck barge operations. With our fleet of hoppers, which is among the youngest in the industry, we carry various dry bulk commodities, the most important of which is coal for utility and industrial customers. Ingram’s largest customers are electric utilities, including TVA, Cinergy, and Southern Company Services. To serve this important customer segment, we operate the industry’s largest fleet of open hoppers.

Ingram’s tank barge fleet carries various, clean petrochemical products. The most significant customer in this segment is Occidental Chemical, which sold its tank barge fleet and outsourced its domestic marine operations to Ingram in 1996.

Finally, Ingram’s deck barge fleet operates to support an aggregate production and distribution operation that dredges, transports, and distributes more than 3.5 million tons of specification sand and gravel each year in Middle Tennessee, Western Kentucky, and The Maritime Executive | 39

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Northern Alabama.

To support these diverse operations, Ingram owns two shipyards, eight fleeting operations, five product terminals and a midstream fueling service.

MX: Over the past 20 years Ingram has grown organizationally through the acquisition of various strategic companies. Explain a few of the acquisitions that expanded the organization into a full service marine company.

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ed funding source and prioritization process. In 2003, we have the opportunity to move in a new direction, and we are actively supporting the Chamber of Commerce’s “Americans for Transportation Mobility Coalition” and hope that the reauthorization of the Highway Funding Program will include funds devoted to port and terminal connectivity improvements.

MX: As President and CEO of Ingram Marine Group, your concerns about the condition of the nation’s inland

“ Many have characterized us as the silent or invisible industry. For 5% of the economy’s freight bill, we produce 16% of the nations freight ton-miles, and do so in a safe, fuel efficient, and environmentally responsible manner.”

Philip: While Ingram’s roots in the marine business

extend back many decades, the company’s contemporary period of growth began in 1984 with the acquisition of Ohio Barge Line from US Steel Corp., a transaction that more than doubled the size of the company at that time. Acquisitions that build operating density are a primary means by which operators can improve asset utilization, system velocity, and financial performance. As attractively priced acquisitions have become available, we have pursued them, including the American Barge and Towing acquisition in 1988, M/G Transport in 1994, and, now, the Midland acquisition earlier this year.

MX: The economic viability of the inland waterway is essential, if not critical, to many states and industries.

The savings in fuel consumption and air pollution should be one of waterborne transportation’s greatest attributes. What could and should be done to bring this important alternative to the forefront of national issues?

Philip: Many have characterized us as the silent or invisible industry. For 5% of the economy’s freight bill, we produce 16% of the nations freight ton-miles, and do so in a safe, fuel efficient, and environmentally responsible manner. The European Community has recognized this and willfully established tax and other policies to encourage greater use of their maritime capacity. Historically, we have generally managed transport infrastructure decisions in this country as separate stovepipes-each mode with a separate dedicat40 | The Maritime Executive

waterway infrastructure have been recorded in Congressional committees. As the most senior executive of one of the largest barge operators working on the waterway system daily, what is your assessment of the overall condition of the vital locks and dams on the inland rivers and tributaries? The Inland Waterways Trust Fund has been the focal point of many news articles and much industry debate. In your opinion has the fund been used effectively to meet the needs of the inland waterways? The Army Corps of Engineers is responsible to maintain the locks and dams. Are they managing the required work on the system in a proper manner?

Philip: The inland waterways infrastructure is our country’s most economical, energy-efficient mode of transportation, and it is vital to our country’s economy, environment, and quality of life. It is also a critical element of our nation’s intermodal transportation infrastructure that is not operating at capacity and can therefore be relied upon to help relieve congestion being experienced on the other modes, and, in particular, rail and highway transportation.

The Army Corps of Engineers is responsible for this multi-use infrastructure and is credited around the globe with having created and operating a network that is the envy of the world. An increase in our nation’s investment in this infrastructure from the reduced levels of recent years is necessary to eliminate the bottlenecks that do exist and to ensure necessary rehabilitation and modernization of a facilities that are First Quarter 2003

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more than 50 years old and have exceeded their original design life. One manifestation of this underinvestment relates to the Inland Waterway Trust Fund, which is financed by Towboat operators who pay $.20 cents per gallon of fuel used. Money for the trust fund is to be used to underwrite major rehabilitation or construction of new navigation structures; over $4 billion of such projects have been authorized by Congress and are currently under construction. Unfortunately, proj-

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portation users would be the only beneficiaries paying for the operation and maintenance of the waterways.

Inland waterways provide multiple benefits to the nation, in terms of flood control, water supply, hydropower, transportation, and recreation. The federal government has historically recognized the multiple benefits and the nation’s interests, including national security. Therefore, they have assumed the responsibility for its operations and maintenance. Similar proposals

“ The 2004 Budget, … would bankrupt the Trust Fund within three years… and future revenues would be inadequate to address future demands. If the Budget were passed, it would, eventually, shift millions of tons of freight to the already congested highways and rail lines.”

ects are not allowed to be constructed quickly enough to use all of the Trust Fund, the balance of which now is nearly $400 million.

MX: President Bush’s 2004 Budget proposes that between 25-50 percent of the cost to operate and maintain the nation’s inland waterways, will now be paid for by the Inland Waterways Trust Fund. First, how does this differ from the normal use of the Trust Fund?

Secondly, considering that inland barge operators transport more than 16 percent of the nation’s freight, what impact will this new budget have on operators and the inland waterway system?

Philip: First, the Inland Waterways Trust Fund was established by Congress to underwrite the cost of modernizing the inland waterways’ locks and dams.

The operations and maintenance of the inland waterways has traditionally come from federal general revenues appropriated to the U.S. Army Corps of Engineers. The Bush 2004 Budget raids the Trust Fund to pay for operations and maintenance of the inland waterways.

MX: The Inland Waterways Trust Fund, which is generated by the tax on inland operators of 20 cents per gallon of diesel, is meant to be a fifty-fifty proposition. The program was created by Congress to rebuild the infrastructure of our nation’s waterways system with an equal contribution by the federal government. Has the 2004 Bush Budget put the once shared costs solely on the shoulders of tug and barge operators?

Philip: While not the sole user of the waterways, transFirst Quarter 2003

to raid the Trust Fund have been considered and rejected by Congress twice before. The first was in the landmark 1986 Water Resources Development Act, and then, ten years ago, when the Clinton Administration proposed increasing the fuel tax by $1 per gallon.

The 2004 Budget, which is essentially a tax increase, would bankrupt the Trust Fund within three years or less under the Administration’s proposal, and future revenues would be inadequate to address future demands. If the Budget were passed, it would, eventually, shift millions of tons of freight to the already congested highways and rail lines.

MX: Currently, there is nearly $400 million in the Inland Waterways Trust Fund. The 16th Annual Report issued by the Inland Waterways Users Board to Congress, the Secretary of the Army, and the U.S. Army Corps of Engineers states, “The commercial users of the inland waterways have paid a considerable amount in fuel taxes since the fuel tax was enacted-the practice in recent years of using trust funds to balance the budget is an extraordinarily expensive short-term solution that creates problems of much greater magnitude, importance, and cost.” What is your assessment of the use of the trust funds to balance the federal budget and not for its intended purpose of rebuilding the inland waterways infrastructure?

Philip: In terms of balancing the budget, the obligation remains for the government to provide the funds for its intended use of underwriting the cost of modernizing locks and dams.

The Maritime Executive | 41

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Ex MarEx

Unfortunately, the primary issue surrounding the government and the Inland Waterways Trust Fund has been the non-use of these funds to rebuild Congressionally-approved inland projects, and more than $394 million has been allowed to accumulate and remain unspent in the Trust Fund. And, this is in spite of the fact that several billion dollars of monthly projects have been congressionally authorized Now, the government wants the Trust Fund to pay

I N T E R V I E W

maritime security for our inland waterways?

Philip: Security is certainly a new concern for us, as it

is for every segment of the economy. Shortly after the September 11 tragedy, I joined other industry leaders to form a partnership with both the Coast Guard and the Corps to explore all available options to improve security, both aboard our vessels and at critical elements of the overall infrastructure including dock and lock facilities. This group developed a Model Vessel

“…it is imperative to maintain an intimacy and personal connectedness from office to the deckplate level aboard our vessels. I spend a great deal of time in the field, visiting our boats and shoreside operations to listen, learn, and just be available. I require all of my managers in every department to do the same.” for operations and maintenance. This violates the agreement of the Water Resources Development Act of 1986 (WRDA), which affirmed continued federal responsibility for inland operations and maintenance.

Congress must ensure that the balance and all future Trust Funds are spent solely for the purposes for which they were collected, to modernize the inland waterway system, and to ensure its future.

MX: Unfortunately, when a tug/barge unit has an accident, it becomes national news. And, there are certainly a lot fewer of these than over the road trucking accidents. For the sake of discussing inland waterways accidents, what training does Ingram Barge require of its operators?

Philip: By any measure, barge transportation is the safest mode of surface transportation, but our industry has worked tirelessly with the Coast Guard in support of their “Prevention Through People” programs to find ways to improve this excellent record. I have also been a strong advocate of simulator training for our wheelhouse officers, and we are in our sixth year of a partnership with the Seamen’s Church Institute that has established one of the nation’s finest maritime simulator complexes in Paducah, Kentucky and last year in Houston that are devoted entirely to training of inland river pilots. We combine our use of the simulator with Leadership Training for Captain/Mate/Pilot teams from our vessels that focuses on teamwork and safety aboard our vessels.

MX: In your opinion, what needs to be done to provide 42 | The Maritime Executive

Security Plan for towing vessels which our industry will implement. We will all work together going forward to make sure that other mandated security elements, like ID cards for maritime employees and AIS systems for towing vessels, are implemented in a cost effective way that achieves the hoped for improvements in security.

My concern, of course, is that whatever new systems and protocols are adopted must address genuine safety threats and not disrupt operations to the point that commerce itself is impeded.

MX: Please explain your approach to leadership for a maritime organization.

Philip: Ingram’s history as a family-owned enterprise, which has grown from fairly modest beginnings in the maritime world, has profoundly shaped my view of how to effectively organize and lead our marine businesses. Regardless of our increased size, I believe it is imperative to maintain an intimacy and personal connectedness from office to the deckplate level aboard our vessels. I spend a great deal of time in the field, visiting our boats and shoreside operations to listen, learn, and just be available. I require all of my managers in every department to do the same.

We are moving into expanded quarters here in Nashville, and I insisted that my senior executive team be located adjacent to our customer service group.

While we have invested millions of dollars in computer and telecommunications aids, the work of matching barges to customer orders and boats to the barges that First Quarter 2003

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MarEx

need to be moved is still the most challenging and difficult part of our business and I don’t believe there is any substitute for being personally involved on a daily basis.

Finally, I am committed to ensuring that we adhere to the highest possible ethical standards when dealing with our associates, our customers and our vendors and am thankful that this is also priority number one for our owners, the Ingrams.

MX: Congratulations on your election as the next Chairman of the American Waterways Operators (AWO) Board of Directors. This organization has been instrumental in establishing safety and operating standards for the nation’s tug and barge industry. As Chairman, can you please explain what the forthcoming agenda will be for this organization?

Philip: The American Waterways Operators is the trade association representing the tugboat, towboat, and barge operators in America, and I am proud to be assuming the Chairmanship of this organization in April.

Some of the priorities of the Association are endur-

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ing ones – the design and promotion of the safety regime discussed in your interview with Tom Allegretti, the fight for increased funding to preserve and enhance our Nation’s waterway infrastructure discussed in your interview with Dennis Kirwin, and the preservation of the essential protections afforded by the Jones Act are the three most notable examples.

Some of the Association’s priorities are in reaction to events – Right now, for example, we are focusing tremendous energy working with the Coast Guard to develop practical and effective means to enhance maritime security. We provide monetary support to more local, regional, and national trade groups than I care to count, and have dozens of Ingram associates who actually support these groups.

Providing industry leadership is a core value for Ingram. We are a small industry, especially when compared to our modal competitors, and we share the “right of way” with all the other operators, so effective cooperation with respect to impact areas where we have a common interest is essential.

MarEx

Port of Houston F E AT U RE

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Making Way in

Turbulent Waters The Port of Houston Presses Ahead in a Climate of Uncertainty b y

J o sep h

A .

Kee f e

Against of backdrop of national and local bad news, the Port of Houston Authority (POHA) is gearing up in a big way to expand on its already enviable position as one of the world’s super ports. In Houston, a tenuous national economy has been further exacerbated by a number of events; represented notably by the Enron scandal, huge layoffs in the technology sector, and now, the tragic disintegration of the space shuttle Columbia. The recent performance of the port in both the public and private sectors, while not spectacular by any measure, is unquestionably one of the few visible bright spots in the local economy. And, while many business concerns appear to be watching and waiting for definitive signs of recovery from the current recession, the port is not sitting on its hands.

As a whole, the port boasts a long history of being the leader on many fronts: First to engage in a cost-share project with the Army Corps of Engineers (in the early 1900’s), the first port to ever receive a container movement (1956 - from Elizabeth, NJ), and now, the first U.S. port to implement and receive certification under the rigorous ISO 14001 environmental standard. Looking forward, and emboldened by the infusion of significant Federal and local funding, the port authority is well on the way to deepening (to 45’) and widening (to 530’) the Houston Ship Channel, and has committed to the construction of a world-class container / cruise ship facility in Bayport, Texas. Both efforts are part and parcel of the Port of Houston Authority’s long-range master plan, and vision for the future of America’s largest port. By themselves, the two projects are good bets to reinforce the city of Houston’s international competitive edge. Locally, however, there are those in the private and public sectors who do not share this vision.

Until they do, the final phase of the Houston Ship Channel’s transformation into the world’s premier deep draft super port, from its roots begun as a trickling stream, will have to wait.

44 | The Maritime Executive

Understanding Today, Mapping the Future

The Executive Director of the Port of Houston Authority, H. Thomas Kornegay, is in a good position to talk about the port; its past, present, and future. A native Texan, graduate of the University of Texas, and a long time employee of First Quarter 2003

the port, Kornegay started in 1972 as a planner for the port authority’s first container terminal, now known as Barbour’s Cut. In 1986, while serving as Director of Engineering, he was tapped to take over as Managing Director, which is the number two position at the port.

In 1992, he assumed the Executive Director’s role in an “acting capacity,” and after a period of due diligence and extensive vetting of suitable candidates by the port authority, was confirmed in a permanent capacity. He First Quarter 2003

remains today as one the port’s longest continuously employed (and now most senior) individuals, and as such, has been a key part of the port’s past success, current position, and is a central figure in shaping the vision for the port’s future.

Kornegay begins by carefully defining the differences between the port of Houston, which encompasses the entirety of the private sector terminals, and the Port of Houston Authority (POHA), which represents the pubThe Maritime Executive | 45

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S pi l m a n I s l a nd

day arrives when the POHA oil and petroleum the is free from the need to use pub related cargoes lic funds. The dredging project, account for approxi- by Kornegay’s reckoning, is about 75 - to - 85% complete, mately 85%... could be done within a year

leaving just 15% and if everything goes right. Two of the total tonnage variables, both of which involve throughput handled money, could significantly delay, or potentially prevent the comby the public of this deepening effort. facilities. pletion Final permits to proceed with

lic sector. They are two separate and distinct entities, and, he says, “I work for the Port of Houston Authority.”

He goes on to describe the makeup and ranking of the (combined) port’s cargo volumes and tonnage, of which, oil and petroleum related cargoes account for approximately 85% of that total. All of that petroleum is shipped to and from the various private terminals dotting the banks of the ship channel, leaving just 15% of the total tonnage throughput handled by the public facilities. The split is an important statistic, and is a key factor in the port authority’s current business strategy.

As a broad stroke vision, Kornegay sets forth three specific goals for the port as a whole. As the new year kicks off, Houston commands approximately twothirds of the container market share in the U.S. Gulf, and is arguably the second largest petrochemical complex in the world. The combined port ranks as the sixth largest in the world. The deepening and widening of the ship channel is a project, he says, which is directed specifically at the oil market, and one which will hopefully propel the port into “undeniably the largest petrochemical complex in the world.” Secondly, and through the construction of the (proposed) new combined container/cruise ship terminal at Bayport, the port authority hopes to continue and improve its already robust market share of container traffic, while developing what is hoped will be a brisk and regular cruise market trade.

The successful completion of both tasks will, says Kornegay, be enough to take the port to the number four position in the world, and more importantly, make the POHA totally self-sufficient. “Bayport is the key,” says Kornegay.

There’s a ton of work to be done, however, before 46 | The Maritime Executive

the Bayport Terminal have not yet been received, and an increasingly vocal opposition to the project, represented chiefly by the Galveston Bay Conservation & Preservation Association (GBCPA), has no intention allowing the port to break ground. Hence, neither the dredging, nor the Bayport Terminal is a done deal.

At POHA, the push to keep its business plan intact and on track has taken on a new sense of urgency.

Within the past twelve months, the port has eased away from reliance on outside PR consultancies, hired new (high profile and exceptionally competent) public relations personnel, and generally ramped up its efforts to paint the port in a better light. Included in these efforts is a local advertising and educational program set to kick off in the near future. Despite the overwhelming statistics which show that some 85% of the total port’s import / export business is represented by petroleum commodities, Kornegay admits, “I am not as close to the petroleum guys as I would like to be, and probably should be.” Beyond this reality, the issue of the Bayport project has taken on a contentious tone which everyone would like to see go away.

Measuring Success: A New Yardstick

Tom Kornegay tends to speak about the port in terms of numbers and statistics. He can reel them off at will, and it is easy to understand why. Measuring sucFirst Quarter 2003

Port of Houston F E AT U R E

cess on the Houston Ship Channel is a quantitative process, with finite rules, and strict attention to tonnage, channel depth and width, numbers of containers moved, worldwide rank in any number of categories, and the bottom line, which, of course, is expressed in U.S. dollars. Along the way, and in no small part defined by the two biggest issues on Kornegay’s plate (completion of the dredging and the proposed Bayport Terminal), the Port of Houston Authority discovered that other things such as wetland acreage, birds, fine particle air pollution, and the increase in decibels as a function of increased industrial street traffic, all had to be counted as well. Houston, and the port as a total sum, is therefore a study of interesting contrasts.

While trying to maintain and increase the Port of Houston’s stature in the national and worldwide port rankings, Tom Kornegay understands, perhaps now more than ever, that the port’s success will be defined by others, not only in terms of tonnage and dollars, but by its (real and perceived) effect on society in terms of the environment, health issues, and general aesthetics.

When your enterprise is comprised of one of the largest, and, by nominal definition, dirtiest industrial complexes in the world, the task of selling the environmental party line to the general public is enormously difficult. Houston has arguably come a long way over a short period of time in this regard, and the effort con-

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tinues today, (now) hand in hand with the port’s expansion plans.

Behind the scenes of the massive, ongoing dredging project now underway on the ship channel, the rehabilitation of dredged spoil material has been heralded by the port as a revolutionary effort designed to enhance quality of life for fish, birds, and recreational boaters alike. Kornegay points to the Beneficial Uses Group, affectionately known as BUG, as a prime example of the port’s effort to work with local communities to minimize the impact of the port’s industrial output, and foster improvements in existing habitats, wherever possible.

According to POHA, “BUG was formed in 1990 to determine environmentally beneficial uses for materials dredged during the expansion of the HoustonGalveston Navigation Channel.” According to the port, BUG, in cooperation with the Army Corps of Engineers and the POHA, has overseen the creation of a six-acre bird nesting and habitat island, the restoration of Red

Houston by the Numbers 1

Worldwide Refining Capacity Ranking of Houston Petrochemical Complex.

1

U.S. Ranking in Foreign Tonnage Moved Across the Docks at Houston.

1

U.S. Ranking in Terms of Worst Air Quality (Neck and Neck With Los Angeles).

1

No. of US Ports to Implement the Standards of ISO 14001 (Environmental Management System). Hint: It’s Houston.

2

US Ranking in Total Tonnage.

2

Ranking of Port (Total and Indirect Employment) in terms of Overall Effect and PCT. of Local Houston Economy.

3

No. of Acres of Wetlands to be Lost to Proposed Bayport Terminal (2nd Count – Army Corps of Engineers).

6

Worldwide Ranking in Total Tonnage Moved.

18.6

24

Number of Companies Involved in the Pipeline Relocation (Costs) Lawsuit.

25

Length in Miles of Houston’s diversified public and private facilities waterfront.

45

Depth in Feet of the Houston Ship Channel When the (Current) Dredging Project is Completed.

77

Minimum Number of Pipelines Needed to Be Relocated Due to Dredging.

100

No. of Acres of Wetlands to be Lost to Proposed Bayport Terminal (1st Count – Army Corps of Engineers).

530

Width of Houston Ship Channel in Feet, After Completion of Current Dredging Project.

3,798

300,000

No. of Acres off Wetlands to be Lost to Proposed Bayport Terminal (3rd Count – Army Corps of Engineers).

Number of Birds Sighted on the POHA’s Newly Built Bird Island (With Dredge Material).

U.S. Dollars Allocated by Transportation Security Agency for a Security Risk Assessment at the Port of Houston.

1,000,000

Approximate Cost in USD for the Relocation of Each Pipeline Affected By Dredging.

1,500,000

U.S. Dollars Received From TSA to Build a New Emergency “Command and Control Center” at Port of Houston.

First Quarter 2003

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and trade throughput on the water is naturally going to do two things: (a.) strive to make that commerce as safe as is possible, and (b.) maximize the economies of scale for waterborne cargo. Both objectives are achieved (along with other efforts) through the dredging of navigable channels, and making the harbors deeper and wider.

Here in the United States, the paucity of suitable, natural deep draft ports has fostered a climate in which “size envy,” especially in comparison to the more well known European super ports, is always prev-

....implementation of the ISO 14001 compliance protocol, which mandates adherence to “an innovative Environmental Management System (EMS).” ...the organization must work continuously to improve its environmental performance...

Fish Island in Galveston Bay (a pleasure boater’s destination), Goat Island in Buffalo Bayou, and the construction of an underwater berm to enhance habitation for a number of fish species and creation of access channels and anchorages for recreational boaters.

In the industrial arena, POHA never misses a chance to mention its implementation of the ISO 14001 compliance protocol, which mandates adherence to “an innovative Environmental Management System (EMS).”

The ISO code also stipulates that the organization must work continuously to improve its environmental performance. Kornegay also points out that Houston is the first and only U.S. port facility to implement such a standard, and adds, “We’re setting the bar pretty high for others to follow.” The port is also collaborating with the Texas Commission on Environmental Quality on other issues, and, says Kornegay, “We’re committed to preventing pollution and reducing air emissions.”

Who Benefits, and Who Pays: Local Questions/National Implications

The perceived need to dredge to deeper and still deeper depths at any major port, especially in North America, is a concept that is as old as navigation itself.

Any coastal commerce area that derives its lifeblood 48 | The Maritime Executive

alent. In Rotterdam, for example, the arrival and discharge of a typical VLCC crude oil parcel does not necessarily trigger the requirement for five shuttle vessels at an offshore STS position. At Houston, not even the deepening of the current ship channel to 45 feet will end the need for the continued requirement for lightering operations, although it will create significant savings in terms of reduction in traffic, as well as the benefits derived from a safer and less congested channel. With 85% of Houston’s waterborne commerce consisting of petroleum and petroleum products, Tom Kornegay declares that “The dredging project is totally petroleum focused.”

Although he considers the deepening effort a necessary and good thing, Kornegay is also quick to add that the need for dredging is not based on his assumptions, but rather on the findings of the U.S. Army Corps of Engineers. The Corps, he says, “performs a benefit cost analysis that is prescribed by Congress. The final judgment is based on the National benefit, not just local needs.” In other words, the shifting of cargo from a port such as Corpus Christi for the specific purpose of taking advantage of the economics of a deeper channel would not enter into the decision process of such a study. But, as first reported in the 2002 first quarter issue of The Maritime Executive, with a new controlling First Quarter 2003

Port of Houston F E AT U R E

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channel depth of 45 feet, local refineries and oil concerns can expect a typical cost savings of as much as $150,000 for the import of a 2.5 million barrel parcel of crude arriving via VLCC, and discharged offshore into shuttle vessels for eventual discharge into Houston facilities. One veteran charter broker, who asked not to be identified, commented that, although not all importers of crude oil into the port of Houston would benefit from the increased drafts (specifically those lifting from draft restricted ports in Venezuela and Mexico), those that do can expect a twenty percent reduc-

the local Port Commissioners have tasked the POHA management team with becoming totally self-sufficient...the growth of the container business through the proposed Bayport expansion will ultimately be the vehicle that will allow for this to occur. tion in shuttle tanker costs.

According to Kornegay, the dredging of the Houston ship channel is now within one year of being completed, assuming continued funding from the Federal Government. He is candid in his expectation that prospects for full funding in the proposed FY-’04 budget are “very low.” And, as MarEx went to press, the proposed budget for Corps of Engineers included “a high level of funding for eight projects that provide a very high net economic or environmental return to society,” none of which included the Houston Ship Channel. A total of 13 other ongoing projects were allocated “the resources to complete and remove them from the construction backlog.” Five of these projects are intended to support commercial navigation and, according to spokeswoman Felicia Griffin, the Corps has requested $48 million, but administration has only funded the project with $19 million, far less than what is needed for the project. Calls and requests for clarification from both the Corps of Engineers and Congressman Tom Delay (R-TX) went unanswered.

The ongoing dredging and improvements to the First Quarter 2003

Houston Ship Channel are remarkable in that they are funded by a huge capital outlay from both the Federal Government and local taxpayers who approved bond referendums which allowed this to go forward.

Kornegay says that there are no further bond referendums planned, and that the local Port Commissioners have tasked the POHA management team with becoming totally self-sufficient in the near future. “The Port of Houston Authority is working very hard to achieve that goal,” adds Kornegay. He also emphasizes that the growth of the container business through the proposed Bayport expansion will ultimately be the vehicle that will allow for this to occur. Not surprisingly, virtually all of the container traffic passes over and through public, POHA owned property.

From the outset, virtually anyone engaged in some The Maritime Executive | 49

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sort of commerce along the Houston Ship Channel (excepting perhaps the companies who provide lightering / shuttle tankers) would have probably agreed that deepening and widening of the Houston Ship Channel was a nominally good thing. Certainly, the local taxpayers agreed, and those required to pay for the marine transportation of bulk commodities could see the potential net savings achieved by the greater channel depths. The “tons per inch immersion” calculation is not a difficult one.

The local ship channel pilots could perhaps look forward to a safer transit, absent at least a portion of the necessary game of “Texas Chicken”, in which ship pilots maneuver vessels moving in opposite directions along the narrow channel.

Using the displaced

pearing, took a radical left turn. The pipeline owners took the view that state and Federal law dictated they could be asked to move their pipes, but that they could not be asked to bear the cost. According to Denis Calabrese, spokesperson for the pipeline owners, “Discussions were initiated with the port in an effort to resolve the disagreement, which were not fruitful. They (the pipeline owners) then decided to go ahead and move the pipes, and seek redress for the payment issues.” In January of 2002, in Federal District Court, U.S. District Judge Lynn Hughes ruled for the pipeline owners and against the Corps and the port. The POHA subsequently decided to appeal the verdict, and oral arguments are likely to begin before the end of March at the 5th Circuit Court of Appeals in New Orleans.

Tom Kornegay is adamant that if POHA loses there, then they will appeal all the way to the U.S. Supreme Court. This will come as no surprise to anyone, since he freely admits that neither the port, nor the U.S. Army Corps of Engineers, has money budgeted for the removal of pipelines.

While the question of who should pay for movement of the pipelines is arguably a “cut and dried” issue, there is more than one subplot to the conflict.

...the U.S. Army Corps of Engineers issued a “Notice to Remove” letter to pipeline owners in June of 1998, advising them of the cooperative effort between POHA and the Corps to widen and deepen the channel, ... with costs to remove and relocate to be “accomplished at owner’s expense.”

water of the ship’s bow waves to move the ships apart as they pass, and then the suction of displaced water in their wakes to pull them back into the centerline, the procedure sometimes involves steering the two ships almost directly at one another.

The additional 130 feet of width provided by the port improvements may actually be as important as the increased depth. The dredging of the Houston ship channel appeared to be a “win-win” situation for just about everyone involved.

When the U.S. Army Corps of Engineers issued a “Notice to Remove” letter to pipeline owners in June of 1998, advising them of the cooperative effort between POHA and the Corps to widen and deepen the channel, they also advised pipeline owners of the requirement to remove and relocate (if so desired) existing pipelines under the ship channel, with costs to remove and relocate to be “accomplished at owner’s expense.” At this point, the spirit of cooperation, if not completely disap50 | The Maritime Executive

The POHA argues that the pipeline owners will be the primary beneficiaries of ship channel improvements, and, hence, should be held responsible for costs involved in the pipeline removals. Denis Calabrese counters that there are two elements to that argument, and that, “the pipeline owners don’t see great benefit to their own companies in this project. But, this is separate to the question of who the law says should pay for it...

And the law says, at least in one judge’s opinion, that the port should pay for the removals.”

The pipeline removal bill is not a small one, involving perhaps as many as 80 pipelines, 24 pipeline owner/ operators, at an estimated cost per unit of $1,000,000.

First Quarter 2003

Port of Houston F E AT U R E

Beyond this reality, however, Calabrese says that there are important distinctions to be noted. “The pipeline owners are not opposed to the dredging project, and the purpose of the lawsuit was not to stop the project.

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mental and/or quality of life issues were at stake. He adds, “Being in Texas, it’s quite amazing to defeat anything, so the GBCPA has actually had quite a good pattern of success.” Blackburn calls the advent of the POHA’s Bayport expansion proposal the catalyst that caused the resurgence of the GBCPA, and a heightened awareness of environmental concerns all through Southeast Harris County.

According to Blackburn, Harris County

Blackburn calls the advent of the POHA’s Bayport expansion proposal the catalyst that caused the resurgence of the GBCPA, and a heightened awareness of environmental concerns all through Southeast Harris County.

They have moved the pipes, with money out of their own pockets. The issue here is reimbursement.”

Calabrese adds that the actual costs of moving the pipelines will likely exceed that which the local taxpayers agreed to pay for entire project. Hence, he says, “the costs of the pipeline moves should have been factored into the beginning of the project, when they cooked it up.” For the time being, the port and the pipeline owners can only agree to disagree.

Bayport: POHA’s Narrow Vision is Met by Fierce Opposition

In marked contrast to the low key, professional, and at least visibly amicable disagreement between the POHA and the pipeline owners, the dispute over the proposed Bayport Terminal has taken on a nasty edge, with no signs of abatement. The primary opposing force to the proposed Bayport Terminal is the Galveston Bay Conservation and Preservation Association (GBCPA) which is chaired and led by Jim Blackburn, an environmental law attorney based in Houston. He calls the GBCPA a “classic environmental group,” formed in the 1970’s, primarily with the goal of protecting the bay front and residential areas located adjacent to the bay, with its strengths and focus located in southeast Harris County (Houston and surrounding communities). Although heavily active in various causes over the years (Blackburn lists several battles), the group, he says, “became dormant in the 1980’s, as another group, the Galveston Bay Foundation, was formed.” Although not always successful, Blackburn says that the net effect of the group’s efforts was to serve notice that proposed expansions and building of various industrial projects in the Houston/Galveston Bay corridor would face increased scrutiny when environFirst Quarter 2003

Commissioner (Precinct 2) Silvia Garcia “was elected on a platform of opposing the Bayport Terminal...I don’t think she really wanted to take a position, but, frankly, I don’t think she could have been elected in southeast Harris County if she didn’t take a position.”

Curiously, repeated MarEx telephone calls to Garcia’s (multiple) Harris County offices and locations for confirmation and clarification on her positions went unanswered.

Blackburn’s distaste for the POHA and their (alleged) tactics is obvious, and he speaks with emotion when asked to make comment on the dispute. He is unequivocal in his belief that “Bayport poses a threat to the continuing quality of life, and the health of the people who live there, as well as a threat to the bay.”

Further, he adds, “It was the arrogance of the port that has led to the success of the opposition, so far.”

Blackburn points to what he terms as “flawed analysis” on the part of the port, as well as a failure to recognize and consider alternative, more appropriate locations, notably Shoal Point in Texas City, as well as Spilman Island, for the new terminal. Echoing the pipeline owners, Blackburn says flatly, “We are not opposed to the expansion of the port of Houston. We would support tomorrow the issuance for a permit to build on The Maritime Executive | 51

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“ The Bayport Wharf is being built to accommodate an ultimate channel depth of 50’. The initial dredging of 56’ is only a very narrow strip to accommodate construction of the slope stabilization.”

Spilman Island.”

The POHA flatly rejects the option of using Spilman Island as an alternative to Bayport, characterizing it as “a bowl with a levy around it to capture the dredge spoil”, with a development cost which far exceeds that which would be incurred at Bayport. As for Shoal Point, the port cites the location of the facility in Texas City, which is outside of Harris County, and the fact that general obligation bond funds passed by Harris County voters cannot be used in Galveston County, especially in the wake of the failed referendum in Galveston (which proposed the merger of the Port of Galveston with the POHA). Beyond this, Tom Kornegay points out the “huge number of revisions” made by the POHA to the Bayport plan for the purposes of social mitigation and environmental considerations. He finishes by explaining that the proposed Terminal will be built in “the Bayport Industrial District”, next to, and in an area where there are already three chemical complexes.

The GBCPA disputes the POHA’s cost estimates of the Spilman Island site, and Jim Blackburn says that the island is comprised largely of solid ground, capped with dredge spoil. Discounting the availability of Spilman Island and Shoal Point, the division between the GBCPA and the POHA runs even deeper. Blackburn asserts that the net effect of the Bayport Terminal on the bay will be profound. He questions the honesty of the port when they say that they have no intention of dredging to depths deeper than 45 feet in the foreseeable future, and then dictate that the proposed docks at Bayport be dredged to a depth of 56 feet.

While some dredging efforts build in a “safety factor” of additional depth to allow for silting and other variables, the GBCPA questions need for an 11-foot difference in the dock drafts from the expected controlling depths. Meanwhile, the “Notice to Remove” letter issued by the Corps of Engineers stipulates that the relocation of pipelines should be placed at “a minimum of 20 feet below the authorized project depth (i.e. - 65 feet MLT).”

Both situations arguably suggest the possibility of 52 | The Maritime Executive

future dredging to achieve still greater controlling depths. Blackburn also asserts that “You will kill Galveston Bay quicker with salinity - driven by deeper water - than you will with anything else.” The POHA indicates that they have no immediate designs on deepening the channel beyond 45 feet, and Tom Kornegay promises, “I can’t imagine that happening any time soon.” Follow up inquiries to the POHA corporate offices, however, left the issue open to debate. POHA Spokeswoman Felicia Griffin responded via E-mail, saying, “The Bayport Wharf is being built to accommodate an ultimate channel depth of 50’. The initial dredging of 56’ is only a very narrow strip…to accommodate construction of the slope stabilization.”

From an environmental standpoint, Blackburn calls the “introduction of five thousand diesel powered trucks per day into the Bayport intermodal zone the equivalent of air pollution caused by ten chemical plants.” Further, in Blackburn’s Comments on the Draft Environmental Impact Statement For The Port of Houston Authority’s Proposed Bayport Container Project, the GBCPA disputes virtually every position held by the POHA. His comments and positions run the full gamut from the impact of fine particle air pollution, Land Use History (and promises made in the 1960’s with regard to development of industrial properties east of Highway 146), and the impact of increased train and road traffic on the area. And, although he concedes that the generic characterization of the area could be described, as the POHA says, as “industrial,” he also points out that that there are residential areas within 1 mile of the proposed facilities which 5,000 people call home. “The same,” he says, “cannot be said for Spilman Island or Shoal Point.”

As MarEx went to press, the Corps of Engineers was wrapping up its Environmental Impact Study with regard to the Bayport proposals. The fate of at least 114 acres of what Blackburn terms as sensitive wetlands hangs in the balance. For their part, the Port of Houston says that they are prepared to abide by whatever the study says, and that they would be committed to fair relief for affected wetlands. The latest (and third, to date) estimate from the Corps of Engineers show a total of 18.6 acres of affected wetlands. But, the stark contrast between the latest numbers and the initial estimates of more than 100 acres of affected wetlands is telling. Blackburn and the GBCPA say that the environmental cost of the Bayport expansion is far too great, and that there are too many unanswered questions that the POHA has not addressed, and, to this day, refuses to discuss.

First Quarter 2003

Port of Houston F E AT U R E

Analysis It is clear that the new mandate for improved public relations, coupled with and amplifying the ongoing environmental endeavors, is more than window dressing for the port. Local politics and Federal policies now demand nothing less. The port sees the issues surrounding the pipeline dispute and Bayport as “black and white,” linear questions, whereas their opponents do not. If the POHA hopes to bring both the dredging and the creation of a Bayport Terminal to speedy fruition, making friends and the occasional concession will likely be the rule, not the exception. There is a limited amount that improved PR can accomplish in such a climate, and, at the end of the day, even this may not be enough.

The dredging project, sooner or later, is going to be completed. The Federal dollars will eventually be forked over. It’s anyone’s guess as to what the final budget will include, although no one would be surprised to see at least some of the additional money (that is needed) added to the proposed budget. Tom Delay (R-TX) is far too powerful, and the port far too important to the nation’s transportation infrastructure for that not to happen. The lawsuit surrounding the cost of pipeline relocations is likely to go all the way to the U.S. Supreme Court, with the outcome still very much in doubt. If the port loses the pipeline lawsuit, even Tom Kornegay admits that the POHA will have to go back to the local taxpayers to beg for the additional money. The POHA’s goal of becoming financially self-sufficient will then no doubt have to wait a long time before being realized, and some contemplated downstream projects might have to go on hold. None of this is very appealing to the POHA or Harris County taxpayers, some of whom are beginning to question the less than detailed description of what they were actually voting for in terms of the port’s intentions to spend their money ($387 million) in (a different) 1999 bond election. Look for the port to present a strong case at the 5th Circuit Court of Appeals in March. When the case is finally settled, however, the reverberations will be felt, not only in the pain of local taxpayers who may be asked to pick up the additional burden, but also in places like Corpus Christi, where similar channel improvements are being contemplated.

The advantage of a wider and deeper ship channel may ultimately translate into safer and less congested navigation conditions, but what about the terminals themselves? The berthing facilities for many terminals are only marginally adequate for the existing class and tonnage of vessels calling at Houston. With some of these berths having been built twenty, thirty, and even fifty years ago for smaller vessels and different service,

A R T I CL E

the question of whether the existing infrastructure will be sufficient to accept increased tonnage and drafts remains unanswered. Refineries and terminals who may be called upon to pay for the relocation of pipelines may or may not be in any position (or mood) to deal with the additional costs associated with ensuring that their mooring facilities are consistent with the additional burden of deeper and heavier ships. The promise of reduced transportation costs may be a moot issue, against the liability of a tanker berth better suited to the mooring of a T-2 tanker, than say, a 90,000 deadweight tonnage vessel loaded to 44’-11”.

The wisdom of bringing a weekly cruise line service to the (beautiful and scenic) Houston Ship Channel is questionable, but this is clearly a gamble that Norwegian Cruise Line (NCL) and the POHA are willing to take.

And heck, it just might work. The concept of utilizing a metro population of more than 2 million people, selling them on the idea that they don’t have to deal with the hassle and expense of flying to Miami for a five day cruise, and then turning the same vacation money into a seven day cruise to similar destinations, is smart business. The potential for a mutually lucrative partnership is suddenly obvious, but the downside includes the departure and return through a less than pretty, smelly, and industrial backdrop. But NCL was here before and pulled out, a move that Tom Kornegay candidly calls, “a mistake.” Arguably, Galveston is a better choice, given its close proximity to the ocean, and the more touristy feel to the island. Beyond this, the location of the Bayport Terminal is at the mercy of fog, marine accidents, oil spills, and traffic congestion, all of which can and probably will cause delays to a service which is heavily dependent on timely departures and arrivals. And, if construction of the Bayport Terminal is delayed, or worse, not completed at all, will NCL pack it up again? Clearly, there are numerous variables and obstacles to overcome before this dream can be termed a success.

A new and improved approach from the POHA has helped to soften its public image and to sharpen internal sensibilities to outside concerns. It has measurably improved its environmental record, both on paper and in actual practice. Like another Texas icon, President George W. Bush, the POHA’s environmental record is far better than it is given credit for. An Atlantic Monthly article, published during the height of the 2000 elections, provided a cogent analogy of the environmental records of the two Presidential candidates. In that piece, Bush was actually shown to be somewhat better than his detractors would like you to know, and Al Gore was given failing marks in many categories, despite being touted as the “poster child” for environmental continued on page 56

First Quarter 2003

The Maritime Executive | 53

LCS&Deepwater

SEA SERVICES COOPERATE ON LCS & DEEPWATER PROGRAMS Navy and Coast Guard Future Ship Programs Share Much in Common

By Edward H. Lundquist and Jon P. Walman The U.S. Navy and Coast Guard are working together in a joint effort to meet their respective operational challenges, while developing their future fleets. The Navy’s Littoral Combat Ship (LCS) program and the Coast Guard’s Integrated Deepwater System (IDS) project offer new opportunities for collaboration and innovation between the sea services.

The Navy’s role in assuring access in the littoral or coastal regions of the world is in many ways similar to the Coast Guard’s mission of maritime homeland defense. Through their close working relationship and pursuit of common objectives, America’s sea services have entered a new era of cooperation in order to confront new and increasingly challenging national security requirements. Together, they plan to revitalize and collectively reconstitute their “future fleets” by taking advantage of advanced war-fighting and information technology.

The Navy’s future fleet is founded on a family of surface combatants, including the advanced DD(X) destroyer and CG(X) cruiser, and an entirely new type of ship, the LCS. Envisioned as small, fast, and modular (or reconfigurable), LCS will comprise multiple focused- or specialized-mission ships which are designed to counter asymmetric threats that could impede access of friendly naval or joint forces into littoral operating regions.

“These primary anti-access threats include small, fast, surface craft, quiet diesel-propulsion submarines, 54 | The Maritime Executive

and various, relatively inexpensive mines,” says Rear Adm. Donald Loren, Deputy Director, Surface Ships, Surface Warfare Division, in the Office of the Chief of Naval Operations. “LCS will help to assure timely access for U.S. joint and coalition forces into contested littoral regions near most of the world’s largest cities where much political, military, and commercial activities take place.”

The origins of the Coast Guard’s Integrated Deepwater System, or simply “Deepwater,” began in 1996 as a program to replace its aging and overworked force of open-ocean cutters, which typically operate over a hundred miles from shore for months at a time, and often in extreme weather conditions.

“As an integral part of the Deepwater effort, the Coast Guard is replacing its obsolete assortment of cutters and aircraft with modern platforms, sensors, and real-time command, control, and communication network connectivity,” says Captain Rich Kelly, USCG, the Deepwater Program Sponsor’s Representative.

By incorporating advanced network-centric capabilities, the Coast Guard’s future fleet or system of integrated Deepwater assets will be fully interoperable with future naval forces and other services, as well as with federal, state, and local law-enforcement partners, including elements of the new Homeland Security Department.

For example, LCS and Deepwater will be able to share and exploit sensor data and tactical information First Quarter 2003

LCS&Deepwater with other platforms they operate with. LCS modules will deliver a potent mix of combat capabilities, much of which could be leveraged

by Deepwater. Advanced technology research in the areas of high speed, shallow draft, small radar cross-section, and “net-centricity” used for development of LCS are directly applicable to counter-drug operations, migrant interdiction, fisheries enforcement, maritime homeland security, and other Coast Guard missions.

LCS and Deepwater will rely upon manned and unmanned aerial, surface, and underwater vehicles.

Both ships will have flight decks for manned and unmanned rotary-wing aircraft. They will also be configured for the rapid launch and recovery of small boats, as well as unmanned underwater vehicles and unmanned surface vehicles on LCS. “This cooperative, collaborative environment between the Navy and the Coast Guard is the best cross-departmental conversation that I know of in the government,” says Rear Adm. Charles Hamilton, the Program Executive Officer for Ships, who is located at the Washington Navy Yard.

Technologies and systems shared by LCS and Deepwater may also include a common “sea frame” (but not necessarily a common ship). The sea services

First Quarter 2003

also hope to leverage resources to synchronize research and development, planning, budgeting, procurement, development of doctrine and operational procedures, training, and execution of operations. While the services’ joint efforts will help reduce overall development costs, they are also likely to increase the affordability as well as potential sales of these platforms and their associated systems to friendly nations. are naval warfare analysts for Anteon Corporation’s Center for Security Strategies and Operations MarEx

The Maritime Executive | 55

Port of Houston F E AT U RE

A R T I CL E

continued from page 53

concerns. And, so it is for the POHA and its detractors.

The GBCPA maintains that many, if not all, of the POHA’s environmental projects are a direct function of public pressure. Further, Jim Blackburn says that he helped to establish BUG, which was the outfall of a settlement on the widening and deepening project and an excellent example of POHA and the Corps of Engineers working with the community. No such spirit of cooperation, he says, exists on the Bayport issue. The reduced amount of remediation necessary, dictated by the reduction in estimates of affected wetlands by the Corps of Engineers, means a permanent loss of habitat for any number of marine species, according to Blackburn. He is probably right, at least in part, on both counts.

Tom Kornegay is confident that the issuance for a permit to begin construction at Bayport will be issued in June, or perhaps July at the latest. In fact, the port is confident enough to have already taken delivery of a number of yard cranes for Bayport, some of which are temporarily in use at the busy and congested Barbour’s Cut Terminal. Jim Blackburn responds by saying that “They’ve (POHA) been optimistic and wrong every

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time for five years.” He also promises to contest the matter in Federal court, if that permit is issued. He further predicts that the Bayport Terminal will not be built, but, if it is, the process will have transformed the people of Southeast Harris County forever.

The juggernaut known as the Port of Houston Authority may well have the last laugh on all of this, but not before the drain of lawsuit money from the port’s coffers lowers its net income and impairs its ability to achieve its stated goals. Between the pipeline owner’s lawsuit, as well as one initiated by the port itself against a handful of chemical manufacturers for allegedly polluting POHA property, and now, the specter of a largerthan-life battle against environmental interests at Bayport, the legal costs are mounting quickly. Smart money says that the POHA will eventually reach the promised land, but not before the cost of paradise exacts its true price: from everyone.

MarEx Joseph Keefe is the Senior Editor of The Maritime Executive. He lived in Houston from 1982 until 1996. He also writes the Washington Insider as a regular feature, and can be reached at jkeefe@maritime-executive.com.

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