December 2007
Versatility and Vision Harvey Gulf International Marine, Inc.
Shane Guidry, President & CEO
Chad Guidry, Vice President, Marine Operations
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contents 12.07
Case Study : Harvey Gulf A Family of Themes…
16
Outside, Looking In by Joseph Keefe
by Joseph Keefe
Executive Interview
24
Washington Should Allow Responsible Development
by Joseph Keefe
by Larry kiern
Short Sea Shipping
Clueless About Valuation by George weltman
54
Louisiana Story Business (Not) As Usual
34
by Marex Staff
8
Washington Insider
Shane Guidry, President and CEO, and Chad Guidry, Vice President, Harvey Gulf
Marine Money
6
Editorial
Earning Back the Trust
36
U.S. Coast Guard’s National Maritime Center Centralizes and Relocates to West Virginia by joseph keefe
12
42
Patrol Boats
The Time for Short Sea Shipping Is Now
Plugging the Smallest Holes in Port Security
by Charles g. raymond
by joseph keefe
State of the Port Economic Importance Drives Port’s Recovery
14
Marine Coatings It’s All About the Money
50
by MarEx Staff
by gary lagrange
the maritime executive
3
editorial staff
editor in chief Tony Munoz tonymunoz@maritime-executive.com managing editor Joseph A. Keefe jkeefe@maritime-executive.com senior copy editor John J. O’Connell, Jr. harvardjo@maritime-executive.com copy editor Valerie K. Leichtman vleichtman@maritime-executive.com senior vice president sales & marketing Brett Keil bkeil@maritime-executive.com art director Daniel Bastien dbastien@maritime-executive.com internet services manager Matthew Miller matt@maritime-executive.com sales administrator Elizabeth Cash elizabeth@maritime-executive.com sales associate - Germanic Europe Hansjorg Brans jbrans@maritime-executive.com sales associate - India, Asia & Middle East Raghu Menon raghu@maritime-executive.com sales associate - Eastern Europe Maciej Wedzinski maciej@maritime-executive.com published by TM Marketing Group, LLC The Maritime Executive, LLC (ISSN 1096-2751) 3200 S. Andrews Avenue, Ste. 100 Fort Lauderdale, FL 33316 Telephone: (866) 884-9034 Fax: (954) 848-9948 www.maritime-executive.com For subscriptions please visit www.maritime-executive.com.
4 the maritime executive
editorial Outside, Looking In
I
tell my boss as often as I can that my maritime background is my biggest strength as an editor and writer. I have come to realize that it is also my biggest weakness. Twenty-plus years of combined atsea and operational experience ashore is a big asset that I exploit every day as I interview industry executives, maritime educators and the wide expanse of regulatory personnel who control much of what the maritime industry can and cannot do. That same asset sometimes obscures the real questions that I should be asking in my quest for an accurate story. Over the years, I’ve applied for more than one job in the business of journalism. And, like most aspiring writers, I’ve got a large box full of rejection letters from a wide array of print vehicles. Absent a journalism degree or something similar in the field of communications, I rarely got by the letter stage and, if I did, the prospective editor would send me on my way with a polite, but knowing, smile. Nevertheless, I am a good fit here at MarEx. I’m also lucky to have the job, and I know it. The maritime business, in a lot of ways, is very similar to the print journalism game. I had the opportunity to speak to a public relations executive for a maritime concern this week and he admitted to me jokingly, “I don’t know the pointy end from the round end.” The proverbial shoe was on the other foot for once. The purpose of that revelation, I suppose, was either to disarm me a little or perhaps to let me know that, while he wasn’t necessarily schooled in the marine world, it certainly didn’t mean that he couldn’t get the job done. I had to think about that for a minute, but in the end I know he’s right. Far too often, we in the maritime industry tend to believe that the only people who can possibly provide the answers are those who’ve spent 30 years in the business in one capacity or another. The maritime industry in particular has been especially inept at getting out the message about just how important shipping and commerce are to the daily lives of virtually everyone on the planet and what we as an industry are doing to promote green initiatives. The industry’s record is quite good, in my opinion, but we do need help in relaying that fact to others. It’s okay to look “outside the box.” Fortunately, there are some maritime outfits that are not afraid to do just that. The Maritime Institute of Technology and Graduate Studies (MITAGS) is one such place. As it ramped up to provide some of the most advanced simulator training available in the world today, it also realized that other industry sectors were a little further along the simulation curve. When MITAGS brought in aviation veteran Walter Megonigal to oversee training for the Institute, it also showed tacit understanding that enhancing the maritime training experience might just require a fresh outlook. At the Coast Guard’s rapidly developing National Maritime Center (NMC) in West Virginia, commanding officer Captain David Stalfort told me recently, “The move to the new location gives us the opportunity to see new faces who will give us fresh input on what we are doing.” That type of attitude will probably serve him very well as he tries to fix a “broken” system of mariner documentation. As you read this issue of MarEx, you’ll see countless examples of maritime people doing things just a little bit differently and seeking help from uncommon sources along the way. If it makes you think just for a moment about how you might run your company in a different way, then it will be time well spent. At MarEx, we will continue to seek out new and better ways to bring the “maritime” story to others. We will also seek to find out what – if anything – the guy who hasn’t got a clue as to where the “pointy end” is can bring to the table. Stay with us as we do. MarEx
Joseph Keefe
Managing Editor
Managing Editor Joseph Keefe can be contacted at jkeefe@maritime-executive.com with comments, input and questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes your participation in our editorial content.
Distribution of The Maritime Executive:
Naval architects, lawyers, consultants, and insurers
16% Shipbuilders and repairers
6 the maritime executive
59%
6%
Other
Other West Coast
28%
38%
5% 2%
Government
Domestic Circulation:
Canada
Ship owners, operators, managers, charterers, and brokers Western Europe & Mediterranean
12%
Marine equipment manufacturers
International Circulation:
Markets Served:
29% 20%
1% 2% 3%
28%
8%
Other South & (Africa, Central America Australia, Misc. Island Nations)
East Coast
26%
Scandinavia
Asia & Middle East Eastern Europe
2%
Gulf Coast
15% Midwest
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washington insider
washington insider
Washington Should Allow Responsible Development
by Larry Kiern, Winston & Strawn LLP
America Consumes Amidst Growing World Demand Americans consume almost 500 million gallons of gasoline and diesel oil every day to power our cars, trucks, trains, planes and to heat our homes. Yet the United States produces only 35 percent of this essential fuel domestically, leaving this country to import 65 percent of its oil. The United States is the world’s largest net importer of oil. Net imports total 12.2 million barrels of oil per day, more than twice as much as Japan and three times as much as China, the next largest importers. Likewise, America’s growing reliance on low-carbon natural gas has led to further dependence on foreign suppliers. Record imports of liquefied natural gas (LNG) in the United States have increased to comprise four percent of America’s consumption, with estimates that the share of foreign-supplied LNG will only continue to grow. Moreover, with the emergence of global economic engines like China, India, Brazil and other emerging economies, the world’s demand for oil appears insatiable. Hence, we have recently witnessed oil prices top the $90-per-barrel level. Even with greater investments in conservation, improved energy efficiency and renewable sources to reduce global warming, it has been estimated that over the next 25 years worldwide energy consumption will increase 40 percent.
Global Market Instability Threatens a Divided America Almost every day we are reminded of the instability of the world’s most important oilproducing regions. Troubling stories from the Middle East, Iraq, Afghanistan, Pakistan and Iran feature prominently on the front pages of
8 the maritime executive
American papers. Most recently, oil market experts opined that an attack on Iran by the United States or Israel could lead to “pandemonium” in world oil markets. These disturbing accounts remind us painfully of America’s vulnerability to the instabilities of this growing global energy market, which features a very thin margin of excess supply. Moreover, concerns about political instability reach beyond these hot spots and also include other major exporting nations, e.g., Russia and Venezuela, where expropriation threats have seriously undermined the Western investments essential for continuing exploration, development and production. Simply put, it wouldn’t take much to upset the delicate balance of supply and demand in the current market. Yet, in the face of these challenges the United States has continued to fail to develop a more effective national energy strategy that better promotes conservation, energy efficiency, renewable energy sources and development of conventional energy resources in an environmentally sensitive manner. Rather than blaming others for our current dilemma, the time has come for Americans to take charge of this problem and address it in our own interest. Sadly, however, the political debate on energy policy in the United States has more recently been shaped too often by those at opposite ends of the political spectrum. On the one hand, some pursuing aggressive development have sought and received unwarranted public subsidies in the form of royalty relief, tax breaks and other incentives. Such demands are hardly justifiable in the day of $90-plus-per-barrel oil and record-shattering
profits. And when producing entities receive unintended benefits, such as the windfall from royalty relief provisions of the late 1990s that are now obsolete, they oppose the correction of the error. Such positions do little to help their cause. On the other hand, certain environmental interests pursue environmental protection with such inflexible determination that they appear to have lost sight of the importance to the nation of developing stable and reliable domestic energy sources. Moderation of the extreme positions and adoption of a pragmatic national policy that features each of the important elements, including environmentally responsible development, is the key to adoption of a truly balanced national energy strategy.
America Should Enhance Its Energy Security With Balance Notwithstanding the political campaign slogans of recent years, America is not likely to ever achieve real energy “independence” from foreign energy sources in the foreseeable future. So let’s just put that myth aside for the time being. Because of a lack of domestic development, America’s domestic production is steadily in decline. Indeed, contrary to campaign rhetoric, the era of globalization has steadily marked our nation’s movement toward greater “dependence” on foreign energy sources. Therefore, in light of the political instability of key energy-producing regions, the real question is what can the United States do to enhance its energy security responsibly. The answer to that simple question is not terribly complex, but it continues to prove to be
washington insider difficult to accomplish. As in most instances of public policy challenges, the best answer is not likely found in one alternative or the other. Neither domestic production nor conservation alone will provide the key. Rather, the best public policy solution will include elements of these different approaches and others to combine the best of each for a truly balanced approach. This is especially true in a nation as large and diverse as the United States, reflecting disparate political views about what is good energy and environmental policy. Frequently, what may be viewed as sound national policy may not be viewed as good local policy. This phenomenon was recently illustrated by the objection to proposed offshore exploration in the waters of coastal Virginia filed by North Carolina, which objected because it saw no benefit to North Carolina. Likewise, growing public concerns about global warming suggest a consensus on the merits of energy conservation. Yet, legislating policies requiring individuals and businesses to pay for enhanced conservation measures is another thing entirely. Therefore, America should develop a comprehensive national energy strategy that reflects more of a consensus of views about key aspects of energy policy, that provides reasonable risk mitigation measures for local communities that may incur greater risks, and that shares the cost burdens in a politically acceptable manner. Since tackling all of these dimensions of the problem requires far more words than this column permits, our focus will be on the interplay between development and environmental responsibility, especially in the maritime environment. Simply put, these are not either-or choices. Development can and should occur in an environmentally responsible manner.
Development of Domestic Resources Remains Essential The decline in domestic oil production in the United States is not because of a lack of resources. Rather, the decline results directly from public policy decisions in the United States not to explore domestic resources. With enormous domestic energy resources remaining undeveloped, it is simply no longer reasonable for the United States to continue to lock up these vast energy reserves and to refuse to undertake more development. There is no doubt that the United States enjoys large reserves in the Gulf of Mexico, Alaska and in other coastal waters. These should be explored and put into production as soon as possible.
For example, 80 percent of America’s Outer Continental Shelf (OCS) – with an estimated 18.9 billion barrels of oil and 86 trillion cubic feet of natural gas – remains off limits. The hotly contested Arctic National Wildlife Refuge alone promises reserves of approximately 16 billion barrels of oil, putting it on par with the world’s largest oil fields. Likewise, Alaska’s North Slope and its Outer Continental Shelf hold large gas reserves. Alaska’s Beaufort Sea is estimated to hold 14 billion barrels of oil and 30 trillion cubic feet of natural gas. Deepwater exploration in the Gulf of Mexico, not foreseen decades ago, has also proven enormously successful in demonstrating the improved technology of oil exploration. Regions earlier believed to be on the verge of depletion have remained productive because of improved technology. By prohibiting exploration of 80 percent of its offshore resources and vast regions of the Arctic, the United States remains the only developed nation that persists in blanket development moratoria. Modern Western nations that are at least as environmentally concerned as the United States, e.g., the United Kingdom, Norway and Australia, all have significantly expanded offshore production of their domestic resources.
Modern Energy Development Is Environmentally Sound Moreover, the development of domestic energy resources is subject to intense scrutiny, regulation, oversight and legal actions, and as a consequence it simply does not present the same kind of threat to the environment that we witnessed in the decades of the 1960s and 1970s and that ultimately prompted modern environmental legislation. The National Environmental Policy Act, the Clean Water Act, the Clean Air Act and other measures have transformed the energy development, production and transportation businesses in the United States. We simply do not witness the tragic large spills along our coasts that once plagued us. The Minerals Management Service (MMS) recently observed that the offshore energy industry has a “remarkable” safety record. For example, 2005 illustrated the effectiveness of modern pollution prevention measures on exploration and production facilities when two major hurricanes ravaged the Gulf of Mexico “without causing a single significant spill from an OCS well.” According to the MMS, “Natural cracks in the seabed cause oil seeps 150 times larger in volume than the oil spilled due to OCS oil and gas activities.”
Likewise, improvements in the marine transportation system and rigorous Coast Guard regulation have produced a dramatic drop in the amount of oil spilled from vessels in the waters of the United States since the enactment of the Oil Pollution Act of 1990 (OPA 90). Since enactment of OPA 90, the United States has experienced only 51 major oil spills, or three a year on average. When one considers that the United States receives over 40,000 shipments of oil annually and that there are over 100,000 commercial vessels navigating United States waters, this record is enviable. Moreover, OPA 90 led to the development of a robust response system, including establishment of an Oil Spill Liability Trust Fund that provides the resources necessary for immediate and effective response by the Coast Guard. There is no better example of the impact of existing environmental legislation on development than the ongoing disputes surrounding Shell’s proposed development of Alaska’s Beaufort Sea. Shell’s proposal to drill exploratory wells had to pass environmental review by the MMS, which demanded that Shell agree to mitigation measures to reduce any potential impact to the migration of bowhead whales. Shell also agreed to conditions to avoid interference with the Inupiat Eskimos’ annual whale hunt. Furthermore, Shell agreed to stage oil pollution response and emergency equipment in case of an accident and to provide jobs to the local communities to perform these emergency response functions. Despite these environmental safeguards, however, critics have moved to block Shell’s proposal. They have filed actions in federal court and with the EPA objecting to both the water discharges and air emissions contemplated by the project. While the outcomes of these actions remain unclear, they amply demonstrate the more rigorous regulatory regime with which energy developments must conform in the United States today. Coupled with the severe criminal and civil liability regimes now governing companies like Shell operating in the United States, there are powerful incentives for those engaged in energy development to exercise great care regarding the environment. This is palpably illustrated by the prosecution of industry leader British Petroleum for offenses involving Alaska pipeline safety issues. In that instance, the company recently agreed to plead guilty to a violation of the Clean Water Act and pay $20 million in fines, restitution and community service. the maritime executive
9
washington insider When one further considers the technological improvements in energy exploration and transportation that have occurred in the last few decades, energy development and transportation simply do not present the environmental risks that they did in an earlier age. Additionally, as a matter of law, in the United States today it is imperative that domestic development and ultimately production and transportation of energy must be conducted with great care for the environment.
A New Realism About Arctic Ocean Development Another important sea change has affected how we should look at the energy challenges presented to America and the reasonableness of domestic development. The Arctic Ocean is now open for development and exploration whether one likes it or not. Moreover, the Canadians, Russians and Danes, who share the Arctic Ocean’s resources, are unlikely to ignore the region’s unparalleled potential in favor of American concerns about environmental protection. The recent warming of the waters of the Arctic, Alaska and the Northwest Passage has opened for development an enormous region of the globe that heretofore had been largely locked in ice. Another sign of the changing times emerged recently when the Commandant of the U.S. Coast Guard, Admiral Thad Allen, announced that the Coast Guard would establish its first Arctic operating base near Barrow, Alaska, America’s northernmost town. The Coast Guard explained that it expected Arctic waters to emerge as a major transportation route for oil from Scandinavia to Asia through the Bering Sea. Therefore, no matter what the United States does domestically, the region will likely be opened soon to increased international usage and environmental risk. Referring to the warming of the Arctic, the Coast Guard’s commander in Alaska, Rear Admiral Gene Brooks, explained that “almost everything the U.S. does will be doable in the Arctic.” Remarkably, the most recent seabed surveys conducted by the Coast Guard Cutter Healy this summer extended hundreds of miles farther north than previously possible because of the shrinkage of the polar ice cap. These important surveys found long sloping extensions of the seabed that would allow the United States to expand its claim of sovereignty over the seabed far beyond the presumptive
200-mile limit. These regions are believed to contain enormous energy resources that could prove an important ingredient in America’s future energy policy. In addition to the Coast Guard’s move into the Arctic, the claims of Russia and Canada to the Arctic region have sparked congressional interest in protecting America’s claims and led to the apparent formation of a filibusterproof majority in the United States Senate to approve the Law of the Sea Treaty. This treaty, which was negotiated during the decade of the 1970s and early 1980s, has languished in the Senate for two decades because of strong political opposition from certain powerful conservative senators. These senators opposed provisions of the treaty that created new international bodies to resolve certain disputes.
They denounce portions of the treaty that would allow international tribunals to settle disputes because they fear such tribunals will function to express international opposition to United States power. But the tide seems to be turning against these opponents of the treaty, and the Bush Administration has urged the Democratic Majority Leader, Harry Reid, to bring ratification to a vote. If the Senate ratifies the treaty, it will mark a significant expression of consensus among an overwhelming majority of senators about the importance of staking our nation’s claims to the Arctic’s energy resources. That is a good start. But it should be followed by a willingness to explore and develop those resources. It makes no sense to claim the resources only to lock them up as we have needlessly done to our existing coastal energy reserves.
As recently as 2004, the Senate Foreign Relations Committee approved the treaty unanimously, but the Senate’s Republican leadership did not risk a Senate vote for fear of offending key Senate conservatives.
10 the maritime executive
For years, North Carolina Senator Jesse Helms and other conservatives blocked ratification of the treaty, which they portrayed as threatening the sovereignty of the United States. As recently as 2004, the Senate Foreign Relations Committee approved the treaty unanimously, but the Senate’s Republican leadership did not risk a Senate vote for fear of offending key Senate conservatives. However, the political seascape has changed in recent years. Post-9/11, the Bush Administration actively promoted ratification of the treaty for national security reasons. It has cited the importance of navigational and airspace rights accorded to the U.S. Navy and other armed services. It has also highlighted the treaty provisions allowing the Coast Guard to provide for enhanced anti-terrorism and other security measures, including drug interdiction. More recently, the Administration has extolled the benefits that would flow to the United States as a large coastal state of the Arctic region. Assistant Secretary of State Daniel Sullivan recently stated that “Having a safe, secure and reliable Arctic shipping regime is vital to the proper development of Arctic resources, especially now given the extent of Arctic ice retreat we witnessed this past summer.” Republican Senator James Inhofe and leaders of the neoconservative movement remain vigorously opposed to ratification of the treaty.
Conclusion
America needs to expand its domestic development of energy resources in an environmentally sensitive manner. Improvements in technology and environmental regulation have proven successful over the past four decades. Therefore, there is simply much less risk presented to the environment by increased exploration and development than there was decades ago, when Arctic and coastal reserves were locked up by legislative mandate. While those moratoria may have been wise policy then, they have outlived their usefulness in today’s world. Applying the proper balance, a wise national energy strategy should permit expanded development of our domestic reserves. Considering the length of time that it takes to bring new resources to market, the time is ripe for change now to protect ourselves and provide our children and grandchildren with the energy security they deserve in MarEx the decades to come.
Larry Kiern is a partner at Winston & Strawn LLP, an international law firm of 900 lawyers. His practice concentrates on maritime issues, including legislative, regulatory, and litigation matters. Before joining Winston & Strawn, he was a Captain and law specialist in the U.S. Coast Guard who served as the Legislative Counsel and Deputy Chief of the Coast Guard’s Congressional Affairs Office.
executive achievement
The Time for Short Sea Shipping Is Now By Charles “Chuck” G. Raymond, Chairman, President and CEO, Horizon Lines, Inc. The time is now to explore the viability of coastwise short sea shipping. At Horizon Lines, we recognize the importance of alternatives to a looming transportation infrastructure overload. We are ready to dedicate up to three vessels to an East Coast-Gulf Coast service. However, appropriate actions on the Harbor Maintenance Tax and Title XI loan guarantee program are still required to make deployment of a short sea service for containers commercially viable. Time is of the essence. America’s roadways and railways around our major ports are already overburdened. By 2020, we will face a doubling of imported container traffic to nearly 30 million twenty-foot-equivalent units (TEUs). It’s too late to just build our way out of the problem. Short sea shipping is not the only solution, but is a solution that needs to be tested. As major gateways and intermodal rail and highway networks struggle to support the influx of cargo on larger container vessels – some over 14,000 TEUs in capacity – short sea can lessen the burden by water transport of cargo between ports, moving containers from congested gateways to ready ports. Ports such as Philadelphia; Wilmington, North Carolina; and Jacksonville could fill available capacity and flow freight into the intermodal system more efficiently. Instead of allowing trade congestion to slow economic growth in the United States, short sea shipping could bring economic growth to new areas. And bring good-paying jobs – $50,000 per year on average – while at the same time protecting the environment. This is sustainable industry development and a win-win proposition. We grow the industry. We improve the economy. And we use ocean transportation to protect the environment. Ocean shipping continues to be the most environmentally sensitive and cost-efficient mode of transportation. Let’s use it. By shifting commercial transportation away from highly congested port areas and off highways and rail systems, short sea ship 12 the maritime executive
ping can achieve significant fuel conservation and a substantial reduction of greenhouse gas emissions – considerable environmental benefits. Because ship transport offers higher fuel economy and lower emissions of harmful pollutants, the environmental benefits of short sea shipping over land transport will result in fewer emissions and reduced energy use. Short sea shipping is commercial innovation that our government should be encouraging. Existing tax law, however, does not support it. Under current laws, when cargo enters a U.S. port from overseas and is transferred to a smaller, shallower draft vessel for an onward voyage to another U.S. port, it is subject to the Harbor Maintenance Tax (HMT) twice – once on arrival in the U.S. before transfer to the smaller vessel and a second time upon completion of the short sea voyage. This double taxation is a clear disincentive for ocean carriage as compared to truck and rail movements in part because HMT is not packaged into the freight rate, making recovery of these costs unworkable. I think Congress understands this, but more needs to be done. In early August of this year, a bill that included provisions to advance short sea shipping was passed but did not include a waiver of the HMT for coastwise shipping. Since little or no domestic short sea shipping of containers is currently taking place, the impact to the HMT budget of enacting a waiver would be negligible. By creating an amendment to the HMT to exempt intercoastal shipments, the transportation industry could begin to test short sea shipping now. The Title XI loan guarantee program is also critical to the development and sustainability of a short sea shipping solution. We need funding for this program so it can serve the purpose for which it was established – to promote the growth and modernization of the U.S. Merchant Marine and U.S. shipyards. Failing to fund the program is just not an option. Short sea shipping is not a new or recent development. In fact, it’s a successful mode of
transport currently utilized in Europe. Europe exemplifies the importance of short sea shipping in maintaining its efficient transport system now and for the future. Furthermore, in Europe the competition between modes of transportation does not offer a threat to one another but rather serves as complementary modes in the supply chain to offer door-todoor service. We can learn from the model set in Europe. Short sea shipping would create jobs for U.S. crews, enhance the U.S. maritime economy and mitigate congestion in crowded corridors. Labor groups support the concept and appreciate the growth opportunities. Short sea service has the potential to benefit everyone. Less congestion at major gateways means more speed and efficiency. Increased business at alternative ports means more jobs for these communities and greater economic prosperity for the entire country. At the same time, we can help to improve the environment using cleaner, more efficient ocean shipping to alleviate some congestion. The time for short sea shipping is now, and we are ready. MarEx
About Horizon Lines
Horizon Lines, Inc. is the nation’s leading domestic ocean shipping and integrated logistics company comprised of two primary operating subsidiaries. Horizon Lines, LLC operates a fleet of 21 U.S.-flag containerships and 5 port terminals linking the continental United States with Alaska, Hawaii, Guam, Micronesia and Puerto Rico. Horizon Logistics, LLC offers customized logistics solutions to shippers from a suite of transportation and distribution management services designed by Aero Logistics, information technology developed by Horizon Services Group and intermodal trucking and warehousing services provided by Sea-Logix. Horizon Lines, Inc. is based in Charlotte, NC, and trades on the New York Stock Exchange under the ticker symbol HRZ.
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executive achievement
Economic Importance Drives Port’s Recovery
By Gary LaGrange, President and Chief Executive Officer, Port of New Orleans In the coming months, the Board of Commissioners of the Port of New Orleans will unveil a master plan mapping out the future of this historic port. Public and private investments totaling almost $800 million will be made to position the port to better compete in the global economy. These efforts are focused on capturing a higher market share of container traffic, moving breakbulk cargo more efficiently, and creating a more attractive port of call for cruise ship operators. These are indeed historic times for the Port of New Orleans as we prepare for a new generation of commerce and opportunity. Smart investment is critical, not only for the port but for the national economy as well. An economic study conducted in the summer of 2005 by Martin & Associates found that cargo handled by the Port of New Orleans supported 380,000 jobs in the United States, including 160,500 in Louisiana alone. Those jobs accounted for $16.9 billion in annual earnings and $37 billion in national economic output. These figures illustrated to the nation the importance of restarting operations expeditiously following Hurricane Katrina’s landfall a little more than 26 months ago.
A dedicated port community returned to the Crescent City in the days after the storm and did a yeoman’s job of overcoming the challenges of running a business in a city evacuated and left with little or no communications systems. I was told it would be six months before cargo operations would restart. In fact, it was barely two weeks later that stevedores unloaded a container vessel filled with coffee – using onboard cranes and temporary lighting. A day prior, a steel ship arrived. Each day the entire port community overcame obstacles and hardships – living aboard Maritime Administration vessels and dining on military “mealsready-to-eat,” while family members lived out of state awaiting the go-ahead to return to New Orleans.
Over the next six months, ship calls returned to normal and a strong surge in imported steel helped buoy cargo figures. Commerce returned to normal throughout much of the port in 2006 as overall cargo figures were up four percent compared to the five-year pre-Katrina annual average. Today, port leaders are working for a stronger future with the challenges of recreating facilities no longer accessible to deep-draft shipping along the Inner Harbor Navigational Canal and Mississippi River-Gulf Outlet. Port officials recently secured $30.5 million for one long-term port tenant, New Orleans Cold Storage, a leading exporter of frozen poultry and seafood. NOCS’ facility at the Jourdan Road Terminal is challenged by the loss of deep-draft access, and the funding will be used to renovate the Governor Nicholls Street Wharf on the Mississippi River to accommodate the more than 100-year-old New Orleans company’s needs. In 2005, NOCS generated 718 direct and indirect jobs and had a $35 million annual economic impact on the local economy. NOCS officials hope to double its cargo at the new facility on the Mississippi River. The port’s container business has also realized a strong recovery in 2007 – overall up 54 percent compared to last year. Mediterranean Shipping Company, Hapag-Lloyd,
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executive achievement Seaboard Marine and Maersk are all growing their container cargo through the port. And in August, Miami-based Seaboard announced plans to enter into a long-term lease to operate the port’s France Road Container Terminal, which has been shuttered since Hurricane Katrina. A leading shipper to Latin America, Seaboard officials hope to grow and potentially double their services between New Orleans and Latin America. The port’s cruise and tourism sector also realized remarkable milestones recently, highlighted by the opening of the new $37 million Erato Street Cruise Terminal and Parking Garage in October of 2006. The stateof-the-art cruise terminal garnered national and international awards for its design and passenger amenities. The port is also in the design and engineering phase for a new cruise terminal at the Poland Avenue Wharf, which could be completed in 2009. Preliminary figures indicate the 2007 cruise season will bounce back to well over 50 percent of pre-Katrina levels, as about 500,000 passengers will embark or disembark from New Orleans. In 2004, the port had 740,000 passengers, the last full year unaffected by the storm. The world’s largest cruise ship opera-
tor, Carnival Cruise Lines, recently agreed to a contract extension to keep their cruise ships sailing from New Orleans through at least 2010. Carnival officials cited increased demand for their New Orleans product when they made the announcement. Another project underway is the riverfront development plan, initiated when the City of New Orleans and port officials signed an agreement in the spring of 2006 to streamline the permitting process for riverfront projects. As a result, a comprehensive plan called “Reinventing the Crescent” will be unveiled in the coming months. World-renowned architects partnered with local firms to create a new vision for our city’s picturesque riverfront, mixing public parks and commercial
projects, which could result in $3 billion in private investment. While the port and the maritime community in New Orleans accomplished much in the last two years, more work is ahead to grow for the future. The Lower Mississippi River is one of the world’s busiest port complexes, with about 6,000 oceangoing vessels calling each year. With 160,000 jobs in Louisiana and 380,000 nationally and more than 60 percent of the consumer-spending public in the U.S. depending on commerce at the Port of New Orleans, our leaders must realize the time is now to invest with a vision toward the future. Our leaders must realize Louisiana’s economy and New Orleans’ recovery emanate from the port. MarEx
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A Family of Themes: Versatility and Vision– With Vigor
case study : harvey gulf Case studies centering on successful offshore and brownwater U.S. Gulf operators are a dime a dozen. The seemingly endless summer of success and prosperity in the Oil Patch has lasted for years, enduring devastating hurricanes and other calamities. It does seem, at times, that anyone with three boats who has the gumption to string together a towline can make a buck in this environment. For this reason alone, some may find it too bothersome to read about yet another tale of success on the Gulf Coast. To ignore the Harvey Gulf International Marine story, however, would be a serious mistake. Family Roots, Family Leadership A description of the composition of today’s offshore service market in the U.S. Gulf would be incomplete without mentioning the operators of the largest and most versatile oceangoing towing vessels in the region. Harvey Gulf International Marine, Inc. has been providing marine services in the U.S. Gulf since 1960, in one form or another. How it’s kept its focus along the way is one part of the story; who is accomplishing this remarkable feat is yet another. The shape of this family-owned-andoperated outfit has changed along the way, many times. What has not changed is its commitment to the marine industry as a primary endeavor. While others dabble in fast-food
franchises, ball teams and other non-core enterprises, the Guidry family has been content to focus only on what it does best: providing safe and reliable marine services on cutting-edge marine equipment. President and CEO Shane Guidry makes no bones about what makes everything else possible when he says, “I think I can truthfully say that the only other investments that any one of us has are our homes. We don’t go outside our core business that our fathers taught us and we stick with what works. We haven’t opened up a McDonalds or a grocery store; and I think, really, that’s where a lot of people make mistakes.” What the Guidry family lacks in outside diversification, it more than makes up for within Harvey Gulf Marine. The business boasts at least four primary lines of business,
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and plans are in the works to begin yet another. It’s also important to realize that the current business mix is far different than it was just fifteen years ago. Shane Guidry hasn’t had any reluctance to leave one service sector to concentrate on another, always in an effort to maximize corporate profits and fully leverage industry trends. Each of the Harvey Gulf business lines – ocean towing, anchor handling, offshore supply and a multi-purpose DSV – all depend on one another, to a certain extent. In the office, the nine third-generation Guidrys do the same thing as they look to someday hand over the reins to their children. From the outside looking in, one might be tempted to characterize this sort of arrangement as a typical “mom-and-pop” operation. In reality, it is anything but.
international marine, inc.
case study : harvey gulf Today’s Cornerstone: Versatile Business Practices The past ten years have been a period of strong growth and sustained prosperity for the Guidry family. The good times have allowed Harvey Gulf to expand in several directions, and the building boom is not yet over. But tomorrow’s promise will clearly go unfulfilled unless today’s business produces the revenues to support it. With this in mind, Shane Guidry and his family continue to leverage each of their many assets by bundling service packages to their customers. And this can only be accomplished if Harvey Gulf has a large and versatile arsenal at its disposal. With 17 ves-
sels and nearly half of these DP-capable or DP 2-certified, the four business lines of the company are well positioned for any eventuality. Today’s business plan for Harvey Gulf is relatively simple: Package the available assets to maximize the use of the tonnage in the slowest business sector. The Guidrys are, as noted, building new tonnage and planning for the future. In order to do that, the workload of every current asset has to be maximized. When one sector slows down, Harvey Gulf works with existing customers to provide a better day rate on the busier vessels in exchange for the lion’s share of the business in a slower sector. The concept works particularly well, says Shane Guidry, with the ocean towing fleet: “In our business, on the tug side, 95% of what the tugs do is sit alongside in Fourchon waiting to move the drilling rigs. They can wait a month or they can wait a day. 18 the maritime executive
And it’s a competitive business.” By also offering tug boats and OSVs to form what he calls “alliance” agreements, Guidry has actually increased total revenues while providing some flexibility on rates in other sectors. Guidry maintains that it was fortunate that the supply boats did come along because it has made a difference on his towing side. Arguably, there was no luck at all involved in deciding to enter the offshore supply game when they did. Without them, Harvey Gulf would probably have little leverage with which to find and sustain business from customers who might otherwise go with the cheapest option, no matter how that vessel
well exceeds the minimum standards for the task at hand. For example, all of Harvey Gulf’s towing vessels are ABS bollard pull-certified. Many of its vessels are fitted with the “shark jaw” towing guides that lock in the towing cable to promote both safety and more efficient operations. And no one else has the shark jaws installed in conjunction with bow thrusters – an operational advantage that provides the safest and most maneuverable towing package in the deepwater Gulf today. Just as the U.S. Coast Guard builds its vessels to perform a multitude of different tasks, so has Harvey Gulf begun to evolve its building plans to deliver the most versatile vessels
was equipped. In the end, the customer gets the use of some of the newest, most sophisticated vessels on the Gulf Coast at a combined price that likely undercuts the competition. Harvey Gulf’s financials remain a tightly held secret, of course, but the practice appears to be working well. And for those who doubt the concept, consider that the last two vessels the company took delivery of are fully paid for.
possible. A perfect example of this is the hightech, ultra-modern Dive Support Vessel Harvey Discovery. This multipurpose DSV is basically a supply boat with a moon pool on board. Also fitted with liquid mud tanks, methanol tanks and dry bulk tanks, the vessel has extra living quarters and a crane. It has few peers in this market and if necessary, should the construction business tail off, the extra living quarters, crane and other equipment can be removed. Within 72 hours, the vessel is transformed into a true OSV. The Harvey Discovery is truly a multi-use – and very versatile – vessel. Today’s Coast Guard faces a myriad of missions on a daily basis and builds to reflect this reality. At Harvey Gulf, the cyclical nature of its business required a platform which not only reflected this metric but also complemented the balance of its fleet. The strong construction mar-
Borrowing a Page From the Coast Guard: Harvey Gulf’s Multi-Missioned Assets It’s no secret that Harvey Gulf operates more than one kind of vessel. The deployment of these vessels allows the firm to operate in as many as four different sectors of the marine business, mixing and matching the available assets to fit the particular job and usually providing the customer with a platform that
case study : harvey gulf ket in 2007 aside, it is likely there will come a day when other operators wish they had followed Harvey Gulf’s lead. The diversified marine platform does not stop there. Harvey Gulf in November took delivery of another 280-foot deepwater OSV and will soon take delivery of a 16,500-hp anchor-handling tug. The vessel is, of course, the largest – and highest bollard pull – tug certified by ABS in America. Shane Guidry wouldn’t have it any other way. The anchorhandling tug has been designed to provide more bollard pull as well as more fuel capacity and more fuel-efficient engines. Any slowdown in the domestic towing market will now allow Harvey Gulf to perform some oceanwide towing with large pieces of equipment with that vessel. Just another case of Harvey Gulf’s performing the neat trick of putting one egg in several baskets.
Cargo/Rigs/Support Services: All Moved by Harvey Gulf, But Driven by Safety Safety: probably the tritest, most overused and rarely complied-with concept on the water. Everyone touts their so-called safety policies, and at some places they even rigidly
enforce certain standards. Still rarer are those who will spend until it hurts to achieve a true culture of safety. Although a massive outlay for safety-oriented equipment usually excludes everyone except the largest of companies, Harvey Gulf is one firm that has actually incorporated safety into its business plan. New vessels delivered to Harvey Gulf in 2002 and 2003 featured the DP 2 notation on the certificate. They’re the first to do it. While others during that period installed so-called DP 2 equipment, the Guidrys insisted on performing the FMEA (“Failure Mode Effects Analysis”) to certify those results. Because all their boats have DP 2 notation, from that point forward everyone else started doing it too. In 2003 Harvey Gulf’s work for Shell exceeded Shell’s safety requirements because Harvey Gulf provided tonnage that was not only DP 2-capable but also certified for that capability. Harvey Gulf’s DP 2 supply boats feature four reference systems. Although DP 2 certification requires only two, the additional equipment ensures the safety of both employees and their equipment. Shane Guidry amortizes that added cost across any number of line items, not the least of which is insurance: “This translates into better premiums. We
have, for almost ten years, enjoyed fair insurance rates.” Like everyone else, of course, Harvey Gulf has some mature tug equipment. Because the older tugs are used primarily for jackup moves, the tugs are well preserved and in very good working condition. The older equipment is constantly upgraded. Built in 1976, the Harvey Trojan was taken into the shipyard in 1998 where its stern was modified, the wheels changed, and the Kort nozzles, shafts and clutches all replaced. At that time, notably, Harvey Gulf made the decision to repower it as well. It is, for all intents and purposes, a new vessel. Five of Harvey Gulf’s newest tugs feature the latest in towing safety equipment. As an added safety precaution for its crews, “shark jaws” were installed on the five newest vessels. Simply described, the units are recessed in the deck behind the pop-up chocks. When a rig lowers its tow bridle down to the back of the boat, the two arms come up and close around the wire. It then serves to hold that cable together so that it doesn’t slide around or flop back and forth and potentially hurt someone. Shane Guidry reminded us more than once during the interview, “We’re the
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case study : harvey gulf only tug outfit with both the shark jaws and the bow thrusters. Some of the others may have one, or both, but none have it set up like we do. The bow thrusters are another thing. We installed those on our boats because sometimes it is very difficult to keep the boat in position between the pontoons.” Today, it is no accident that Harvey Gulf’s towing fleet has not seen a safety-related incident in more than 11 years. Where the almost obsessive attention to safety might be chipping away at the bottom line, the Guidrys find other ways to balance those obligations to achieve economies of scale that other operators cannot match. With
Dickie Guidry, Shane’s 70-year-old uncle, still in charge of the Galliano, LA maintenance repair facility, many tasks (that others are forced to sub out in an increasingly expensive market) are done in-house by a skilled, 45-man technical crew. Aside from things like DP and radio equipment, the Harvey Gulf machine is self-contained. The company whose CEO says with a straight face that “we don’t have a maintenance and repair budget” has captured the same costs (which tend to vary wildly for others) in one line item with a fixed overhead. It is abundantly clear that this family-operated firm clearly cares about its employees and their safety. That same company specifically refuses to work in tandem with at least one other Gulf-based towing outfit because the other company cannot or will not comply with Harvey Gulf safety standards and protocol. No doubt it has cost them some money 20 the maritime executive
As it raises the bar for what can be considered first-class equipment here in the U.S.
we like to build for the future.” The stakes are high and, although Harvey Gulf has carved out good market share for its vessels, Shane Guidry and his people aren’t content with the status quo, no matter how good it might look on paper. “That’s right,” he says, “But let’s take it a step further. Instead of having a 125-point alarm system on an OSV today, we’ve got 400. We have alarms that monitor alarms. That just makes the boat that much more safe and more attractive for the potential client – especially when the downturn comes.” The concept is simple: Safety pays. At some point, the customers are going to be willing to pay for that
Gulf, Harvey Gulf has not been shy about letting potential clients know that it doesn’t necessarily appreciate competing against other outfits that don’t provide the same level of compliance but demand the same day rates. Recent Harvey Gulf building programs involved significant delivery delays – at great expense – to get the boats certified under the ACP-ACCU, CIRCLE “E’’ protocol (which is the highest level of certification for a vessel). Guidry says that the three newest OSVs came out this way, and all future boats will be delivered in a similar fashion. When pressed, he admitted, “I can assure you that, one day, this will make a huge difference, during the downturn. As the Gulf of Mexico continues to get safer – and the Norwegian oil companies are entering the Gulf, and their safety standards are stronger than most – that ACP-ACCU, CIRCLE “E” is going to make a difference. So,
added safety. At least that’s the plan. The Harvey Gulf plan is also a marketing plan. Guidry adds, “We ask our potential clients if the other operator they are using and/or considering has these features.” In today’s prosperous and busy markets, the decision to ramp up safety and equipment standards to unheard-of levels is netting Harvey Gulf much more than the obviously important benefits of safety for its crews and its clients’ assets. The promise of a competitive advantage remains elusive as smaller oil firms continue to use substandard boats because they are cheaper. The cost of a five-year ABS inspection has a tremendous impact on the bottom line. Right now, many clients don’t understand the difference between operating fully classed ABS Oceans, AMS A1 Towing service versus those with just an ABS Loadline. Guidry turns serious
along the way; but even though many of these safety features are not standard to the industry, they are certainly standard for Harvey Gulf. And although Guidry admits it only grudgingly, the outlay of extra cash to implement these policies and install extra equipment will probably someday translate into better day rates and increased revenues for Harvey Gulf, especially when business is less robust than in these heady days of late 2007.
Follow the Leader: It’s an Education, Not a Game
case study : harvey gulf and says, “We’re spending that $1 million at that ABS drydock instead of the $100,000. We’re hoping that this brings a huge change in the industry in just towing alone. And there are companies out there that will not hire a boat that does not have all of the class notations for its intended service. So that’s what led us into the higher classification for the OSVs – it’s all about education. Some day – and soon – those vessels will be pushed aside during the downturn.”
Vision It takes a lot of imagination to fully see the possibility of growing an operation involving the simple transportation of supplies to offshore rigs in an oyster boat to what is now known as Harvey Gulf International Marine, Inc. But that’s just what Shane Guidry’s grandfather had in the late 1950s. In 1972, the elder Guidry’s son also had a vision. Seeing that things were gradually moving offshore, he sold off quite a bit of the inland fleet and parlayed the money into three offshore vessels: the N. Joseph Guidry 4200, the Victor J. Guidry and the M. Marie Guidry, a 3600. The 1980s brought disaster to the Oil Patch on a scale that emptied out entire neighborhoods in Houston. While many fled the oil fields, the second generation of Guidrys calmly snapped up equipment that others had lost to their lending institutions. Also during the 1980s, the company began towing LPG cargoes with Warren Petroleum. Harvey Gulf quietly expanded even further with five additional offshore towing vessels. Where the Oil Patch had taken away, the Guidrys found new sources of income in more traditional towing regimens. Some might call this blind luck. The Guidrys know it simply as vision. Continuing a pattern now etched into the very fabric of the company, Harvey Gulf shifted gears in 1998 and sold the LPG towing division so that it could concentrate on building larger offshore vessels. In a bold stroke, the firm shed 11 boats and two high-pressure barges and immediately invested in three large tugs. Already doing business with the oil majors, it used these relationships to build two 240-foot offshore supply vessels that arrived in 2003, just in time for a very difficult period in the offshore markets. The boats initially were chartered out at very poor day rates. Undeterred, Harvey Gulf ordered three more vessels and a tug. The rest, as they say, is history. The final two boats of that series are fully paid off, and fully employed. The vision of today’s Harvey Gulf is
very clear: “We want more balance, and offshore, Harvey Gulf will simply come in and that’s what we’re trying to do – balance it out-hustle the smaller boats in the shallow out. I think that was a big part of my dad’s water trades. and uncle’s success,” says Shane Guidry. Many brownwater companies are trying to Guidry’s most profitable sector right now is position themselves to merely survive the next the supply boats. “We have customers lookdownturn. At Harvey Gulf, Shane Guidry and ing for two-, four-, even six-year deals. You his family see much more than that. Already have to look at it like that – revenue over in position with a fleet of modern, safe and time,” he adds. The tug boat market continDP-capable equipment, this third generation ues to be unpredictable at best, and rather of maritime entrepreneurs is eying low-priced than venture out into areas not considered equipment that will probably become availcore businesses, Guidry is content to do able when the current operator can’t afford to what he knows best – drilling rig towing. pay his notes. Shane Guidry nods and says, “If Guidry insists, “We stick around close to it happens, we are definitely in a position to home and wait for that work.” do that.” With the tug market capped out, HarThe New Harvey Gulf “®evolution” vey Gulf is now aiming for ultra deepwaSearching out new ways to make money ter. Guidry says simply, “I think the growth in their core marine businesses has always is going to be in 7,500 feet of water and beyond. There are a lot of big drill ships com- been a hallmark of the Harvey Gulf business plan. Often, as it closed the book on a previing here in 2010, working 200 miles from ous line of business, the door would open to Fourchon. There’s no other place they can yet another. The near-term future is about to get supplies. Even the rigs working 180 get a little more exciting than that, however. miles from Galveston, they can’t go there Teaming with Ocean Tug & Barge’s Rob Hill – there are no facilities in Galveston. So – better known to most maritime industry high-capacity, big supply boats are the only growth left here in the U.S. Gulf.” While some observers as the father of the ATB – Shane operators have, in the tough times, gone else- Guidry is set to design and launch an excitwhere to find work, Harvey Gulf has resisted that trend. Guidry is well aware of the hot trend WE SELL THE in the 160-to-210-foot supply boat markets. But he’s clearly not interested in following suit. The smaller vessels, he says, will be unsuitable for the with ultra-deepwater markets, especially with low production on the shallow water closing down a lot of shallow water wells. But AFTI GLOBEBOOM deepwater aspirations THE FINEST BOOM MONEY CAN BUY will mean building vessels that can cost upwards of $45 million. And there are not many companies V ISIT US ON THE WEB AT out there that will step up and build that WWW.DAVITSALESINC.COM kind of supply boat. Harvey Gulf is one of CRANSTON, RI * JEFFERSON VALLEY, NY them. Beyond this, if TEL: 914 962 4544 FAX: 914 962 5418 it ever gets slow way E-MAIL: INFO@DAVITSALESINC.COM
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case study : harvey gulf ing new concept: the DP 2-capable ATB. Guidry explains, “We’re looking to employ this boat in well-testing in the Gulf of Mexico; hence it will need very superior stationkeeping capabilities. We’ve assisted ATBs during well tests here in the Gulf, but every time a cold front came in the barge had to go to shallow water and stand by. Harvey Gulf aims to change all of that with a 110,000-barrel ATB, possibly two. If all goes according to plan, the first unit could hit the market in just 21 months. Beyond this, a client that Harvey Gulf already does business with is looking to charter the boat for seven years. Based on that commit-
doing, but we’re not privy to those numbers. The firm’s vigor spills out into virtually every phase of operations. Where other CEOs speak of an “open-door” policy for their employees, Shane Guidry provides his cellular telephone number to every employee in the firm. At Coast Guard headquarters, ADM Thad Allen calls it “truth to power.” Guidry calls it the family way of doing business. The company that has weathered two serious downturns in the Oil Patch, numerous hurricanes, and seismic shifts in core businesses over the years is once again poised for the next step. Firmly rooted in Louisiana at the heart and soul of the oil
fleet, but those plans are merely an extension of what brought the company from 1960 into the next millennium. Shane Guidry and his brothers would like nothing more than to be able to continue the vision, passing along the same determination handed down to them to the fourth generation of Guidrys. It would not be a good idea to bet against them. In a whirlwind two-day visit to Harvey, New Orleans and Fourchon, I didn’t meet anyone who didn’t believe in the vision or see anything to make me believe that it wasn’t real. On board the Harvey Discovery in Fourchon, Harvey Gulf’s new 265-foot multipurpose DSV, it was obvious that the
ment, Guidry thinks the time could be right to build a second one, at his risk. He hasn’t been wrong yet on the big decisions; and at the end of the day, if the market for its primary intended purpose dries up, the unit can be chartered out to carry petroleum cargoes. An ATB with good synergy, good flexibility and versatility – just another hallmark of the Harvey Gulf business model.
and gas industry, Harvey Gulf also seems to have so far avoided the plague of manpower shortages threatening to cripple this sector of the marine industry. With 175 mariners under the Harvey Gulf umbrella, that’s no easy feat. “You keep people by providing better, newer, more comfortable vessels. Make those vessels safer and install firstclass accommodations. We’re also starting to get more educated people, especially on the deepwater OSV side. We’re getting seamen with college degrees,” says Guidry. Because of this, virtually every employee in the past two years who has left in search of higher day rates has come back looking for his job. It isn’t a story you hear very often in 2007. It would be easy to focus solely on the exciting prospect of the advent of the DP 2 ATB into Harvey Gulf’s already formidable
crew of this remarkable vessel also shared the vision. It is here where it is fully apparent that Shane Guidry’s inclusive management style has gone beyond mere lip service. From the first-class, twenty-seat, theater-quality media room on the vessel, it was crystal clear that the crew knew it too. You didn’t need a human resources manual in order to figure out that no one would depart that vessel, much less Harvey Gulf Marine, without a firm push. Vision, Versatility and Vigor. Mix all of that in with a little “Guidry” home cooking and you, too, can have your own success story. But don’t wait too long to get it done. As I departed their offices last month, the Guidry brothers were gathering again in the conference room to cook up something new. But I’m not supposed to tell what. MarEx
Vigor A visit to the new Harvey Gulf offices in Harvey, LA merely affirms the notion that Shane Guidry and his family contemporaries do not do anything, anywhere, half-heartedly. The state-of-the-art suites are reflective of the spotless Harvey Gulf boats that we were fortunate enough to visit during the interview process. Just possibly, they could also be a serious indicator of just how well the firm is 22 the maritime executive
MIAMI BEACH CONVENTION CENTER FLORIDA, USA
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Shane Guidry, President and CEO, and Chad Guidry, Vice President, Harvey Gulf In October, Managing Editor Joseph Keefe went to Harvey, Louisiana to visit a company with one of the better-known names in the U.S. Gulf Coast marine industry. And while many in the business know about Harvey Gulf and what it does, very few have the full picture of where this unique, family-run firm came from and how they did it. It is a fascinating story, but the best may be yet to come. Its plans for the future may take you by surprise, but after reading the comments of Harvey Gulf’s senior leadership it will all probably make perfect sense. Read on to see why. 24 the maritime executive
MarEx: Harvey Gulf, by all outward appearances, looks to be experiencing a period of strong growth and terrific prosperity. This is clearly an exciting time for you and your employees, but let’s take the readers first to your beginnings, bring them up to speed on where you came from and then to how you got to where you are today. Shane Guidry: Sure. It was in the late 1950s when my grandfather, who was living on Bayou La Fourche, began bringing supplies to offshore rigs in an oyster boat. In 1960 or thereabouts, he purchased one small tug. At that time there were five partners. In 1964, he, my dad and uncle bought out the other four partners and formed Harvey Canal Towing. So, at that time, they were in business for themselves, on the Harvey Canal in Harvey, Louisiana. That one boat – run by a father and two sons – turned into a large fleet of fifty inland push boats. By 1970, some were managed by the company; some were crewed by the owners, but all were marketed by Harvey Canal Towing. In 1972, my dad had the vision to see that things were moving offshore and by 1974
he had sold off quite a bit of the inland fleet and parlayed the money into three offshore vessels: the N. Joseph Guidry 4200, the Victor J. Guidry and the M. Marie Guidry, a 3600. And as everyone knows, the 1970s allowed us to grow considerably. But by the early 1980s things had kind of fallen off. During those bad times my grandfather retired, but my dad and uncle had saved their money and capitalized on equipment that others had lost to their lending institutions. They also bought equipment that needed to be refurbished during the slow times, which afforded the company the opportunity to grow at a better rate because they had managed their money during the downturn. Also during the 1980s, the company began doing business with Warren Petroleum, and this allowed us to grow into five additional offshore towing vessels. MarEx: And Warren – they were the LPG people, right? Shane Guidry: Correct. And we had this business until 1998 when we sold that division so that we could grow into larger offshore vessels like the OSVs. That business actually
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lasted a very long time. We survived several owners: Warren, then Chevron and finally Dynegy. But we decided that deepwater was the place to be back in 1997. So we parlayed the sale of those 11 boats and two high-pressure barges into four large tugs: three 13,500-hp tugs and one 16,500-hp tug. As business changed again and got better in the late 1990s and early into the next decade, we continued to see how a small, family-owned business like ours could expand into the offshore supply and offshore construction business. We were already doing business with the major oil companies. They were trusting us to tow their rigs worth hundreds of millions of dollars. At that point, we hadn’t had an accident in many, many years. Today, we actually haven’t had one for 11 years with our towing fleet. So
and hopefully we can instill that ethic into the fourth generation. Obviously, I’m paid well and Chad’s paid well, as part owners of the company. I think we can both say that the only other investments that either one of us has are our homes. We don’t go outside our core business that our fathers taught us, and we stick with what works. We haven’t opened up a McDonalds or a grocery store; and I think, really, that’s where a lot of people make mistakes. MarEx: You’ve got four principal lines of business, according to your Web site. These include general ocean towing, anchor handling, offshore supply, and a multi-purpose DSV. Let’s talk about each business line – why each is important to your bottom line and where you hope to take all of them in the nearterm future.
We use the supply boat side to join forces with the tugs and form “alliance” agreements. We’ll say, “When you hire our OSV, we’ll give you a little bit better rate, but we want all your towing work.” we sat back and figured, “We can probably build offshore supply vessels and do just as well.” Based on the safety record of our company and our people, we ordered the first two vessels – the 240’s. Business was tough when they came out, though, I’ve got to tell you. MarEx: And they came out when? Shane Guidry: They came out in 2003. Times were very tough and those boats worked for very little money, and finally we got some light at the end of the tunnel. The price of oil was changing, and we were intelligent enough to realize it and follow it, and so we ordered three more vessels and a tug. Actually, for the last two boats we used Construction Fund Accounts, and those boats have no notes. They’re paid for. One left the shipyard last week and one will leave in November. We have always invested our money back in the company. Some guys like yachts and other such things. We’ve always stayed focused on what we do best, and that’s probably why we’ve done so well. We’re the third generation,
Shane Guidry: In our business, on the tug side, 95 percent of what the tugs do is sit alongside the dock in Fourchon waiting to move the drilling rigs. They can wait a month or they can wait a day. And it’s a competitive business. So we use the supply boat side to join forces with the tugs and form “alliance” agreements. We’ll say, “When you hire our OSV, we’ll give you a little bit better rate, but we want all your towing work.” So that’s helped us out. It’s fortunate that the supply boats did come along when they did because it has made a difference on our towing side. MarEx: The synergy between the two groups is obvious. So even if you were able to charter out those OSVs at top rate, you could still lose a lot of money having those tow boats sit idle. Yes or no? Shane Guidry: You see, in the towing market we have to compete against tugs but we also have to compete against anchor handling tug supply vessels, which do towing as well. And as we well know, those of us who track
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the markets, there are more semis coming to the Gulf now than moored semis because of Katrina and Rita. So growing the OSV fleet has been the right tool for us for the future. We want more balance, and that’s what we’re trying to do – balance it out. I think that was a big part of my dad’s and uncle’s success. They had the rig-moving fleet back in the 1980s and early 1990s, but they also had the barge towing fleet for Warren Petroleum. When one was slow, the other kept going along being the revenue producer, and this helped us grow along the way. MarEx: So your strategy, to a certain extent, is to spread out along several lines of business so as to be able to take advantage of one sector while others might be quiet? Shane Guidry: Yes, but keeping with our core business only, and for us that business is marine. That’s what we’ve kept with. MarEx: Okay – talk to our readers about this multi-purpose DSV. Shane Guidry: It’s basically a supply boat with a moon pool, additional living quarters, open stern with a 100-ton stern roller and, of course, a 65-ton knuckle boom crane that we put on board when we built it. It still has the liquid mud tanks, the methanol tanks and the dry bulk tanks. We made it really versatile. Not too many other U.S.-flag operators can duplicate that. So if the construction business slows down, within 72 hours we can take off the extra living quarters, take off the crane, close the moon pool, and we’ll be an OSV the next morning. This is truly a multi-use, very versatile vessel. Those guys who chose not to do that are stuck in the construction market only. So when things turn – and they will eventually – they’ll have to go and find work somewhere else. This is a cyclical business, as you well know, Joe. MarEx: So what’s your most lucrative line of business? That’s sort of a trick question, given your description of how you do business. But can you say definitively which of the businesses has created the most wealth for the firm? Shane Guidry: It’s clearly the supply boats right now. We have customers looking for two-, four-, even six-year deals. You have to look at it like that – revenue over time. Tug boats? They are unpredictable at best. There’s more anchor boats being built. Those tug boats might sit around for forty days waiting for work. At some point, you have to find something for them to do. Now, we do very little barge towing. We’ll do it for Shell and we’ll do it for Chevron and we’ll do it for our big alliance customers. But we don’t do any ocean towing – we do what we know best, and we the maritime executive
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know drilling rig towing. So we stick around close to home and wait for that work. MarEx: What’s the near-term future looking like? You’re building a number of boats, but tell us where you are headed next and what vehicle will take you there? Shane Guidry: We just took delivery of another 280’ last week. We have our 16,500-hp anchor-handling tug coming out – she’s designed and very similar to our Harvey Warhorse. This is the largest – highest bollard pull – tug certified by ABS in America. It’s an anchor-handling tug. This new boat will come out later this year and we’ve designed the wheels differently, with more pitch and less diameter and less weight on the stern, which we think gives us more bollard pull. But that boat is also designed with more fuel capacity and a little bit more fuel-efficient engines, so there’s a possibility that, if we see a slowdown in our towing fleet because of all these anchorhandling boats coming in closer to shore, we could do some oceanwide towing with large pieces of equipment with that vessel. MarEx: So this is a fairly versatile boat as well. Once again, your eggs are not in one basket, so to speak. Shane Guidry: The boat is fitted out with no ballast and all-fuel capacity. The first boat was part ballast / part fuel, so it was limited to about 25 days at full ahead. And we’re looking at more supply boats. The tug market, I think, is capped out. I don’t think you’ll see any more tugs in the Gulf for the next five to seven years. I think the growth is going to be in 7,500 feet of water and beyond. There are a lot of big drill ships coming here in 2010, working 200 miles from Fourchon. There’s no other place they can get supplies. Even the rigs working 180 miles from Galveston, they can’t go there – there’s no facilities in Galveston. So high-capacity, big supply boats are the only growth left here in the U.S. Gulf. MarEx: You are well known here in the U.S. Gulf. Do you do any international work? Shane Guidry: We do not. The Gulf is too hot. Our clients have been really good to us here, so we are going to maintain our presence and those relationships and service those clients. Sure, we’ve got competitors who’ve taken boats out of the Gulf for better contracts – we’re not going to do that. MarEx: What’s your next move? Shane Guidry: The next move, as I see it, is for us to look to the ultra-deepwater markets. That’s the only place I personally can see growth. I see a lot of operators building boats that their companies can afford to 26 the maritime executive
build: 160’s, 180’s, 190’s and 210’s. But in my opinion, these will be unsuitable for the ultradeepwater markets. Now, I know that they are looking at the replacement fleet – the core fleet that has to be replaced. But you have to have a core business to support that type of plan. And the jackup market has really slowed down for two reasons: better contracts being out around the world, long term, and secondly, the kind of finds that they’re getting in the shallow markets does not support a $30 million well anymore. Low production on the shallow water is closing down a lot of shallow water wells. For example, some of the majors have a rule of thumb that once a well within thirty miles of land drops to a certain level of production, they just shut it in. So, as a company, we’re in agreement here that growth
MarEx: When? Give our readers a time frame. Shane Guidry: If we can get the drawings approved by the end of the year, it’ll take 24 months to build. Just in time for those seven drill ships headed here for long-term contracts. So that’s the first place that it starts. MarEx: We keep hearing from everyone – and we’ve put more than a few brownwater companies right here on the cover of MarEx – that the key to surviving the next downturn will involve having modern, young equipment because when the next downturn does come, the marginal, aging equipment will be gone and very quickly. At that point, everyone will insist on DP capabilities, all the bells and whistles. Describe your fleet, its age, capabilities and how you see yourselves positioned. Shane Guidry: We had boats delivered in
The next move, as I see it, is for us to look to the ultra-deepwater markets. … as a company, we’re in agreement here that growth will come in the ultradeepwater markets. will come in the ultra-deepwater markets. And that means over and above the 280’s we have now – of course that means a $45 million vessel. And there are not many companies out there that will step up and build that kind of supply boat. MarEx: And you are building one, are you not? Shane Guidry: We’ve just finished designing one. It will have 19,000 barrels capacity of liquid mud, 16,000 dry bulk, 14,000 square feet clear, three bow thrusters and three Z-drives. She’s a heck of a vessel, and we’ve even got ABS to approve the preliminary drawings for the new rules. This will be our first boat built under the new ABS rules for steel vessels. We didn’t want to start building and have anything come up from behind us that we weren’t aware of. We’re spending the money now to get those approvals in place, and then we’ll have the shipyards build it out. MarEx: And you’ll build that right here in the U.S. Gulf? Shane Guidry: It’ll be built right here – yes.
2002, 2003, 2005 and now 2007. We did something that no one else has done, however, prior to us delivering the first two supply boats. When we built these boats, we went the extra mile and got the FMEA done correctly as well as DP-2 notation on our certificate. For many years prior, everybody got DP-2, and they called it DP-2 but they never had any “Failure Mode Effect Analysis” done to certify those results. We had ABS come out, certify the boat and note it on the certificate. All of our boats have DP-2 notation and from that point forward – especially after we started advertising it – everyone else started doing it too. For example, when we first started going to work for Shell, we exceeded their requirements because we were not only DP-2 capable, but also certified for that capability. We also have an extra reference system on board, which most of the others do not have because it costs money to get that done. We went ahead and spent the extra money to put the “radius” system on board. This is effectively a satellite positioning system.
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In addition to the Coast Guard DGPS service, we get the correction signal as a third reference system because you never know what the government is going to do – they might shut that system off. And we have the “fan beam.” So we have four reference systems on our supply boats. DP-2 requires only two, so we go the extra mile in terms of safety – both for our crews and for our equipment. That also translates into better insurance premiums. We have, for almost ten years, enjoyed fair insurance rates. MarEx: Good stuff. But what about your tugs? Shane Guidry: As far as the older tugs, they’re the ones we use for jackups. These jackups are older than the tugs. The tugs work very little, so they are well-preserved and in very good working condition. On the semi tug
the guy up there looks down in 5-to-7-foot seas and he sees that cable flopping around, well, he doesn’t like it. So that rig manager, when he sees Harvey Gulf back up to his rig, lock in that cable with the shark jaws, he likes what he sees. And by the way, we’re the only outfit with both the shark jaws and the bow thrusters. Some of the others may have one, or both, but none have it set up like we do. The bow thrusters are another thing. We installed those on our boats because sometimes it is very difficult to keep the boat in position between the pontoons. I guess it was back in 1998 when someone sent a boat out there with no bow thrusters or Kort nozzles to service a rig. The boat bumped the rig, sliced it open, the rig listed thirty degrees and everybody had to abandon the rig. So these are just some of the safety
… these are just some of the safety features we have going for us, many of which are not standard to the industry, but certainly standard for Harvey Gulf.
movement side, we’ve built five new tugs. The first one came out in 1999, one in 2001, one in 2002, one in 2004, and now we have one coming out in 2007. The Harvey Trojan was built in 1976, but we took it into the shipyard in 1998 where we extended the stern; changed the wheels, the Kort nozzles, shafts and clutches, and repowered it. So we’re in good position there. And, of course, the five new ones we built have bow thrusters as well as shark jaws. MarEx: Shark jaws? Tell us about this particular feature. Shane Guidry: Absolutely. First of all, we did this for one reason: added safety for our crews. These items are recessed in the deck, behind the pop-up chocks. When a rig lowers its back cable down to the back of the boat, the two arms come up and close around the wire. It then serves to hold that cable together so that it doesn’t slide around or flop back and forth and potentially hurt someone. From the standpoint of the rig that we are servicing, when
features we have going for us, many of which are not standard to the industry, but certainly standard for Harvey Gulf. MarEx: I see that you want to get a fair rate for your boats, but you’ve let the potential client know that you don’t particularly appreciate competing against other outfits that don’t provide the same level of compliance but demand the same day rates. Can you expand? Shane Guidry: I think you are referring to our recent building programs where we delayed the building schedules – at great expense to us – to get the boats certified under the ACPACCU protocol. And it was a big learning curve for the shipyards to build the boats to this standard. So our last three OSVs came out this way, and all of our future boats will be delivered in this manner. I can assure you that, one day, this will make a huge difference, during the downturn. As the Gulf of Mexico continues to get safer – and the Norwegians are coming now and their safety standards are stronger than most – that ACP-ACCU is going to make a dif
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ference. So we like to build for the future. MarEx: Again, this is for that ultra-deepwater market? Shane Guidry: That’s right. But let’s take it a step further. Instead of having a 125-point alarm system on an OSV today, we’ve got 400. We have alarms that monitor alarms. That just makes the boat that much more safe and more attractive for the potential client – especially when the downturn comes. You always hope that there will never be another accident out there, but it will probably happen. At some point, though, people are going to realize the value of what we are doing with our boats, and they’re going to be willing to pay for that added safety. And we have the first three boats. So now it’s an educational process. We ask our potential clients if the other operator they are using and/or considering has these features. MarEx: Okay. Would it be fair to say that you are doing well today, but that you are even better positioned for what’s to come in the future? Shane Guidry: Well, we want to be better positioned. We want this company to survive to and past the fourth generation of Guidrys. What’s it getting us today? Not much beyond the obviously important safety aspect of the decision for our crews and our clients. We will achieve a competitive advantage someday, though. I’ll tell you what we are doing now, however: We’re educating our clients as to our tugs and their classifications and that of the newcomers and the other existing vessels in the U.S. Gulf. What do I mean by that? First, the cost of the five-year ABS inspections and the repairs associated with that effort. It has a tremendous impact on our bottom line. By this I mean operating fully classed ABS Ocean 1, AMS A1 towing vessels versus those with just an ABS Loadline. And it is very hard for us to compete if our clients don’t understand the difference. It’s a huge difference. The operator with the ABS Loadline vessel is telling his client: My vessel can float. On the other hand, no one has looked at his shaft, his gears, rudders, engine or generators. No one has looked to see that ABS-stamped equipment has gone into the building of that boat or is going back into the retrofit or repair of that boat. We do those things – every day. We’re spending that $1 million at that ABS drydock instead of the $100,000. We’re hoping that this brings a huge change in the industry in just towing alone. And there are companies out there that will not hire a boat that does not have all of the class notations for its intended service. So that’s what led us into the higher classification for the OSVs – it’s all about education. the maritime executive
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MarEx: But the non-class tugs are being chartered today. Shane Guidry: Yes, by the smaller operators who use these substandard boats because they are cheaper. And it’s easy to be cheaper when your operating costs are a lot lower. Some day – and soon – those vessels will be pushed aside during the downturn. MarEx: Let’s talk about the coming downturn. You alluded to this earlier, but at one point your father and his partner went out and secured equipment at low prices during another downturn. Are you eyeing similar opportunities when, for whatever reason, good equipment becomes available when the current operator can’t afford to keep it alongside the pier? Shane Guidry: If that happens, we are definitely in a position to do that. MarEx: Speaking of your parents, let’s go back to the multi-generational aspect of your firm. Can you expand a little more on how this “family” company operates? Is there anyone else left from the old days? Shane Guidry: Sure. We have another office in Galliano, where we do all of our maintenance and crewing, and we have an uncle who’s almost 70 years old. He lives right there, goes into the office and he runs that
end of the company. He’s a second-generation Guidry. Our dad does not work day-to-day in the company, but he does come in for the board meetings and finance discussions. In the third generation, my two brothers and I, along with my two sisters, work here. In Galliano, there’s four third-generation Guidrys, for a total of nine of us. All of us participate daily in the company – there’s no black sheep here. And we all have no other outside investments – restaurants, stores, other businesses. It’s all concentrated right here in this company. MarEx: Okay, but I’m looking right out your office window here onto this beautiful and rapidly developing complex of shops and other businesses. I understand that the Guidrys have something to do with that. Shane Guidry: That’s our dad’s project. It’s owned 100 percent by him and financed 100 percent by his personal holdings. MarEx: (Laughter…) I had to ask. Okay – he’s got other things to do and you are running the company now, right? Shane Guidry: Yes. We’re running it. My dad has a small minority interest. MarEx: I’m just trying to get my arms around this. So you and your two brothers are running the company?
Shane Guidry: Yes. All of the stock is owned equally between the two families, a fifty-fifty split. We serve as President, Vice President and Vice President in Charge of Operations. MarEx: That’s got to be a lot of fun, is it not? Shane Guidry: It is. We get to see each other every day. MarEx: The family culture of your business creates a different dynamic though, doesn’t it? Chad Guidry: Sure. We have our problems but an hour later it is over. MarEx: Tell me how you do business on a daily basis. Do you form a quorum? You are the President of the company – how does it all work? Shane Guidry: It’s quite simple, really. My brothers and sisters realize that not everyone can be the chief. Everyone is okay with that. Of course, when business is good, it makes it a lot easier because everyone is happy with the proceeds from working here. Not all of us have yet been through a bad time. So that’ll be a test for us. But we’ve always been comfortable with how we do business and the decisions that have been made. Of course, when we diversify the company, then that’s something the whole family gets involved in – it’s everyone’s money. So we either go for-
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ward into another investment together – or we don’t do it. MarEx: Understood. Do you have an outside Board of Directors? Shane Guidry: No. It’s all inside. But we’re not afraid to get dirty either. If we need to get into the safety mode, then we put on the hardhat and get out there. We’re big now, but it’s not so big that it is overwhelming. Our employees have our cellular telephone numbers, and they can call us on the weekend if they have the need for any reason. That helps our people. They like to be able to call this phone right here and talk to the owner – and they can do that. We’ve hired people from other companies who’ve never even met the guys who run the show. That’s not the case here. MarEx: Well, you are at a good point and the right size that you can still do this sort of thing. Five years from now, perhaps you’ll be twice as big and maybe this sort of culture might not be as workable. Chad Guidry: That could happen, sure. But growth would be a good thing. MarEx: What decision has had the biggest impact on the company, since you – and your third-generation family members – took the reins? Chad Guidry: That’s easy. It was when – and
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Shane made the final decision to do it – we the shipyards has been a bear. That’s for sure. got rid of the small boats. From there we went Shane Guidry: Absolutely. I agree. We lost a straight to the deepwater market. That was lot of sleep getting the new boats built, keepthe best thing that we’ve done, and we foling them on schedule and all that. I’m talking lowed straight on with the supply boats. We about change orders, the yards perhaps not were already dealing with the people that getting it right the first time, Katrina – to a were hiring the supply boats. We saw them lesser extent, but mostly equipment and timevery week, and we knew that if we brought ing issues. We lost I don’t know how much them a quality, safe boat, we’d have to do time when nine thrusters came in and didn’t well. And we have. work. And when a boat is that late, then you Shane Guidry: The most important thing have to try and keep the client on the hook for that we recognized was that ultra-deepwater the job. The lost revenue from the late deliverwas the future. When we first decided to go ies really hurt. But the way we operate, the into the supply boat business, we designed a new boat isn’t coming out until the boat is 200-foot vessel. But just before we sat down to perfect – and I mean perfect, 100 percent. For sign the contract, we said, “We’re doing the example, we won’t build a boat unless the wrong thing – let’s build for the future.” And shipyard can provide a $5 million warranty sure, we could see all the boats approachbond that lasts all during the construction ing 25 years old in the smaller class – now process and until one year after the vessel has approaching thirty years – that would need to been delivered. That’s kind of unique to us. be replaced, but we still decided to build bigAnd it does two things: First, if the shipyard ger for the future. And so we sat down seven goes bankrupt during the building process, years ago and started designing these boats – that warranty bond will give us up to $5 milthat was the biggest thing. lion to finish the vessel. And that makes the MarEx: Okay, so what’s been the toughshipyard perform a little more because this est hurdle you’ve had to get past in the time particular owner had to put up personal secuyou’ve been here? rities to get that bond. Then, secondly, durChad Guidry: Getting these new boats12/11/04 out of ing11:59 the firstam year Page after delivery, if anything at Project1 1
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all goes wrong – if that light bulb over here doesn’t work, they have to come back and fix it – or we’ll fix it, and bill them. MarEx: Sounds like the U.S. Coast Guard’s Deepwater Program could take a few pointers from Harvey Gulf Marine, yes? Shane Guidry: They could, yes. Look, I don’t want to deal with vendors in Asia or Europe. I want to make one phone call – to the shipyard: “It’s your problem, fix it.” MarEx: Tell us who your primary competitors are here in the U.S. Gulf – in your core businesses? Chad Guidry: When I think about competition, I think Hornbeck and Chouest. Shane Guidry: Well, I could look at three different businesses, one being the OSVs, and there we’re talking Chouest and Hornbeck; that’s it. In the deepwater towing markets, it’s Chouest and Seacor, mostly because we have to compete against the anchor boats and they’re a little more versatile than we are. Our next biggest competitor would be Otto Candies. On the jackup side, shallow water, it would be Louisiana International. There are other very good operators out there, but their equipment, while new and well positioned for the shallow market, is too small to compete
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with our big boats. Why charter two of theirs when you can charter one of ours and get more capacity and cargo? Plus, when you have to use two boats to get the job done, it involves twice the risk, doesn’t it? On the other hand, when the shallow market does finally crater, the newer, small boats will be in perfect position to replace all those thirty-year-old boats. MarEx: Okay, I want to talk a little about the softer side of the business. And by that I mean let’s talk about doing business in Louisiana, before and after Katrina. Let’s talk human resources – how do you keep people here to do the job? Louisiana is the heart and soul of the oil and gas industry here in the United States. How’d you bounce back after Katrina. What did you do right? Shane Guidry: Well, I guess a couple of fortunate things occurred. None of our offices were affected. Before Katrina, we knew that in the immediate aftermath we’d be extremely busy, so we left about four days before it hit. We then went to Houston and rented some executive offices because, from past experience, we knew that there would be many damaged semis, broken lines, etc. We would have to be ready to dispatch our vessels. We sent our boats offshore to the leeward side
of the storm because we didn’t want them ending up on land in the storm surge. So we ran from the storm. And, eventually, Katrina took us to a level of revenues that we didn’t expect. Of course, our cost of doing business doubled during that period as well. Fuel, food, cost of transportation – you name it, it all went up. We ended up making in-house loans to our employees to help them recover from lost autos, damaged houses, etc. And during that time, we paid 100 percent of our staff’s meals, lodging and entertainment. We rented airplanes to bring our people back in to check on their homes and belongings – the highway was still too unreliable. My brothers and I – along with my father – we actually drove back and went to our employees’ houses, the ones we could get to, and emptied their refrigerators so they wouldn’t have to deal with that mess when they got back. We did tow one rig during Katrina. And while that was a pretty interesting thing for us, it is also something that we don’t ever want to do again. In fact, our new policy is that 96 hours before a hurricane, we won’t tow a drilling rig. MarEx: So you’re saying you had a boat towing a rig during the storm? Shane Guidry: Absolutely. We had the Har-
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vey Warhorse in 47-foot seas and 70-knot winds towing the Ensco 7500. The line did part and, because the rig wasn’t manned at that point, what we did was follow it on the radar until the weather abated enough that a crew could get back on and we could hook it up again. So the lesson learned there is that we don’t put our people in that situation – ever again. MarEx: I’m told that there are still five years of underwater cleanup work to do here in the Gulf. Are you involved with any of that? Shane Guidry: We are. In one case, we held a capsized rig for months, finally helped tow it out to sea and then helped to topple and sink it out to sea. We pulled more than a few rigs off the beach as well. We’ve also done a great deal of repair work. But it’s not a huge part of our business. Having said that, our dive support vessel is still involved, and we are actively bidding on that type of work. Eventually, and because of our experience, it could allow us to grow a bit more in this class of vessel. MarEx: We’re two years removed from Katrina now. Are things back to normal here, both in terms of business and lifestyle? Shane Guidry: Again, we were, as a company, very fortunate because our people predominantly were not from New Orleans.
They’re from lower Bayou La Fourche and other parts of the country so their houses, by and large, were not affected. A few guys had some flooding and some wind damage. But the big effect, of course, is that people’s cost of living in this area increased tremendously. For months we had to drive for miles to get the simple things – groceries, gas and other everyday items. For at least a few weeks, I myself had to drive 30 miles to St. Charles Parish to get a quart of milk. Insurance premiums for homes virtually doubled. Things like that. From a business standpoint, crew salaries have doubled since before Katrina as has the price of fuel. Beyond this, any services that we do not do in-house – some mechanical work, for example – has increased by 70 percent. MarEx: That’s a tough reality. But it does dovetail right into where I wanted to go next. How are you doing in terms of getting people – competent seafarers – onto your boats, and more importantly, keeping them there? I’ve been here for only a couple of hours, but I can already see that you care about your people and that your family outfit is run with that in mind. Having said that, what is your recruitment strategy for seamen and how do you keep them from seeking employment else-
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where? You’ve obviously had to increase pay dramatically to keep pace, but pay is only one part of the equation. Shane Guidry: Well, I’ll tell you this: I haven’t had a crew member leave me who hasn’t called for his job back. You won’t find a single employee who quit and left for more money who didn’t – just two to six weeks later – call back looking for his old job. MarEx: You take any of them back? Shane Guidry: Some, we did. Depends on how they left us, of course. The people who didn’t give us adequate notice, for example, we did not. MarEx: So there’s something else that keeps them here – what is it? Shane Guidry: Well, let me break it down for you. All of these guys want to improve their lot in life. How do they achieve that? They want to get onto the bigger, more sophisticated boats. Bigger license, bigger pay. We give them those opportunities. Secondly, you keep people by providing better, newer, more comfortable platforms. Make those vessels safer and install first-class accommodations. We’re also starting to get more educated people, especially on the deepwater OSV side. We’re getting seamen with college degrees.
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MarEx: The boats are getting far more sophisticated now, aren’t they? Especially in the brownwater market. Shane Guidry: They are. But this gives us some flexibility as to where we put our people. We might have a guy who has been with us for twenty years who may not want the challenge of a sophisticated DSV, and we have other platforms that we can send them to and they do quite well. Then we have some of the younger, more aggressive guys who like the increased power of the bigger boats with all the bells and whistles. So we have a good mix of people and equipment to accommodate those skill sets. You’ve got to keep the right people on the right boat – and we do. MarEx: Arguably, with a company of this size – about 225 employees or so – you are still small enough to have your finger on the pulse and know most everybody here. Shane Guidry: That’s right. And everyone in this company has the number to my cellular phone. I have an open door policy. We get people from other outfits who have never even seen the guy who runs the show, never mind talk to him. I think that we are unique in this way. MarEx: Speaking of email and telephones, do you have email and voice communications for your people offshore so that they can call home and communicate ashore? Who pays for it? Shane Guidry: Yes, and we pay for all of it. It’s important. MarEx: What about training? All this sophisticated DP and DSV equipment takes a lot of training and simulator work, does it not? How do you get that done? Shane Guidry: We do all of the DP training at Kongsberg in Houston. If a guy wants advanced DP training, we’ll send him there and pay for that too. We want these people to advance their careers. MarEx: These guys have it all, don’t they? Shane Guidry: They do. Absolutely. But it goes beyond that. We take care of these people in other ways as well. When a boat hits the dock and the Chief Engineer says, “I need this, this and this,” we provide it. If he says he needs it, then he needs it. We are not concerned as to what the cost is. Sure, we’re going to bid out the best cost to get the best service. But we don’t have to worry about some board of directors shooting down a requisition for a basic item on a boat, based solely on cost. MarEx: So what you are really saying to our executive audience is that there are very few layers to the onion here. Shane Guidry: There are no layers. They 32 the maritime executive
can talk to me. But each Port Captain has full authority to do everything he needs to keep his boat in the shape it’s supposed to be in. MarEx: Within his budget, right? Shane Guidry: No budget. We don’t do budgets for maintenance and repair. MarEx: Well, let’s stop here for a second. Let’s talk about a company like Teekay Shipping, for example. I KNOW they have a budget for M&R. I’m trying to understand your procedures. Shane Guidry: Look, we have our own inhouse group – mechanics, welders and electricians – at least 45 people in Galliano. Not many other groups can say that. When our boat is coming in and when it hits the dock, we’re on top of it immediately and we do what it takes. Okay, we have things like DP equipment and radios – that sort of thing is sourced out. MarEx: So you don’t have an M&R budget, but more of a line item cost associated with the fixed overhead at your Galliano facility. You’ve got a lot of these maintenance costs captured, in-house. It’s a fixed cost, whether you use it or not. Yes or no? Shane Guidry: Yes. MarEx: Fair enough. Okay, here’s the tough question: In the last six months, we’ve asked everyone what they think – Boysie Bollinger, Larry Rigdon, Jacques de Chateauvieux – as to when the next downturn will come. Now MarEx readers want to know what you think. Shane Guidry: The downturn for the shallow water market, as far as drilling, is already here. We’ve gone from around 100 jackups to what, 60? As far as the shallow water drilling market, I don’t think that will slow down any more than it has. When the majors are through with a particular well, when the day rates decrease, they’ll pass it along to a second-tier operator – someone will still be running that operation. I hope that, as owners, we as a collective group won’t overbuild, but I think that seems to be the direction we’re headed in. As far as deepwater – ultra-deepwater – is concerned, rigs are now contracted as far out as 2010 and 2011. So we won’t see that slowdown until 2011, if it comes at all. And that will be dictated, to a certain extent, by the price of oil at that time. There are several drill ships being built around the world specifically for the Gulf of Mexico. Those units will arrive here in 2010, and that will be good for the OSV market. There has been a slowdown in the shallow water semi-market due to the hurricane season. Permits were either pulled or not issued for rigs drilling in certain areas of the Gulf, such as Mississippi Canyon, if they didn’t have a twelve-point mooring system. From our
side, that equated to a significant slowdown. MarEx: Well, that’s just a seasonal hiccup, is it not? Shane Guidry: It is, but it also causes drilling contractors to seek work elsewhere, and potentially they might not come back. That’s the problem, and the risks in that sector of the business. But having said that, lease sales are still strong – but it is all in deep water. MarEx: What’s next? What am I missing? What’s the next big thing? Shane Guidry: Well, the next big thing is the possibility of Harvey Gulf going into the ATB business. MarEx: Really?! That’s exciting. Tell us more. Shane Guidry: Ocean Tug & Barge is coming in here next week. Rob Hill, the father of the ATB, is going to help us design some DP-2 ATBs. MarEx: Why would an ATB need DP-2 capability? Shane Guidry: We’re looking to employ this boat in well-testing in the Gulf of Mexico. This boat will need very superior station-keeping capabilities. We’ve assisted ATBs during well tests here in the Gulf, but every time a cold front came in the barge had to go to shallow water and stand by. MarEx: What kind of deadweight or cubic capacity are you talking about? Shane Guidry: About 110,000 barrels. And we’re looking to build two. MarEx: Talk time frame, if you can. Shane Guidry: We think that, if we go forward with those units, we can start construction in six months. Fifteen months later we could have the first unit, and four months after that the second. MarEx: Are you thinking about other uses for these units? Shane Guidry: Sure. We want to be able to do other things with them if we have to. And we have a client who is actually looking to charter the boat for seven years – a client that we already do other business with. Good synergy, good flexibility and versatility, once again. So we’d build the first based on the commitment of our client, and then go out and build a second one – at our risk. MarEx: And at the end of the day, if the business falls off, you can charter it out to carry petroleum cargoes in the U.S. Gulf, can you not? Shane Guidry: Exactly. MarEx: I want to thank you and your family for this opportunity to visit and learn more about Harvey Gulf. It is a fascinating story, and I know that our readers will agree. MarEx
DROP ANCHOR IN LOUISIANA. Louisiana’s vast maritime infrastructure and business network spell opportunity for shipyards looking to expand or relocate their facilities. Take advantage of the most aggressive incentives package in the country, including the Gulf Opportunity Zone, with help from Louisiana Economic Development. We can also connect you to valuable resources, including customized workforce training and certification programs. And we can introduce you to our network of companies and organizations that can set you nautical miles ahead of your competition.
TO LEARN MORE, CONTACT VON HATLEY AT 225.342.9100 OR VISIT LOUISIANAFORWARD.COM/MARITIME Š 2007 Louisiana Economic Development
lousiana story
Business (Not) As Usual
“LA Story”: Working to Keep Shipyards and Their Employees in Louisiana
By MarEx Staff
The two years that followed Katrina’s devastating rampage through the U.S. Gulf Coast haven’t been easy ones for anyone who works, lives or depends on goods which come from manufacturing facilities there. The recovery is well on the way, though, and as a result vessels of all sizes are once again being delivered at a robust pace in the Sportsman’s Paradise. To the naked eye, it might appear to be business as usual, but in reality nothing could be further from the truth. For most maritime industry observers, the current manning crisis that is plaguing the shipping industry is an old story. Any number of initiatives are under way to remedy that situation, with shipping companies stepping up to the plate to provide berths for cadets and industry training schools developing some truly innovative programs to help recruit, train and, eventually, foster retention at sea. Ashore, a similar multi-pronged effort to keep jobs in Louisiana, foster career paths and help shipyards work more efficiently is underway. In Louisiana, they already know what the rest of us are just now coming to realize: Without a robust domestic shipbuilding industry, an American merchant marine will soon be a thing of the past, and the very fabric of our homeland security mission will be in peril. And this version of the “LA Story” involves not only keeping shipbuilding alive and well, but also keeping it within the Sportsman’s Paradise.
Shipbuilding: Heart of the State For Louisiana, shipbuilding is at the heart of this Gulf Coast state’s maritime heritage – and its economy. Home to three of the highest-tonnage ports in the nation (South Louisiana, New Orleans, Baton Rouge), marine commerce is the lifeblood of Louisiana. When the devastating hurricanes of 2005 ravaged the industrial complex of the Gulf Coast, Louisiana was particularly hard hit. Although the state has rebounded aggressively on the waterfront and from the dry dock in impressive form, it is also true that efforts to revive and bolster the state’s shipbuilding industry are not new. Von Hatley is the Director of Durable Goods/Manufacturing for Louisiana Economic Development. Hatley has spent years developing Durable Goods Manufacturing clusters throughout Louisiana. Today, he works in concert with a myriad of interested stakeholders 34 the maritime executive
to ensure that the jobs already in Louisiana stay and potential investors have every reason to say “yes” when it comes to deciding whether to build in Louisiana. His purview includes promoting all forms of manufacturing, but his work to promote shipbuilding will have particular application for MarEx readers. But Hatley is only one of many people, too numerous to mention here, forming a core group whose efforts have served the industry well since 2001 (and before).
Driving Economic Development in the Marine Sector The Louisiana model for driving economic growth engines is enviable, and one worth emulating in other places. The state has helped itself in many ways, since before and after Katrina. And the number of entities and individuals taking leadership roles to help support this vital industry is remarkable. In the end, Louisiana has probably had to work harder than most – but has also done more to entice additional investment and workers into its Gulf Coast shipyards. Just a few of these highlights are listed below: 1996 – State funds through UNO a building at Avondale that becomes the nation’s #1 Naval Architectural Engineering School. Ultimately this investment lands billions of dollars of work for Avondale Litton Industries, who then later sell the yard to Northrop. 2001 – GNO Inc. funds a study to determine the future of shipbuilding in the region and determines that future investment would be necessary to maintain a competitive edge. 2003 – State funds $55 million grant to Northrop: $39 million for equipment and $16 million for training. 2003 – State supports Conrad shipyards in securing funding for a new expansion. 2004 to the present:
■■ Training delivery system is transformed. ■■ Technical school teachers are certified to higher standards as developed by industry. ■■ Board of Regents approves apprenticeship program to be taught at schools with various exit points based on industry and student needs. ■■ Shipbuilding academies set up at high schools. ■■ Lean/Six Sigma training occurs. ■■ Training expanded to include advanced manufacturing and partnership that includes, but is not limited to, shipbuilding. ■■ Certified manufacturing specialist training is introduced. ■■ Thousands receive training. 2004 – State funds dry dock for Bollinger Shipyards. 2005 – Regional shipbuilding coalition formed. 2006 – State provides funding for North American Shipbuilding. 2005/6 – Trinity Marine mothballs yard in Brusly, then reverses position and builds up yards in Madisonville and Brusly. 2007 – Textron retools yard to build Armored Support Vehicles and increases employment by hundreds. Yard wiped out by Katrina and eventually reopened in New Orleans East and Slidell. State helps in myriad of ways. Katrina – state works to cut through FEMA red tape and get trailers out to thousands of employees. 2007 – Oceaneering builds new yard with state support in Morgan City. 2007 – State funds LITE center in Lafayette to provide best-in-world 3-D visualization for use by industry.
Crossing State Lines: It’s a Gulf Coast Thing, Too Under the broad category of promoting increased productivity and improved competi-
louisiana story tiveness in the Gulf Coast shipbuilding industry, another organization has also stepped to the forefront in the effort to promote a more competitive and efficient Louisiana. This time, however, the Manufacturing Extension Partnership of Louisiana (MEPOL), the MEP of Mississippi and the MEP of Alabama (ATN) are teaming up with several shipbuilders in all three states and have created the Gulf States Shipbuilding Consortium (GSSC). Created in 2006 to provide a forum for interaction within the shipbuilding industry in the Gulf States, the Consortium has served to expand the number of technically skilled workers in the region and shares best practices among its members in addition to providing information on issues and trends impacting the shipbuilding industry. Funding for this initiative came from a special grant from the Department of Commerce (DOC), National Institutes of Standards and Technology’s (NIST) Manufacturing Extension Partnership (MEP) after the hurricanes of 2005 devastated the Gulf Coast. Today, the campaign to promote the shipbuilding industry along the Gulf Coast is underway with the ultimate goal of increasing the workforce pool for the shipbuilding industry.
Victor Tufts (seated) and Robert Becker
Beyond the Shipyards: Louisiana Looks at the Big Picture
Shipyards are unquestionably a big part of Louisiana’s economic engine. But they only form one spoke of the maritime wheel. The manufacturing base associated with all things “marine� extends to oil field production, supply services and the refinery businesses. The Port of Fourchon, for example, is at the heart of the oil production industry on the U.S. Gulf Coast. Poised to begin ultra-deepwater drilling in the near future, the United States and the many oil companies bidding to be a part of the next offshore boom can’t do it without Louisiana. Promoting this aspect of the state’s economy is just as important as shipyards. Another place to look will be the ports of Louisiana themselves. As such, the Ports Association of Louisiana has commissioned the creation of a strategic plan for the collective future of Louisiana’s 30 ports. And why not? With three of the 10 highest-tonnage ports in the nation, Louisiana is well positioned to be part of the ongoing boom in the nation’s import and export trade. But not if it doesn’t start investing now in new transportation infrastructure, creating port partnerships and building new industrial facilities.
The plan is expected to cost around $700,000 and is focused on coordinating Louisiana’s already formidable port system to garner a larger share of future cargo coming into the United States.
“LA Story�: The Sequel The 2005 hurricane season certainly heightened an already tight market for employers in the New Orleans area as well as around the state. A majority of manufacturing concerns, not the least of which are the shipyards themselves, continue to scramble to find qualified employees. The effort to train, employ and retain workers in the region is ongoing. In the future, the collaboration of local workforce partnerships and business leaders will be paramount to the continued success of Louisiana’s shipyard industry. At the heart of that effort and coordinating any number of initiatives will be the State of Louisiana. Walking point on that crusade is Von Hatley and Louisiana Economic Development. The combined effort has yielded fruit for years, but for Louisiana’s employers – and their prospective employees – the best may be yet to come. MarEx
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earning back the trust
Earning Back the Trust: One Mariner at a Time
By Joseph Keefe U.S. Coast Guard’s National Maritime Center Centralizes and Relocates to West Virginia
On October 10, I traveled to Kearneysville, West Virginia to see, first-hand, the physical manifestation of the biggest overhaul of mariner-documentation procedures in many decades. The U.S. Coast Guard has at long last embarked upon an ambitious but long overdue quest to change the way it interfaces with America’s commercial mariners. The move to scale back operations at the 17 Regional Exam Centers (RECs) and centralize all credential-production operations – among other things – at Martinsburg, West Virginia has many in the maritime community concerned. And because the Coast Guard’s recent performance in many things related to marine safety has been lacking, there could be real merit to those who would question whether the nation’s fifth uniformed military branch is up to the task. As I exited I-81 in West Virginia after a six-hour drive from Charlotte, my Global Positioning System announced blandly that I had entered a “non-digitized” area. Left to find my motel in the dark without an atlas, I eventually arrived and checked in. The following morning I started my day with the buffet provided by the motel in Martinsburg, West Virginia. My fellow road warriors and I munched our breakfast and slurped coffee in the “Robert C. Byrd” room. And so it was that the first burning 36 the maritime executive
question (“Why in heaven’s name is the Coast Guard in West Virginia?”) had been answered. Of course, I got lost on the short, ten-minute drive to the Coast Guard’s temporary offices in Kearneysville, but alert Coast Guard personnel (after determining which large cornfield I was pulled over next to) eventually guided me safely to the National Maritime Center. What I found when I got there just might surprise you, and beyond this, give hope to American mariners everywhere.
Missions and Visions: Still Worlds Apart Captain David C. Stalfort is the Commanding Officer of the Coast Guard’s National Maritime Center. He began by telling me, “We haven’t, up until now, done a real good job of giving people the big picture of where we are going with this effort.” With that, he launched into a 20-minute, well-rehearsed and professionally assembled PowerPoint presentation to do just that. Later that day, he would give the same presentation to a large contingent of Ingram Barge Company executives and operations personnel. His delivery answered many of my questions before I had a chance to ask them, but also provided the basis for many more. From the outset, however, it was clear that the weight of this entire overhaul was squarely on Stalfort’s shoulders, and he did not intend to drop the ball. Simply stated, the National Maritime Center (NMC) is managing a project to restructure and centralize the Coast Guard’s Mariner Licensing and Documentation Program. The project will consolidate the functions of 17 independently operating RECs into one credential-processing center located in Martinsburg, West Virginia. The goal of this effort is to improve customer service, decrease credential-processing time and improve the consistency of Coast Guard products and services. In October 2006, the NMC began to centralize by moving some of the its operations in Arlington, Virginia to temporary facilities in Kearneysville. On October 1, 2007, the remaining operations were temporarily relocated to Kearneysville and the Arlington facility was shut down. The current plan calls for the NMC to operate at the Kearneysville location until December 2007, at which time
earning back the trust the entire operation will be moved to a permanent location in Martinsburg. Like its Coast Guard parent, the NMC has taken on many roles over the years in addition to dealing with mariner credentialing. Policy development, regulatory issues and International Maritime Organization (IMO)-interface all, at one time or another, came under the purview of the NMC. As the Coast Guard embarks on its plan to centralize NMC operations in one location, all functions not related to the production of mariner credentials have been shifted elsewhere. For this reason alone, the Coast Guard may finally be on its way to reversing a trend of deteriorating service to mariners by personnel who had either lost, or perhaps never had, the necessary skill sets. Coast Guard and civilian contractors in the West Virginia-based NMC now have one focus. And that’s a pretty good start. Stalfort says that the new effort to ramp up service to America’s 210,000+ mariners is based on the following three metrics: 1. Respecting mariners’ experience and considering their suggestions for improvement; 2. Valuing the mariner’s time – getting it right the first time; and 3. Respecting the mariner’s privacy, especially where it concerns personal data. Within all of that, Stalfort says that a renewed effort within the NMC to find a way to say “yes” is underway. “So often, we simply reach for the ‘no’ button. We want to find a way to say yes, yet at the same time maintain a safe, secure and environmentally sound marine transportation system,” he added. It will be a delicate balancing game and Stalfort himself cautioned, “We don’t want to be just handing out credentials to anyone – and we won’t. We will find a way to issue credentials to qualified mariners in a timely manner.” Unspoken in all of this was the fact that the reality of the new medical requirements, draconian background investigations and other impediments to those who want to go to sea have not gone away, but rather have increased exponentially. Achieving a more efficient system and demonstrating to the maritime community that this has occurred will not be an easy task.
Life After the Fall of Full-Service RECs: The New “Normal” for U.S. Mariners In the past, a mariner looking to upgrade, renew or perhaps get a new document would fill out the paper application and submit it to the local REC, where the background investigation,
medical evaluation and all the rest of it would take place. A medical waiver would require interface back and forth with Washington headquarters, often involving people who had no business making medical determinations that might affect a mariner’s ability to make a living. Eventually, the document(s) would be created and issued directly to the mariner. Before that could happen, though, the lack of standardization on the local level might necessitate three rounds of paperwork, and it was not unusual for errors to occur in the production of licenses and / or merchant mariner documents (MMD). Dave Stalfort himself freely admits that in the port of Memphis, where he had previously worked, at least 50 percent of all document paperwork involved errors necessitating changes and, of course, delays. Stalfort holds a
The new way of thinking within the Coast Guard involves trying to achieve an economy of scale for the credentialing process. Notwithstanding the painful and very public whipping taken by the Coast Guard at various subcommittee hearings in recent months, David Stalfort himself was not afraid to be painfully honest about what was at the heart of the Coast Guard’s woes, at least as they related to the mariner-credentialing process. “As new tasks were thrust upon the local RECs, the process began to slow down. The new task of issuing MDs was a factor, as was the advent of STCW requirements, and as the number of mariners began to increase the workload began to hurt customer service. At some RECs they actually cut back on service hours in order to catch up on back office documentation and to speed up production of
…the Coast Guard may finally be on its way to reversing a trend of deteriorating service to mariners by personnel who had either lost, or perhaps never had, the necessary skill sets. Coast Guard license himself, so he’s also a customer. “It is a complicated process. I’ve gone through four renewals myself and it’s never been the same procedure twice. My hope is that we will, along with everything else, simplify the process.” The 210,000+ individuals who now make up the credentialed American mariner pool probably feel the same way. In essence and in a pre-NMC world, there were 17 different ways of doing business. Beyond this, the practice of “venue” shopping was rampant among mariners who, when turned down for one reason or another at one location, would travel to another REC to try again. The game was popular because, more often than not, it worked. The result was a system which was unfair to mariners trying to get credentials in an aboveboard manner and also encouraged cheating. It is for this reason that mariners may now get to experience something closer to the old adage, “Be careful what you wish for; you just might get it.” The new standardized system of evaluation at NMC will involve fewer persons handling the information, a more standard – and stringent – set of criteria and less wiggle room. And as much as Stalfort wants to say “yes,” the likelihood of a marginal application being denied may have gotten a little higher.
documents as the backlog continued.” Stalfort calls it the “death spiral.” Nobody actually died, of course, but after listening to recent congressional testimony from industry officials, there were clearly some who wish they had. Today, all medical reviews are being processed through the National Maritime Center by a fully qualified and dedicated – licensed physicians, in most cases – staff who have no other function. According to Stalfort, the process of issuing medical waivers, if they are needed, has become far more standardized and, more importantly, more fair. Security background investigations have also been centralized at NMC for all RECs. Hence, two of the more onerous tasks have now been removed from the backs of local evaluators, who are now free to do what Stalfort envisions them doing in a much more efficient way down the road: personally helping mariners and expediting the process from the local level. Eventually, all RECs will be what Stalfort calls “storefronts.” No evaluations will be conducted on a local level. Instead, he calls the future REC representatives “advocates for the mariner,” giving examinations and evaluating local courses for Coast Guard compliance. But if today’s twenty-five year veteran mariner is skeptical of this lofty goal, then he or she the maritime executive
37
earning back the trust can be pardoned for doubting that something they’ve waited an entire career for might actually come about.
Transition: Implementing the Plan So far, just four of seventeen RECs have been fully transitioned to NMC, but these four ports – New Orleans, Baltimore, Juneau and Anchorage – account for approximately 40 percent of all mariner documentation in the United States today. So the wheels are clearly turning at NMC, but there is a long way to go. In actuality, New Orleans had been scheduled to be one of the last RECs to be transitioned, but Katrina changed all of that. And what a wake-up call that event was! Stalfort says, “We knew right then and there that we had to get out of the ‘paper’ business.” In keeping
the process by the end of December 2008. This means that mariners nationwide will very soon be feeling the effects of the long-awaited restructuring. How efficiently David Stalfort and his staff accomplish these goals will no doubt define the success of the program for years to come, and it goes without saying that this most visible manifestation of Coast Guard operations could very soon influence congressional decisions on whether to break out functions the Coast Guard has held onto for decades and place them somewhere else.
Ambitious Goals: Set the Bar High It all sounds pretty good, but the proof will be in the pudding when all the RECs have finally been transitioned to NMC, leaving the so-called “storefront kiosks” in place to handle
…in keeping with Stalfort’s new policy of saying “yes” whenever possible, extensions of licenses that had expired during this tumultuous time were given through the implementation of a regulation change. with that, he asserts that the ultimate goal is to make all mariner files – once a REC has transitioned to the NMC – totally electronic, and ultimately return the paper documents to each mariner when the next scheduled renewal has been completed. More than one NMC individual smiled and rolled their eyes when I mentioned this ambitious plan during the course of my visit, but Stalfort is determined to make it happen, and happen soon. The futility of the paper chase was made fully evident during the period when thousands of mariner files had to be shipped north, dried out and then stored somewhere in the wake of Katrina. Initially, the New Orleans documentation process was moved to the port of Memphis. And in keeping with Stalfort’s new policy of saying “yes” whenever possible, extensions of licenses that had expired during this tumultuous time were given through the implementation of a regulation change. The transitioning of all the local RECs is set to be done in a rapid process. One of the larger RECs still operating under the old system is Houston. Now slated to be one of the last three to be moved, the date has been set for the latter stages of 2008. Moving at a pace of transitioning two RECs per month going forward, Stalfort vows that they will be done with 38 the maritime executive
– well, let’s call it what it will be: local handholding. In the meantime, Captain Stalfort has laid out quantifiable goals which, if achieved, will validate this effort as a success for both the Coast Guard and the mariners it serves. These goals include: ■■ Producing more documents than they take in - reducing the backlog: Right now, says Stalfort, it takes anywhere from 10 to 28 days to produce a credential. He wants to reduce that to a maximum of 10 days by April 2008. Depending on how that goes, he envisions a turnaround time for an electronic renewal of less than two days – a standard achieved in the old days, and one which he would like to return to. ■■ Produce documents faster than the RECs during the transition period: The Coast Guard needs to achieve this metric without fail. Right now, Stalfort says that they are about three weeks faster than the RECs, but if that gap closed mariners might be tempted to go to one of the stillopen RECs, an event which will only delay the final transition. ■■ Reduce the cost of producing a document: Stalfort freely admits that they haven’t yet gotten their arms fully around this issue, but it is one that is near and dear to his heart.
■■ Simplify the application process: Today, a document application may have to be signed by the mariner as many as five times. David Stalfort sees no reason why this, and many other aspects of the application process, cannot be streamlined and further simplified. At the NMC, early analysis of performance has yielded some encouraging data. For example, says Stalfort, simple process changes implemented in July have resulted in a net reduction in backlogged documents by a whopping 60 percent. And he claimed that the documentation error rate has been reduced from a dismal 40 percent of all document transactions to less than 10 percent in the early stages of their efforts to improve efficiencies. “Reducing errors means faster processing; it’s as simple as that,” he added.
Economies of Scale: Compelling Reasons to Consolidate Regardless of where the Coast Guard finally decided to relocate its primary marinerdocumentation function, there were easily identifiable reasons to do it. Some of them had nothing to do with mariner satisfaction. The eventual elimination of the massive cost involving storage of paper documents could eventually save the government considerable money, as will the filing of documents by using e-files instead of standard mail or overnight packages. The Coast Guard will also eventually begin to encourage bulk / pre-packaged applications from the maritime academies and / or other industry schools as a means to reduce workloads. By the use of what he characterizes as “trusted agents,” the Coast Guard would certify certain locations to produce standard applications for their students, thereby streamlining an otherwise unwieldy process involving hundreds of applicants. The program would have its best utility through companies like Kirby Marine and the six state maritime academies – in other words, for entry-level documents and MMDs. Mariners are already enjoying the convenience of being able to phone the central call desk in West Virginia, where six civilians are fielding upwards of 6,000 calls per month, answering licensing and documentation questions. And Stalfort says about 70 percent of these calls involve a simple “where is my document” question. Could the help desk, already manned by knowledgeable associates, eventually eliminate the same function at the RECs (the “handholding”)? Stalfort wouldn’t say, but no doubt someone with a sharp pencil at the
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earning back the trust GAO will someday eye this particular metric with a hungry gleam in his or her eye. Last, but certainly not least, all of the (very complicated) MMD production machines will eventually end up at NMC. The real advantage to centralizing these devices goes beyond the consistent use and operation of the machines to produce a more standardized document and includes reducing the delays associated with the failure of a particular unit in an individual REC. Now, backup machines will be at the ready when a failure occurs – and the Coast Guard assured me that it does happen. The best reason to have the documentproducing machines in one place and under lock and key, however, may well be the painful memory of the document scam that came out of Puerto Rico not too long ago. Poor control of a machine there resulted in scores of phony documents being issued, and the black eye received by the Coast Guard in the wake of that debacle was a major embarrassment. In a post-9/11 world, these kinds of lapses no longer represent just an opportunity to issue a reprimand to someone: They also constitute a major homeland security breach. The sooner these machines arrive in West Virginia, the better.
Why Today’s Maritime Executive Should Care As the commercial maritime industry here and abroad grinds along at a record clip, the need to get, upgrade and keep mariners is paramount. The Coast Guard IS listening. According to Captain David Stalfort, outreach to the maritime community has resulted in an internal document production priority queue at NMC. As it attempts to further reduce the backlog of work, the NMC will give priority to (a) document renewals, then (b) license upgrades, (c) original documents and finally (d) continuity renewals (those not actively sailing). The message from industry is clear: Keep the mariners already working at sea and bring along those who want to improve their positions as quickly as possible. Mariner documentation is an executive issue and an executive problem that needs to be solved. Some companies are taking an active interest in the NMC process. Not content to sit on the sidelines and wait for results, Ingram Barge Company dispatched ten employees to Kearneysville in October. Their visit coincided with the MarEx interviews for this article. After the tour and Coast Guard presentation, Ingram’s Dave M. Brown, Vice President in charge of Human Resources, 40 the maritime executive
told MarEx, “I was very impressed with what I saw. I also sensed a level of commitment that had not been there in the past.” Ingram’s interest in the Coast Guard’s new vision for NMC is not a casual one. With more than 1,700 mariners and nearly half of those holding some sort of license, the day-to-day heartbeat of Ingram Barge depends on keeping the mariners on the boats. Ingram’s visit had more than one purpose. Its “focused wellness” program is beginning to yield good results for its mariners, but it remains keenly interested in making sure the lines of communication remain open between the Coast Guard’s new NMC medical unit and the company’s own physicians. Teaming with Vanderbilt University, Ingram hopes to smooth out the wrinkles in the “medical waiver” process and keep those mariners who deserve to be employed on the water. While others fret about the new medical regulations coming down the pike, Dave Brown’s group was comprised, in large part, of medical personnel seeking to establish good lines of communication and a better understanding of the new rules.
NMC in West Virginia: Why It’s Here and Why It Will Yield Dividends in the Long Run This isn’t the first the Coast Guard has tried to fix the mariner-documentation process. This time, however, the funding is finally here: $12 million in reoccurring funds and up to $20 million in total – more than double the funding it had before. Of course, the funding came at a price. And Senator Byrd’s (D-WV) regentrification of West Virginia is continuing at a brisk pace, thank you very much. As this issue of MarEx went to press, there were no concrete plans in the works to dredge a channel up to Martinsburg for Coast Guard cutters. The NMC is close enough to the beltway and still provides a relatively bucolic way of life and a reasonable cost of living. All kidding aside, the move is, in retrospect, a good one. The infrastructure from which the NMC can tap into existing cables and local Coast Guard expertise is already here. At least two other Coast Guard IT-critical units are in close proximity. Along with a cheaper cost of living goes the advantage of (at least in theory) a reduced cost of doing business. And Stalfort claims that the “brain drain” feared by many as they moved hundreds of positions from multiple locations to just one did not occur. Only two of the many personnel slated to make the move from Arlington opted out.
Dave Stalfort has been in the licensing game for twenty years, having worked at the New Orleans REC as well as at Juneau, and he was the Commanding Officer at Memphis for a time. He’s clearly the right guy to lead this effort, and what he might lack in knowledge he certainly makes up for in enthusiasm and, perhaps more importantly, vision. Stalfort understands that mariners are NOT ships and that the future shape of mariner documentation cannot in any way mimic the National Vessel Data System. Some day, mariners will be able to perform a fair bit of their documentation requirements on-line, in a secure e-environment. Gone will be the redundant, embarrassing disclosures (for example, of the time they were cited as a 16-year-old kid for having an open container on a date) to a Coast Guard clerk at a beat-up office on a back street in an obscure port. There’s little need to embarrass a distinguished 55-year-old mariner by rehashing old news – that data is out there and the Coast Guard is going to find it whether the mariner reports it or not. At least, that’s the goal. The scaling down of the 17 individual RECs will in certain cases involve personnel transfers to NMC. Stalfort says that more than a few have been taken from the New Orleans operation already. Recognizing that licensing and documentation has never been a good career track within the Coast Guard, the service is overtly moving toward a workforce that is heavily civilian in its orientation. These are billets that can pay as high as a GS-15 grade, and it is hoped that more expertise from the commercial sector will be achieved along the way. Today, the NMC workforce consists of 16 military billets, 63 civilians and 160 contractors. Another 100 workers are still in the field at the various RECs. Their combined efforts produce more than 60,000 credentials per year. The National Maritime Center isn’t coming. It is here. The vision for this newly reorganized unit has not yet been fully realized, but if this does occur, then mariners and domestic maritime operators will be the real winners. The good news is that the reshaping of at least one aspect of the Coast Guard’s flawed marine safety mission is well underway. Two hours from Martinsburg, at Coast Guard headquarters, ADM Thad Allen, the Coast Guard Commandant, can watch with a measure of satisfaction. Unlike Katrina, however, I have a feeling that he won’t need to micromanage this one. If he does, we’re all in a world of trouble. MarEx
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Patrol Boats: Plugging the Smallest Holes in Port Security
Big Value in Small Packages May Well Be the Key to More Effective Port Security
Well after departing the White House, Dwight D. Eisenhower characterized Andrew Higgins as “the man who won World War II.” Higgins, of course, was the designer of the now famous landing crafts (LCPs, LCPLs, LCVPs and LCMs) that the strategy of winning the war was built upon. Because of his heritage, which saw him spend much of his early life on inland shallow rivers with shifting sandbars as hazards, his interest in the shallow-draft concept would eventually lead him to develop the platforms from which D-Day became a success and the “island-hopping” campaign in the Pacific was executed. By Joseph Keefe 43
patrol boats: port security Today, a different kind of war is being fought, at home and abroad. This time, the weapons involve a terror so insidious that the very nature of maritime commerce has been altered because of it. It is widely acknowledged that perhaps the weakest link in the war that will probably never really end is represented by the 95,000+ miles of American coastline, as well as the threat inherent in waterborne activity overseas. In response, a different breed of shallow-draft equipment has been developed specifically for port security. Nimble and fast and smart, these patrol craft are forming a less visible but nevertheless important part of our defense capabilities. Some day, the patrol craft being manufactured and used by the U.S. Coast Guard, U.S. Navy and scores of other foreign and domestic seagoing security forces may come to be known as this century’s equivalent to what Andrew Higgins accomplished more than 60 years ago. The patrol boat industry is today responding in a big way to what U.S. Coast Guard Commandant Thad Allen calls the “next big thing”: the small boat threat. Defined loosely as any craft of 300 gross tons or less, it is these small and nondescript vessels that pose the biggest threat to shipping, U.S. ports and
our transportation infrastructure itself. Beyond this, small boats potentially slide easily under the radar – literally speaking and otherwise – of the hundreds of millions of dollars now being spent on port security. The threat that these small craft present is easily defined, and perhaps the most important mission of any patrol boat platform is to prevent the next “Cole-style” attack from taking place.
SeaArk Marine: Protection in the Harbor and Around the World Large ocean carriers and their managers probably only have a passing interest in the world of patrol boats, but however removed these smallish craft might be to the daily activities of today’s megaliners and VLCCs, they ultimately have a marked impact on the
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bottom line. One such craft is SeaArk Marine’s Naval Coastal Warfare Craft (NCW). The NCW, just 34 feet in length, packs a powerful punch in the war against terror. With the U.S. Navy’s NAVSEA as its number one customer for this genre of craft, SeaArk has already constructed more than 90 of them. SeaArk Marine, formerly known as MonArk Boat Company, has custom built all-welded
aluminum workboats for over 45 years. In 1988, the company sold off its recreational line of business in order to concentrate on supplying vessels to all branches of the U.S. military, the U.S. Army Corps of Engineers, the U.S. Coast Guard, fish and wildlife agencies, state agencies, commercial oil companies, municipalities and many other commercial and government entities. Over 200 skilled craftsmen work for
SeaArk from its Monticello, AR headquarters. Initially, the NCW was used as a coastal patrol boat, but it has since found great utility as a platform to escort supertankers in and around Kuwait and Iraq. With a crew of four, the boats are fast, maneuverable and well-armed. After seeing the craft in action, Kuwait went ahead and ordered 15 NCWs and Jordan, also seeing utility there, has ordered several more. Another entry in SeaArk’s maritime security portfolio is the Harbor Security Boat (HSB). The HSB is manufactured in the 27-to-28foot range and is used primarily as a Naval defensive asset in the war against terror. At least 80 of these craft have been built for the U.S. Navy, and today they are in use around the world in locations such as Guantanamo Bay, Cuba; Japan; and, of course, right here at home in the United States. SeaArk Vice President Ken McFalls told MarEx this month that his firm is working on providing armor for these vessels as a future add-on option. Another recent but exciting entry to SeaArk’s military line of equipment is its Seal Boat, intended to transport teams of elite soldiers over water. Eight of these boats have been contracted, and the company is working on contracts to build more.
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the maritime executive
45
patrol boats: port security Brunswick Commercial & Government Products: Deep Roots in Defense Known for many years as the commercial and government division of Boston Whaler, Brunswick Commercial & Government Products, Inc. is today a subsidiary of Brunswick Corporation. With deep roots in the defense industry dating as far back as the Vietnam conflict, Brunswick is known for providing safe, longest-lasting and dependable platforms for a variety of law enforcement /homeland security, special operations/combat, fire/ rescue and workboat applications. Over the
With separate facilities and management from the other divisions of Brunswick, this group is free to concentrate on what it does best: building patrol boats and other specialty platforms for government use. years, it has evolved substantially to meet the continually changing needs of its customers. As a stand-alone company overseeing the manufacturing of the commercialized Boston Whalers, Brunswick has its own dedicated staff and facility. And that’s part of the “evolution” story. Eric Caplan, President of Brunswick Commercial & Government Products, told MarEx recently, “We exist as a standalone group for many reasons, but the custom nature of what we do does not lend itself to the traditional small boat assembly line normally associated with the recreational craft market. Our shop is closer to a traditional shipyard operation.” With separate facilities and management from the other divisions of Brunswick, this group is free to concentrate on what it does best: building patrol boats and other specialty platforms for government use. Also responsible for commercial applications for the entire Brunswick Boat Group – one of the world’s leading powerboat manu 46 the maritime executive
facturers – Brunswick offers access to a wide variety of hulls up to 100 feet in length. One of the key missions supported by any Brunswick platform is that of the Coast Guard’s highly visible Port Security Units. The program started in 1988 with the concept of loading the two biggest craft possible onto a C-130 transport plane for immediate transport to anywhere in the world at a moment’s notice. Later, the program evolved to include a single, slightly bigger platform, accompanied by a truck which could transport it to the water from the landing strip. After 9/11, the number of Port Security Units increased by two in response to the greater threat to our nation’s ports, and Brunswick of course responded to this requirement. The Port Security Units continue to be one of the most critical aspects of the Coast Guard’s Homeland Security mission mix. Another high-visibility product produced by Brunswick is the Combat Riverine Craft. These low-cost, 25-foot craft have been deliv-
ered and deployed in such places as Mexico and Argentina, with 300 alone operating in Columbia in an anti-drug / interdiction role. The boats come in varying sizes, with the possibility of transporting up to 12 personnel traveling at 40 knots and bristling with five weapons stations. That Brunswick has built and delivered so many of these craft is not surprising given its roots, which go all the way back to Vietnam, where it provided 16-foot, fourman patrol boats for operations in the deltas of Southeast Asia. Brunswick has always been able to respond to the demands of the U.S. government. In the beginning, the Whaler boats were bought directly from the manufacturer as is and later modified for specific missions. Then in 1981 the federal government asked Brunswick to modify them and provide a fit-for-purpose platform, eliminating the requirement of having to modify them after market. By 1982, Brunswick had dedicated an entire facility
patrol boats: port security boat manufacturing facilities. Although the government work is but a small percentage of our annual sales, our depth in the marine world puts us in good position to respond to any challenge. We can support the government with service, sales and training around the world.” He adds that Brunswick deals regularly with Cummins, the supplier of engines for some of their patrol boat platforms, and that Brunswick also owns Mercury Marine.
Under the RADAR No More: American Electric Technologies Partners with Bollinger to Power U.S. Coast Guard Coastal Patrol Boats
and management team to the government and commercial work. Eric Caplan touts the Brunswick method of building hulls as the best way to protect the boats and crews. The foam-filled Brunswick hull has no stringers for rigidity, and the foam itself adheres mechanically and chemically to the hull. In this way, the hull is common to itself, both fore and aft and athwartships. It
Just this month, American Electric Technologies, Inc. (AETI), a premium supplier of custom-designed power distribution and control solutions for the traditional and alternative energy industries, announced that its subsidliterally cannot sink, and Brunswick’s favorite iary, South Coast Electric Systems, L.L.C., has way to demonstrate that feature is to show a begun delivery of power systems for eight Boldramatic photo of one of its hulls after it has linger Shipyard-manufactured 87-foot marine been riddled with 1,000 rounds of gunfire. oceantug25v 6/21/06 3:05 PM Page 1 protector class coastal patrol boats (CPB) conGoing beyond the variety of law enforcetracted by the U.S. Coast Guard. Although the ment and military solutions offered by Brunsfinancial details were not disclosed, the deal wick today, Eric Caplan points to the depth represents another major step into the homeand breadth of the company. “We turn out land security game for AETI. over 90,000 boats annually from a total of 37
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patrol boats: port security Increased homeland security and other heightened law enforcement issues like drug and illegal alien interdiction have not only raised the bar for sanctions but also for the requirements for the vessels that keep America’s borders safe. Bollinger has contracted AETI to deliver eight sets of American Bureau of Shipping marine-class generator controls and power distribution switchgear for the multi-mission CPBs, which are capable of performing searchand-rescue, law enforcement and fisheries patrol missions. The switchgear has been cus-
Defending against the small boat threat and / or the possibility of the next “Cole-style” attack will certainly not be the domain of a 500-foot-long platform. tom-designed to meet the strict requirements for size and weight of these armed vessels. “These patrol boats are state-of-the-art vessels and have specialized power requirements to be able to perform all the functions for which they are designed,” said Paul Champagne, Bollinger’s program manager. “We respect AETI’s reputation and vast knowledge in the marine power distribution industry, and that’s just one reason why we chose them for this project.” The CPBs, which have two MTU 8V 396 TE94 diesel engines, are built to carry up to 2,900 gallons of fuel and can tow up to a 200-ton vessel. The system includes slowspeed drive capabilities to help the vessels maneuver in restricted waters or tow small pleasure craft after a successful search-andrescue mission. The engine control and monitoring systems are equipped with operational data recorders to provide performance-based maintenance and to improve logistics support. AETI has already delivered two power sys 48 the maritime executive
tems for the CPBs being built at Bollinger’s Lockport, LA facility and is scheduled to deliver at least one ship set each month until the first quarter of 2008. “American Electric Technologies is accustomed to tailoring our systems and creating customized solutions for our clients’ evolving requirements,” said Charles Dauber, senior vice president of marketing and sales for AETI. “We are proud to be a part of a project like this one that helps the U.S. Coast Guard in its mission to protect the safety and security of America.” AETI is headquartered in Houston and has global sales, support and manufacturing operations in Keystone Heights, FL; Beaumont, TX; Bay St. Louis, MS; Singapore; and Xian, China. AETI subsidiary South Coast Electric Systems L.L.C. is based in Pearlington, MS and services Gulf Coast marine and vessel customers. AETI’s SEC filings, news and product/service information are available at www.aeti.com.
Patrol Boats: Increased Utility in a Dangerous World There has always been a market for smaller defensive and offensive marine platforms. At one time, the utility of this genre of boat was primarily focused on law enforcement and not necessarily a military role. The tragic events of 9/11 have blurred the line of demarcation between the two and probably forever. Just ask the Coast Guard. Sometimes lost in all the hand-wringing over the shrinking state of domestic shipbuilding, the small boat manufacturer is now arguably one of the most important parts of the port security puzzle. Defending against the small boat threat and / or the possibility of the next “Cole-style” attack will certainly not be the domain of a 500-foot-long platform. The U.S. Navy and the Coast Guard both know it, and slowly but surely maritime executives everywhere are waking up to the same realization. MarEx
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Marine Coatings: It’s All About the Money Reducing Paint Selection to Dollars and Sense
Paint.
It’s not sexy and it usually isn’t the most important thing on the minds of shipping maintenance personnel or their procurement counterparts. But perhaps it should be. The maritime world has finally transcended the changes that the ever-increasing size of tonnage brought to a business thirsty for economy of scale. In an environment where every dollar is precious and the bottom line often teeters on the side of red, new technologies are finally entering the marine game long after they affected 1,000 other modes of transportation. Lost in all of this can be the mundane decision of which type of paint to buy, why, and when to adhere it to that $80 million investment. This blunder would fall under the general category of “You can pay me now, or you can pay me later.” Today’s marine coating providers are focusing on an all-important bottom line: yours. Along the way, they are making improvements to the first thing that most people see when they board a vessel, and often the last thing they’d ever think about. Marine coatings affect an operator’s bottom line – no pun intended – in so many ways. Today, there’s any number of reasons to rethink and upgrade, if necessary, the type of coating to be applied to the hull, house and internal tanks and ballast spaces. Read on and see why.
50 the maritime executive
Sherwin-Williams’ SeaGuard® 1000 Marine Enamel Allows Extended Application Season “Improving color and gloss retention over existing standard non-modified alkyd resin paints” is one of Sherwin-Williams’ main selling points for their new SeaGuard®1000, a one-component acrylic modified alkyd resin that improves color retention and gloss over that of standard alkyds, but without the cost of a silicone or urethane modification. The coating is designed specifically to withstand environmental conditions of marine and coast-
al environments. But the best reason for using this product may be the long-term savings achieved by the customer from reduced coating failure in harsh, colder conditions. Ideal for use on exterior or interior surfaces, SeaGuard® 1000 is capable of being applied at temperatures lower than 40o F (4o C), which makes it a perfect choice for vessel maintenance during winter layup. The new coating – introduced just last month – is an approved coating for Canadian Coast Guard and Navy vessels that typically face winter dry dock conditions, having passed the rigor-
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all about the money ous National Standard of Canada test, CAN/ CGSB-1.61-99. And for riverboat operators whose tows venture up into the heartland in the winter months, the maintenance season just got a little bit longer. Downtime equals capital lost when it comes to having a dry docking due to winter weather or when shipyard personnel are unable to complete a vessel’s coating maintenance in a timely manner. Should this occur, many times coating projects are delayed until the next dry docking. SeaGuard® 1000 Marine Enamel applications were completed on six vessels in Sturgeon Bay, WI during the 2006-2007 winter layup. This product was chosen to meet the application demands of the yard during winter weather and the performance demands of the owners. The vessels ranged in size from 675 to over 1000 feet. The paint was applied by brush and roller, conventional and airless spray. “SeaGuard® 1000 offers long lasting performance, great color and gloss retention and significantly reduces maintenance downtime,” said W. Doni Riddle, Vice President, Sherwin-Williams Industrial & Marine Coatings. “An added benefit is that it is easier to keep clean due to the high gloss and tough durable surface.” For today’s imageconscious operator, a better looking ship is part and parcel of maintaining that important “green and clean” veneer.
tions when running the Gulf Stream around the Florida Keys. A recent study shows that Hempel’s silicone-based, fouling release coating, HEMPASIL, can lead to a fuel saving of 10.6 percent for a large container vessel – helping bring down operating costs. In a towing tank project conducted by Force Technology, an independent institution specializing in objective measurements and testing for major ship builders and operators, HEMPASIL was found to have significantly higher performance benefits than tin-free, selfpolishing coatings (SPC). The main question of the study was: Will a ship operator be able to see any fuel savings by applying HEMPASIL? The answer was a resounding “yes.” The project proved that HEMPASIL increased power efficiency and reduced fuel consumption for a range of vessels and hull conditions. The comparison involved applying different surface textures (roughness) to 2.5-meterlong test panels, which were then towed at speeds of up to 20 knots in Force Technology’s 220-meter-long towing tank. Three different levels of roughness were used: a “newbuilding” situation with relatively smooth hull plates; a “medium” roughness condition, corresponding to several years in service, and a surface with relatively “high roughness.” Skin friction was estimated in comparison to the total ship resistance, including wave, air and wake resistance, so the results could be Saving Fuel: evaluated as realistically as possible. The skin Hempel’s HEMPASIL Coating friction results were then translated into power, Brings Down Operating Costs fuel and environmental savings to show the It has always been apparent to any deck full effect on fuel consumption, CO2 and NOX officer that the value of a clean hull extends emissions. The results were also calculated into many areas of operations. Coastwise for four different vessel types in addition to the tanker operators running from the U.S. Gulf three different hull roughness categories. Coast to East Coast distribution points, for The results were highly reproducible example, know that the first few trips after the and showed a consistent positive difference shipyard always result in measurably higher between all HEMPASIL-coated surfaces verspeeds using the same number of revolusus self-polishing, tin-free antifoulings. The towing tank experiments were designed and conducted according to guidelines of the International Naval Architects and Marine Engineers Towing Tank Conference, which allows for 75 Terry Dr., Suite 200 scaling up to the higher Hingham, MA 02043 Reynolds numbers Telephone: 781-740-8193 found on larger ships. Facsimile: 781-740-8197 Force Technology calcuE-mail address: inbox@jwgainc.com lated the impact of the Website: www.jwgainc.com improvement in propulsion efficiency in terms
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of fuel savings for four ship types. The results were significant. Vessel running fuel costs are significantly influenced by hull roughness. A fouling control coating capable of maintaining a smooth hull during service is extremely valuable, and HEMPASIL recorded significantly lower skin friction than self-polishing antifoulings for all roughness scenarios. The improvement in skin friction compared to the antifoulings was up to five percent. For a large container vessel, a skin friction improvement of five percent corresponds in propulsion efficiency to a 10.6 percent fuel reduction, or up to $2.5 million in annual fuel savings. Euronav’s 380-meter ULCC tanker is experiencing fuel savings in the range of eight percent compared to a sister vessel with a tinbased antifouling coating. The savings are attributed to Hempel’s HEMPASIL coating. Early in 2007, HEMPASIL was applied to Euronav’s ultra-large crude carrier, the TI Asia. The 380-meter tanker with a deadweight of over 440,000 tons is experiencing fuel savings in the range of eight percent. The eight percent is compared to TI Asia’s sister vessel, TI Europe, coated four years ago with a tinbased antifouling compound. “We are not surprised to see savings of this magnitude as these practical results confirm the recent findings from towing tank experiments,” says Hempel’s Torben Rasmussen, Product Manager, Group Marine Marketing. Hempel achieved this breakthrough working closely with Euronav, an integrated tanker company, which owns and manages a fleet of 36 crude oil tankers. The HEMPASIL specification is guaranteed for five years and has a potential lifetime of another five years. “For TI Asia, the savings in fuel consumption will lead to an annual reduction in carbon dioxide emissions of nearly 10,000 tons,” added Torben Rasmussen.
Duraplate® UHS Epoxy Coating: Attacking the Enemy Within Inside any vessel, another enemy lurks within ballast and void spaces. Rarely seen and relegated often to an “out-of-sight / out-of-mind” level of attention, coating failure in ballast tanks can often be one of the most costly repair items that a ship owner will have to face. Until now, it was also one of the toughest to see coming. Sherwin-Williams Duraplate® UHS Epoxy Coating’s fluorescing formula eliminates guesswork, enhances visual inspection and helps to clearly identify holidays (bare spots) and pinholes. Quite simply, the epoxy’s optically active pig-
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all about the money ment technology can significantly extend the life of ballast tanks. Introduced earlier this year, Duraplate® UHS Ultra High Solids Epoxy with fluorescing Optically Active Pigments (OAP) from SherwinWilliams Industrial & Marine Coatings allows shipboard tank lining applicators to efficiently address coatings application issues, which can lead to significant increases in tank-coating service life with a simple, low-cost and extensive coating and inspection system. Opti-Check fluorescing pigment was added to a proven Sherwin-Williams technology supplied to the U.S. Navy and has effectively increased the service life of marine ballast storage tank coatings simply by illuminating insufficient film thickness, pinholes and holidays wherever they occur. The result: Proper
pigment technology to the commercial world is no less important. The coating uses Duraplate® UHS Epoxy as the vehicle to hold the pigment and is available as a single- or multi-coat application. Traditional holiday detection methods as prescribed by NACE RP-0188 may identify bare substrate but are not designed to pinpoint insufficient film thickness, Riddle said. How the system works depends on whether the application is single- or multi-coat. Viewed under LED light, a single-coat system with Opti-Check OAP pigments will fluoresce or glow even when still wet. Pinholes, holidays and improper film thickness will either appear black in contrast to the fluorescing coating or not as bright due to insufficient film thickness. Riddle noted that the coating technology
Whatever your particular concern, there is a marine coating to combat a problem and provide a measurable savings in operating costs down the road. film thickness and uniform coverage can now be verified and corrected instantly, which in turn extends ballast tank service life. “The U.S. Department of Defense recognized that the preservation of ballast tanks is at the top of fleet maintenance corrosion-related cost,” said W. Doni Riddle, Vice President, SherwinWilliams Industrial & Marine Coatings. “Corrosion would be quite evident after only three years using standard coatings; by adding fluorescing Optically Active Pigments and visually inspecting the tank interior with a hand-held UV flashlight and non-line-of-sight mirror, holidays and pinholes are easily detected and corrected before returning the tank to service.” Navy shipboard tanks can be confined spaces with complex layouts, sure to make any visual coating inspection difficult. Fluorescent inspection improves visual accuracy by enhancing the contrast of holidays and easily identifying low-film-build applications. Paired with compact, lightweight inspection flashlights, tank lining applicators can observe small, hard-to-view spaces that before were unnoticed. This coating’s utility to the U.S. Navy is easy to see, but the value of the active 54 the maritime executive
overcomes hurdles that contractor skill can’t plan for. “Multiple coat systems are typically specified in contrasting colors to make visual inspection easier,” he said, “but even then, holidays can be obscured by glossy coatings and poor lighting.” Combining the OAP’s instant holiday detection with the three-day cure time of the Duraplate® UHS line gives tanks a better coating application and faster return to service, Riddle added.
HEMPADUR MULTI-STRENGTH 4575: Battling Cargo Hold Damage If you’re in the bulk cargo shipping business, you know the most important feature of a bulk carrier is its cargo hold area. In addition, a carrier’s profitability is highly dependent on the durability of the coating used in the vessel’s revenue earning space, the cargo holds. Damaged cargo hold coatings increase maintenance costs and the risk of loss of business if subsequent cargos are contaminated. This can have serious economic consequences for bulk carrier companies. A ship’s cargo holds, like the bow, outer hull
and decks, are subject to severe abrasion and mechanical damage. This means the coatings on these areas have to withstand high mechanical, thermal, hygroscopic and chemical stress in order to provide corrosion protection. Active cargos such as iron ore, coal, coke, bauxite, sulphur, rocks and scrap iron can cause severe damage to a cargo hold coating. Loading / discharging and abrasion / gouging during transport also cause damage. Hempel has developed HEMPADUR MULTISTRENGTH 4575 to provide protection against corrosion and abrasion in cargo holds, tanks and exposed areas on ships. It’s a self-priming, two-component, highly abrasion-resistant epoxy coating with excellent resistance to a broad range of chemically aggressive dry cargoes.
Marine Coatings: A Hedge Against the Coming Downturn Everyone wants a good-looking ship, but there are more compelling reasons to delve deeply into the all-important decision of which marine coating, paint or tank epoxy to apply. In the boom economy of the best shipping market for operators in decades, however, this aspect of capital investment can get lost in the shuffle. Marine coatings can make a difference – now and in the future, when shrinking margins will affect everyone in a particular market sector. At that time, the marine operator whose cumulative fleet needs less in the way of recoating and maintenance might just have the staying power where others do not. And the reasons to apply the right coating go to the heart of any marine enterprise: ■■ Reduced Downtime ■■ Elimination of Coating Failure and Related Maintenance ■■ Color Retention and Durability ■■ Reduced Cargo Hold Damage / Ballast Tank Corrosion ■■ Fuel Savings ■■ Reduced Air Emissions (CO2 and NOX) ■■ Anti-Fouling / Reduction of Invasive Species ■■ Superior Cold Weather Application & Curing Time, money, fuel, pollution, maintenance and invasive species. It’s simply not enough any longer to apply just any coating. Whatever your particular concern, there is a marine coating to combat a problem and provide a measurable savings in operating costs down the road. For the serious marine operator, that may not be exactly sexy, but it is exciting. MarEx
Clueless About Valuation By George Weltman (Reprint Courtesy of Marine Money) For the uninitiated, the concept of valuation is fraught with mystery and magic. However, in definitional terms it is fairly straightforward. The American Heritage Dictionary defines valuation as “(t)he act or process of assessing value or price; an appraisal.” So what does this term of art mean to its various consumers, which include practitioners of mergers and acquisitions as well as research analysts. My journey of discovery into the meaning of this concept started with a discussion with Mr. Einar Kilde Evensen of DnB NOR Markets who provided a framework for the subject as well as referred me to an excellent website (www.damodaran.com) on valuation created by Professor Aswath Damadoran of NYU’s Stern School of Business. From the financial perspective, value is the accumulated future cash flows of the business, which are available to shareholders. In principle, these would be the future dividends. When this revenue stream is discounted and divided by the number shares outstanding, the theoretical value per share is determined. Of course in the real world nothing is quite so simple. A simple deviation from this concept is the business model based upon growth where the dividends are re-invested in the business. Here the presumption is that the re-invested dividends would generate increased revenues leading to further growth and therefore a higher valuation. A presumption for retaining earnings is that the company is pursuing attractive projects, and is able to achieve higher returns on invested capital (ROI) than its shareholders. A third way of utilizing excess cash is to buy back shares indirect dividends if you like - which would either be held in treasury or cancelled leading to fewer outstanding shares. There are two methods of valuation. The first, which is the direct method, values a company using discounted cash flows (DCF). The valuer makes assumptions concerning revenues, margins, investments and working capital required, with the excess being earnings to shareholders. In theory, this is the most correct methodology as it incorporates all known information based upon well-founded assumptions. The calculation determines the true value.
Unfortunately, although well founded, this exercise is based upon so many assumptions on an uncertain future that the result is more theoretical than practical. Nevertheless, with all assumptions laid out on the table, the DCF valuation remains a very transparent and useful tool. The second method of valuation is the “benchmarking” approach also known as peer group valuation. Here the analyst compares multiples of comparable companies (A-X) to determine the value of company (Y). Commonly used multiples are price/earnings (P/E), EV/ EBITDA, EV/EBIT and Price/NAV. If two companies trade at the same multiples then they are equally valued. Critical to this valuation is the level of comparability between the different peers, or groups of peers. Which arguments exist for valuing company at a premium versus other companies in the peer group? A very important assumption in this respect is that of market efficiency by which we mean that all available and relevant information is known by all players, and discounted into companies’ share prices. If this is correct, then the true value of a share is, ipso facto, the price at which the share is being traded. We inherently know this is true for large companies which are followed by many investors and analysts, and where transparency exists. However, this is less certain in the case of smaller companies. In the comparably simple peer group valuation, there are no hidden assumptions between peers. Differences arise from efficiencies, revenue growth prospects, margin development, perceived quality of management or other known events. Finally, if the methodologies give different results, the differences are likely attributable to differing expectations for growth etc. Before we get into the multiples which provide the primary basis for peer group valuation among analysts, we should consider NAV or net asset value as a measure which is readily applicable to businesses, like shipping, whose assets are readily liquid. NAV for a company would be the sum of the values of its assets less debt. It too assumes that the market is efficient and that buyers and sellers agree to prices based upon the asset’s future earnings. The problem with this methodology is that it is
backward looking, constantly changing and is, arguably, obsolete as soon as it is calculated. Nevertheless, some analysts do perceive value in it and include it in their research. Generally, owners, particularly those whose fleets are older or whose balance sheet is highly leveraged, do not care for NAV and would prefer their companies to be valued simply on the basis of cash flow multiples for obvious reasons. On the other hand, companies, which are trading below NAV, tend to make an argument for its inclusion in the analysis. To take this article from the theoretical to the practical, we polled various analysts to get their thoughts on this subject. Generally speaking, peer group valuation is the preferred technique in the marine space due to its simplicity as well as the ease with which peer groups can be constructed in this industry. At Jefferies & Co. Inc., Douglas Mavrinac uses peer group multiples, NAV and dividend yield to determine a stock’s value. The trick is to triangulate among them to determine a fair valuation with the sector/market outlook being a paramount input. He gave the example of DryShips selling at a discount to NAV, which quickly reversed itself with the dry market boom. Some of the multiples used include P/ NAV, EV/EBITDA and dividend yield. Helane Becker of The Benchmark Company uses EV/EBITDA, P/CF and P/E with the choice depending on where we are in the cycle. Urs Dur of Lazard Capital Markets best framed the question for me by explaining his approach to valuation in some detail. The process begins with a look at the company, its structure and how it operates. From there, he then determines which is the more appropriate valuation technique. For companies without extremely long-term contracts and for which a valid peer group can be constructed, he uses peer group analysis with a particular focus on EV/EBITDA and P/E. The former has pretty much become the gold standard multiple based upon everyone’s focus on cash flow. Critical to the analysis is the construction of a rational peer group. To form the group, Urs looks at such characteristics as vessel types, trades, and dividend policy. For vessels with long-term contracts and no the maritime executive
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elephant in the room peer group, the DCF method is appropriate. Although revenues are known, many assumptions, which must be justified, need to be made and hence in many respects this is an art form as opposed to a science. Care must be taken with respect to growth assumptions, residuals and, most critically, the weighted average cost of capital (“WACC”) that is used to discount the cash flows. The analyst’s biggest fear is how to value a company with no peer group or long-term contracts. He posited as an example the scenario where OSG might spin off the CNG business it is in the process of developing. Although he does include NAV in his analysis, it is not heavily weighted. At Cantor, Fitzgerald, Natasha Boyden uses primarily EV/EBITDA and NAV for valuation. Natasha differentiates between the high yield and non-high yield stocks to factor in the dividend giving a higher multiple to the former. NAV is a useful tool in that it provides the breakup value of the company or what the assets are worth. Whatever the case, the reasons for why the stock trades either above or below NAV need to be assessed. Characteristics to look at include management and risk profile, in terms of spot versus period employment among others. We have barely scratched the surface of this topic in this article and our appetite is whetted. Clearly, such issues as forming peer groups and developing forward-looking assumptions and WACCs for DCF analysis are interesting questions to think about. And even more interestingly, how are the M&A people determining what to pay for a company? OSG’s acquisition of Maritrans would make an interesting case study. We remain intrigued by this subject and will probably re-visit it again. In the meanwhile, we would be grateful to hear from our readers on this subject.
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