Comment on the Maritime News

October-December 2002

   2002: THE YEAR THAT THE WORLD BEGAN TO NOTICE THE INTERNATIONAL SHIPPING INDUSTRY.  There were three interesting and potentially alarming developments in 2002:

Why can't the international maritime industry clean up its act?  We talk about it endlessly but precious little happens.  If the industry doesn't takes its future into its own hands, and very soon, it is likely to be faced with a whole bunch of repressive (and probably conflicting) new laws and regulations.  Tim Colton, December 31, 2002.

   TEXT OF THE EU'S PROPOSED NEW TANKER RULESThe EU's press release and the text of the proposed new rules are reproduced in full below.  Tim Colton, December 23, 2002.

No single-hull oil tanker will be allowed to carry heavy fuel oil in the European Union once the proposal presented today by the European Commission is adopted by Council and Parliament. Furthermore, all single-hull oil tankers of Erika and Prestige type aged more than 23 years will be immediately banned from the Union, while the elimination of more modern ones will take place earlier, between 2005 and 2010, according to a more stricter calendar than provided for by current rules. Finally, during the phasing out period, those tankers that have not yet reached the age limit will be subject to stricter safety inspections. "Our first proposal of this kind dates back to just after the Erika disaster in December 1999," said Loyola de Palacio, Vice-President for Transport and Energy, "The Prestige catastrophe makes it clear that the agreed compromise rules were not sufficiently ambitious. This will change." she added. "I hope that the measures we are putting forward today will swiftly enter into force, so that the threat to our maritime and coastal environment is radically and rapidly reduced." The Prestige, a 26-year-old single hull oil tanker carrying 77 000 tonnes of heavy fuel oil, sank off the coast of Galicia on 18 November, creating an oil slick on the coastline of Galicia which caused a major economic and environmental disaster.

The Commission proposed today to reinforce EU and international maritime safety rules agreed in the aftermath of the Erika disaster(1). In view of the catastrophic consequences of the Prestige accident, the Commission urges the European Parliament and the Council to adopt these measures as soon as possible so that they can enter into force no later than March 2003.

The Commission proposes an immediate prohibition of the transport of heavy oil grades(2) in all single-hull oil tankers bound for or leaving European ports(3). Given its relatively low commercial value and low risk of fire or explosion, heavy fuel is regularly carried in older single-hull tankers. It is also paradoxically the most polluting type of oil when spilt at sea. Due to its low volatility and high viscosity it can inflict the most severe damage on marine and coastal ecosystems. The Commission's proposal aims at changing radically the current trend and will make it compulsory to transport the most polluting products in the safest ships. If adopted, it will thus reduce drastically the risk of environmental disasters such as those caused by the Prestige and Erika accidents.

The Commission also proposes today to speed up at European level the phase-out of single-hull tankers for the transport of all types of oil. In particular, the oldest and most vulnerable types of single-hull tankers, constructed before 1982, will be phased out when they reach 23 years of age, as compared with 28 years of age under current rules, and by 2005 at the latest for the most recent ones. Other categories of large single-hull tankers should be phased out by 2010, with a more strict calendar than provided for by current rules.

With this new proposal, similar to the initial European Commission proposals in 2000, in the aftermath of the Erika's disaster, the European Union will apply stricter rules than the United States of America for the phasing-out of single-hull tankers. It will give a further boost to the modernisation process of the tanker industry. Over the last 3 years, the share of double-hull tonnage in the world fleet has gone up from 30 to 50% with another 60 million tonnes of double-hull capacity in shipyards' orderbooks. The European tanker industry, which to a large extent had already anticipated the application of the existing phase-out rules, is presently undergoing the largest modernisation programme in its entire history.

The Commission finally proposes to impose a broader and earlier compliance with reinforced inspection rules for single hull tankers which have not yet reached their age limit. All single hull tankers, including the smallest which were formerly excluded, would now have to comply with the « Condition Assessment Scheme » (CAS) as from 15 years of age. The CAS is an additional reinforced inspection scheme specifically developed to detect structural weaknesses of single-hull tankers. Tankers, even relatively young ones, which do not pass successfully the test may not be allowed in EU ports or to be operated under an EU flag.

The Commission urges the Member States to make every effort to have these stricter safety standards reflected for the entire world fleet through the International Maritime Organisation's rules.

Annex

Comparison of new proposed rules and former agreed rules

NB : Both the ERIKA and the PRESTIGE tankers were Category 1 tankers of 26 years. To ensure a better protection of the marine environment, the Commission re-instates today the proposed dates for phase-out it had put forward in the « Erika I » package. These had been watered down in the subsequent legislative process.

Type of tanker/cargo Existing rules New proposed rules

Heavy grades of oil : heavy fuel oil, heavy crude oil, waste oils, bitumen and tar

Single-hull tankers of all flags No rules Banned from EU ports. All shipments of heavy grade oil to or from EU ports, offshore terminals or anchorage areas to be carried by double-hull oil tankers, regardless of their flag.

When : immediately from the day of entry into force of the proposed regulation

All grades of oil

Single-hull tankers of all flags Banned from EU ports

When : age limits between 26 and 30 years with end phase- out being

- Category 1 : 2007

- Category 2 : 2015

- Category 3 : 2015

Banned from EU ports

When : over age limits between 23 and 28 years of age with end phase-out being:

- Category 1 : 2005

- Category 2 : 2010

- Category 3 : 2015

CAS compliance

Single-hull oil tankers of all flags Needed to enter EU ports

When:

- Category 1 : 2005

- Category 2 : 2010

- Category 3 : not applicable

Needed to enter EU ports

When:

- Category 1 : not applicable (phased-out)

- Category 2 : 2005 from 15 years of age

- Category 3 : 2005 from 15 years of age

 

The three main categories of single-hull tankers remain those of Regulation (EC) N 417/2002 :

(1)The Commission puts down a proposal to amend the existing EC 417/2002 Regulation

(2)"Heavy grades of oil" include: heavy fuel oil, heavy crude oil, waste oils, bitumen and tar

(3)The Commission's proposal covers ports, offshore terminals and anchorage areas under the jurisdiction of a Member State.

   WHY WOULD CARLYLE WANT CSX LINES, ESPECIALLY AT THAT PRICE?  Why would anyone want to be a Jones Act operator?  Why, in particular, would an investment group that's heavily involved in the defense industry, and doesn't have a CCF, want the collection of floating razor-blades that constitutes the bulk of the CSX Lines fleet (see below).  A total of 16 ships, with an average age of 25 years.  Only 3 of the 16 are under 20 years old: the other 13 have an average age of 28.  And these 13 ships are not only old, they're also steam-powered: it's getting harder every year to find marine engineers who can remember what a steam plant looks like.

Carlyle is paying $300 million for a company that had net earnings last year of $17 million on total revenues of $681 million, an unimpressive 2.5%.  Its net cash flow was, wait for it, zero.  The book value of its fixed assets at the end of last year was $167 million.  The scrap value of the 13 old ships is around $30 to $35 million, total, and their replacement cost is over $1 billion. 

So, if Carlyle didn't buy CSX Lines for its income, and it didn't buy it for its assets, and it can't have bought it for its cash flow, why did it buy it?  Somebody please explain this deal to me.  Tim Colton, December 19, 2002.

Vessel Name

Year Built

Built By

Built As

L

B

D

Prop'n.

HP

GT

DWT

TEU

Service

CSX Challenger

1968

Sun

American Legion

701

90

32

Steam

20,100

19,200

22,500

1314

USGC-Puerto Rico

CSX Discovery

1968

Sun

American Liberty

701

90

32

Steam

20,100

19,200

22,500

1314

USEC-Puerto Rico

CSX Crusader

1969

Sun

American Lark

701

90

32

Steam

20,100

19,200

22,500

1314

USEC-Puerto Rico

CSX Navigator

1972

Ingalls

Austral Envoy

813

90

36

Steam

21,000

21,700

30,900

2282

USWC-Hawaii

CSX Trader

1973

Ingalls

Austral Entente

813

90

36

Steam

21,000

21,700

30,900

2282

USWC-Hawaii/Guam

CSX Expedition

1973

Ingalls

Austral Ensign

813

90

36

Steam

21,000

21,700

30,900

2282

USWC-Hawaii

CSX Hawaii

1973

Ingalls

Austral Endurance

813

90

36

Steam

21,000

21,700

30,900

2282

USEC-Puerto Rico

CSX Consumer

1974

Bethlehem

Australia Bear

721

95

34

Steam

23,500

23,800

25,700

1488

USWC-Hawaii/Guam

CSX Producer

1974

Bethlehem

New Zealand Bear

721

95

34

Steam

23,500

23,800

25,700

1488

USEC-Puerto Rico

CSX Pacific

1979

Bethlehem

Austral Pioneer

813

90

36

Steam

21,000

21,700

30,900

2302

USWC-Hawaii/Guam

CSX Enterprise

1980

Bethlehem

Austral Puritan

813

90

36

Steam

21,000

21,700

30,900

2302

USWC-Hawaii

CSX Reliance

1980

Avondale

Edward Rutledge

893

100

41

Steam

23,500

34,100

46,000

2438

USWC-Hawaii/Guam

CSX Spirit

1980

Avondale

Benjamin Harrison

893

100

41

Steam

23,500

34,100

46,000

2438

USWC-Hawaii/Guam

CSX Anchorage

1987

Bay

Sea-Land Anchorage

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

CSX Kodiak

1987

Bay

Sea-Land Kodiak

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

CSX Tacoma

1987

Bay

Sea-Land Tacoma

710

78

33

Diesel

14,900

20,100

20,700

1668

USWC-Alaska

   FOREIGN LEASE FINANCING SHOULD BE WELCOME.  The American Waterways Operators and a few other folks are getting all worked up about the use of foreign sources of lease financing for Jones Act ships.  This is allowed under a change in the regulations that was introduced in 1996 and is being used now, for example, by Rigdon Offshore to obtain financing from Groupe Bourbon for the construction of a 10-vessel fleet of PSVs.  Proponents say that this is a healthy change, introducing much needed new sources of capital into the industry, without any down side, and gives overseas investors an interest in preserving the Jones Act.  Opponents say that the revised language was snuck into the law in the middle of the night without any discussion, is contrary to all the principles of the Jones Act and presents a serious threat to the national security.

I say that money is money and the more of it our industry can lay its hands on, the better (me included of course).  I suspect that the Jones Act operators who object to this financing mechanism are (a) jealous and (b) afraid of the competition.  Tim Colton, December 14, 2002.

   NAMING SHIPS AFTER PRESIDENTSPresident George H. W. Bush was, of course, one of our greatest presidents and naming CVN 77 in his honor is entirely appropriate.  Is he the only former president who was actually a customer of the U.S. shipbuilding industry?  He is in distinguished company: only 17 of our presidents have previously had ships named after them by the US Navy - 3 of them twice - as shown in the table below.  Although all Liberty Ships were named after famous Americans, only 13 were presidents and only 6 of these 13 are not also on the Navy's list.  The other 17 former presidents have all been ignored, except by American President Lines ships, and even APL has ignored the last three.

CVN/CV SSBN/SSN Liberty Ships Ignored!
George Washington George Washington John Adams John Quincy Adams
Abraham Lincoln John Adams Thomas Jefferson William Henry Harrison
Theodore Roosevelt Thomas Jefferson James Madison John Tyler
Franklin D. Roosevelt James Madison James Monroe Millard Fillmore
Harry S Truman James Monroe Martin Van Buren Franklin Pierce
Dwight D. Eisenhower Andrew Jackson James Polk Andrew Johnson
John F. Kennedy James Polk Zachary Taylor Rutherford Hayes
Ronald Reagan Abraham Lincoln James Buchanan James Garfield
George H. W. Bush Ulysses S. Grant Benjamin Harrison Chester Arthur
  Theodore Roosevelt William McKinley Grover Cleveland
  Woodrow Wilson Theodore Roosevelt William Taft
  Jimmy Carter Woodrow Wilson Warren Harding
    Calvin Coolidge Herbert Hoover
      Lyndon Johnson
      Richard Nixon
      Gerald Ford
      Bill Clinton

It is interesting that this seems to be a 20th century thing, although Washington and Adams also had ships named after them back in the 18th century, when they were still with us.  Naming ships after presidents couldn't be politically inspired, could it?  Tim Colton, December 7, 2002.

   HOW MUCH IS ALABAMA SHIPYARD WORTH?  First, we have to assume that a new owner could rebuild the Alabama Shipyard workforce to the level required to utilize the facility efficiently and that you could find all the supervisors, shop managers, planners, buyers, engineers, designers, etc., etc., that would be needed to make this workforce function efficiently.  That's no small challenge, right there, in fact, that's a positively ginormous challenge, but let's assume. 

Second, we don't know what level of output represents optimum utilization of the facility: somebody may but I don't.  So let's assume further that it's the equivalent of two 45,000-ton product carriers a year.  It may be more than this, but if they can achieve this level of throughput they will be doing well and making a major contribution to the industry, which they certainly aren't at present.  This level of throughput might represent annual sales of around $150 million, more or less.  We also have to assume that the new owner is going to be able to make a profit.  Obviously, he's not doing this as a charitable gesture to the citizens of Mobile, but he'll be doing real well if he can achieve an EBITDA of $15mm and there's no chance of him achieving anything near this in the first two or three years.

Now we need to add in the repair yard, Atlantic Marine Mobile.  The repair yard supports about 800 employees, which means that they should be doing at least $100 million a year in revenues and earning between $10 and $15 million.  (I don't know if they are but they should be.)  Add this to the $15 million that a revitalized shipbuilding operation might be earning in about three years' time and you've got $25 to $30 million.  This would make the combined operation theoretically worth between $125 and $150 million to a strategic investor, but no more than half that to a financial investor.  Realistically, it's hard to imagine any investor offering over $100 million.  But George Gibbs has invested well over $100 million of his own money in this shipyard and I would guess that the loss on those two chemical carriers they built for Dannebrog Shipping more than wiped out not only any profit there may have been on a few barges and OSVs but also a good part of the profit from the repair business.  In fact, I would guess that if Mr. Gibbs wanted to be made whole, he would be looking for over $200 million.

But rumor has it that a deal has been done.   Nobody ever won any bets underestimating the Chouest family, but they certainly seem to be tackling a bigger challenge here than they ever have before.  Let's wish them luck, because they'll need it and because anything would be better than the present shambles.  Tim Colton, December 6, 2002.

   END OF ONE OF THE GREAT SHIPBUILDERS: AUCTION OF QUINCY IS ANOTHER INDICATOR OF OUR INDUSTRY'S DECLINE.  It can safely be assumed that the auction of the Fore River Shipyard in Quincy MA will not result in it being sold as a shipbuilding facility.  It hasn't built ships since the mid-80s, the skills required to build ships are long dispersed, and the markets don't exist any more to support another large-ship shipbuilder.  The Massachusetts Heavy Industries adventure was a joke from first to last: only a Massachusetts politician could be dumb enough to have fallen for that crap.

Having said that (and got Massachusetts all stirred up yet again) let me also say that the the Fore River Shipyard was one of the world's great shipbuilders.  Let me briefly recap its history and see if you don't agree.

The Fore River Shipbuilding Company was founded in 1898 by Thomas (Can you hear me?) Watson and Frank Wellington and was a major naval shipbuilder right from the start, delivering 6 battleships, including one for Argentina, 3 cruisers, 11 destroyers and 39 submarines, including 5 for Japan and 12 for Britain, in the first 17 years of the 20th century.  Watson and Wellington had some financial difficulty, however, and sold the yard to Bethlehem Steel in 1913.  World War I output was a remarkable 71 destroyers and 37 submarines.  The inter-war years were tough for shipyards everywhere but Fore River still managed to turn out 1 battleship, 2 aircraft carriers, including the Navy's first such vessel, 5 cruisers, 7 destroyers and 6 submarines, as well as 10 large passenger liners and a host of smaller merchant ships.

The World War II effort saw the Fore River shipyard at its best.  In the 8-year period from 1939 through 1946, the yard built 127 ships, made up of 1 battleship, 5 aircraft carriers, 22 cruisers, 12 destroyers, 18 destroyer escorts, 46 LSTs, 9 tankers, 8 general cargo ships and 6 trawlers.  At its peak in WWII, the yard employed 32,000 people.

In the post-WWII years, U.S. shipyards struggled to find work but Quincy kept busy with the passenger liners Independence and Constitution, 43 tankers, including the famous Manhattan, and 11 general cargo ships.  There was Navy work too, including 2 nuclear-powered cruisers, the Navy's first command ship and 11 destroyers.  The yard was not profitable, however, even when Bethlehem's other yards were, and in 1963 Bethlehem sold it to General Dynamics.  GD invested heavily and concentrated on naval shipbuilding, but they couldn't make money there either and they closed the yard in 1986.  In the GD years, the yard continued its astonishing record of construction of large high-value ships, building 2 nuclear-powered submarines, 4 amphibious assault ships and 10 auxiliaries for the Navy, and 10 LNG carriers, 3 barge carriers and 5 sealift ships for commercial clients.

The shipyard is still awesome.  110 acres, with three large graving docks spanned by a 1200-ton goliath crane.  The shops go on for ever and there's a lot of brand new equipment bought by the mad Greek with the taxpayers' money.  MARAD was right about one thing: it would make a great ship scrapping facility.  I understand, however, that the burghers of Quincy consider ship scrapping to be beneath their dignity.  (Everyone please note that I said something nice about MARAD.)

There were seven great U.S. shipbuilders in the first half of the 20th century, five great build-to-order naval shipbuilders - Cramp, Fore River, New York Ship, Newport News and Union Iron Works - and two great mass-production merchant shipbuilders - Sun Ship and Sparrows Point.  Now only Newport News is left.  (That will annoy a few people, but Bath and Electric Boat were never large-ship shipbuilders, while Ingalls, Avondale and NASSCO only got started in WWII.)  It's sad to see Fore River go but it has to be.  Tim Colton, December 5, 2002.

   WHO'S GOING TO DO THE MOSS SIRIUS CONVERSION?  Boeing is planning the conversion of an incomplete semi-submersible floating production unit (FPU) for use by the U.S. Government in some unspecified role.  Glosten Associates are the naval architects on the project.  The vessel is the bare-deck hull Moss Sirius, which was built in Vyborg, in Russia, and is currently laid up in Sandefjord, in Norway: it was designed by Moss Maritime and built by them on spec.  This will obviously be a major project, with a total value not unadjacent to $200 million, and will be a real plum for someone.  And if it's for the USG, it's got to be done in a U.S. shipyard.

So who can handle it, given that the Moss Sirius is 389 feet long by 231 feet wide by 133 feet deep?  See details of the design at the Moss Maritime web site and see a picture of the actual rig at the RigZone web site.  Tim Colton, December 4, 2002.

   WHAT IS THIS NONSENSE ABOUT TANKER BUILDING CAPACITY?  The ExxonMobil language in the Maritime Transportation Security Act of 2002 (quoted in full in an earlier comment, to be found lower down on this page) has finally brought to the surface a subject that has been roiling around in the depths for a while.  Some companies in the tanker sector of the US-flag shipping industry have begun to suggest that the US shipbuilding industry cannot meet the demand created by the single-hull phase-out requirements of the Oil Pollution Act of 1990 (OPA 90), and that their prices are too high, and that, as a result, the requirements need to be relaxed. 

Let's be blunt: this is outrageous and despicable, for several reasons.

First, OPA 90 was not passed yesterday.  It's been around for 12 years now (2002 minus 1990 equals 12, got it?).  The tanker operators have had the phase-out schedule for 12 years and they have known the structure of the fleet to be replaced for 12 years.  There has never been a good excuse for leaving replacement until the last minute.  In fact, a relatively small grasp of economics might have told them that they could have got better prices from the shipbuilders if they had ordered early, when the yards needed the work, rather than procrastinating, until it had become a seller's market.  (Procrastination seems to be instinctive.  Many of the tanker operators did the same with the Port and Tanker Safety Act of 1978.  It's as if they think that, if they ignore bad news, it will go away.  As a general rule, however, anticipators of the market win, procrastinators lose.)

Second, there is plenty of capacity.  All the yards that are now building large ATBs can or could build product carriers:

Third, the prices are not too high.  Of course they are higher than world-market prices: what do you expect?  But 2.5 times world market is not bad compared to the 3.5 to 4 times that is reflected in the prices of the crude carriers that the tanker operators' customers are paying at Avondale and NASSCO.  In fact, a second-tier shipyard price for a 45,000-ton product carrier in the mid-$70 millions would be lower in real terms than the prices these same operators paid last time they bought new ships (and that's not counting the artificially low-priced Double Eagles).

So as far as product carriers are concerned, the allegations don't add up.  With regard to crude carriers, we just have SeaRiver, the company that used to be called Exxon Shipping.  Let us have no sympathy at all with SeaRiver.  Here is a company with apparently no shame whatever.  It must be embarrassing for the former Mobil employees to have to work there.  Remember, please, not just that Exxon created this whole problem to begin with, but that there was nothing the matter with the ship: the Exxon Valdez was (and still is) a well-designed, well built ship, nothing for any of us in the industry to be ashamed of.  Remember also that the accident was not caused by a storm or freak weather conditions, as is usually the case with tanker spills.  The accident in Prince William Sound was caused solely by human error, by several human errors in fact, all of them avoidable.  Now comes Exxon wanting to be exempted from the very law that it created.  Well, sorry guys, but no.  You have to comply.  You can get a nice crude carrier from either NASSCO or Avondale, from both of which you have bought crude carriers before.  Since you only want 100,000-ton ships, you could probably also get them from Alabama or from VT Halter Marine.  No need for any waivers.  Tim Colton, December 3, 2002.

   CONGRESSMAN TAYLOR ON THE MARK ON NABORS AND EXXON.  Speaking at the formal opening of VT Halter Marine, Inc.'s facilities in Gulfport, Mississippi, U.S. Representative Gene Taylor (D-MS) harshly criticized U.S. shipping companies that move their domiciles offshore but want to retain the advantages of US registry.  He singled out Nabors Industries, Inc., which recently relocated to Bermuda, for particular criticism, saying they want all the advantages of the Jones Act for their supply boat fleet, including round-the-clock service from the U.S. Coast Guard, but they don't want to pay the price.  The congressman also roundly criticized an oil company that wants to bring foreign-built tankers into the Jones Act trades: he didn't mention a name but his choice of words made it clear that he was talking about ExxonMobil.

As a member of the Armed Services Committee, Congressman Taylor is the Ranking Member of the Subcommittee on Military Procurement.  He also sits on the Military Installations and Facilities Subcommittee and Merchant Marine Panel.  On the Transportation and Infrastructure Committee, he serves on the subcommittees of Coast Guard and Maritime Transportation and the Water Resources and Environment.  Tim Colton, November 22, 2002.

   PUT THE PRESTIGE ACCIDENT IN PERSPECTIVE, PLEASE.  The U.S. news media are getting all excited about the sinking of the Prestige and describing this regrettable accident as twice the size of the Exxon Valdez accident.  This is both wrong and misleading.  The Exxon Valdez was carrying over 200,000 tons of crude but "only" spilt about 38,000 tons: the Prestige was carrying about 77,000 tons of fuel oil but has "only" spilled about 5,000 tons inshore, where the damage is done.  The Prestige has now sunk in water that is over 2 miles deep and about 130 miles offshore.  It is highly unlikely that any of its remaining 72,000 tons of cargo will wash up on shore: it is much more likely that it will gradually disperse to the environment, causing no damage at all.  After all, much more oil seeps naturally through the ocean floor than is ever lost in tanker accidents.  The Prestige accident is, therefore, much less significant than the Exxon Valdez accident. 

Even in gross terms, neither accident rates very high on the league table of oil spills: the Exxon Valdez is currently #41 and the Prestige will probably come in around #18.  In this context, in which legions of ignorant people are screaming doom and disaster and making ill-informed comparisons to the Exxon Valdez incident, it should not be forgotten that three much more serious spills have happened in this location, none of which appear to have had lasting damaging effects.  In 1976 the Urquiola spilt about 96,000 tons of Arabian light crude in La Coruna harbor, in 1978 the Andros Patria spilt about 46,000 tons of Iranian heavy crude off nearby Cape Villano, and in 1992 the Aegean Sea spilt about 69,000 tons of Brent light crude in La Coruna harbor. 

The foregoing observations do not mean that I take this accident lightly.  Far from it.  But what is significant to us in the maritime industry and should be significant to the media, but apparently isn't, is that if the Prestige had been a US-flag ship, it would have been scrapped several years ago.  She was built in Japan in 1976, at a time when shipbuilders were competing to put as little steel as possible into their ships.  There are absolutely no indications that she was not properly maintained - ABS has been forceful on this - but it could nevertheless be said that she was ready for retirement.  Maybe the good news here is that this accident will accelerate the forced retirement of old single-hull tankers in countries other than our own.  Tim Colton, November 19, 2002.

   FRIEDE GOLDMAN OFFSHORE SOLD TO ACON OFFSHORE FOR $61MM.  Friede Goldman Halter, Inc., (FGH), announced today that it had executed an agreement for the sale of all the assets of Friede Goldman Offshore, (FGO), to ACON Offshore Partners, LLP, for $18mm in cash and the assumption of $43 mm in debt.  The deal is subject to the approval of the U.S. Bankruptcy Court for the Southern District of Mississippi, to which it will be presented on December 16, and is expected to close by the end of the year.  Good news for the creditors, of course, but particularly good news for the long-suffering employees.  New owners, new management, new customers, new hope.

It is understood that Jerry St. Pe, former President of Ingalls Shipbuilding, will be Chairman of the Board of ACON Offshore and that Dick Marler, former VP, Business Development at Ingalls and a former President of FGO's predecessor company, HAM Marine, will be Chief Executive Officer.  Ron Schnoor, John Haley and Bob Shepherd are all reported to be staying on.  Do they have a business plan that includes things other than offshore?

Assuming that this deal closes, FGH will then have no assets and no sources of income.  It will probably take another three months or so to settle the outstanding liabilities and tie up all the loose ends, and then FGH will be no more.  The end of a short and totally undistinguished life.  Tim Colton, November 18, 2002.

   JONES ACT WAIVER LANGUAGE.  Following is the language that was inserted in the Maritime Transportation Security Act of 2002 that allows the use of foreign-built tankers.  We all know who is responsible for this language: it's the company that was responsible for OPA90 in the first place.  What unmitigated gall!  (I've always wanted an opportunity to use that line.)  I think it's fair to say that if it, or any other company, actually tries to use this language, the wrath of the entire maritime industry will descend on it and block it.  Get real.  OPA 90 has been in place for 12 years.  We have known that there might be a capacity crunch for at least the past 3 years.  It is way too late for any company to complain that it can't get a new ship in time, least of all you.  Tim Colton, November 17, 2002.

SECTION 214.  JONES ACT WAIVER FOR DELAYED VESSEL DELIVERY

The Conference substitute temporarily authorizes the Secretary to waive the coastwise laws of the United States for not more than three foreign built self-propelled tank vessels under certain circumstances related to the late delivery from a United States shipyard of a coastwise eligible self-propelled tank vessel.  The Secretary must determine that the parties to the contract are making a bona fide effort to construct a self-propelled tank vessel in a timely manner, the contract must be executed within 24 months of the date of enactment of the Maritime Transportation Security Act of 2002, the vessel for which the waiver is granted must meet otherwise applicable requirements of law regarding ownership and operation of vessels in the coastwise trade, the shipyard must own a facility capable of constructing the self-propelled tank vessel, the delay in construction of delivery of the self-propelled tank vessel from the shipyard must be due to unusual circumstances, and the Secretary must determine that no other suitable coastwise trade qualified tank vessels (including tank barges) are reasonably available. 

In making the determination with respect to reasonable availability, the Secretary shall include as such suitable tank vessels, tank vessels available on a time charter or voyage charter basis and tank vessels available on a less than full capacity basis pursuant to a contract of affreightment.  The purpose of subsection (b)(6) is to ensure that the Secretary canvasses the market for available vessels not requiring a waiver prior to granting a waiver under this section.  This paragraph is also intended to ensure that the Secretary shall include in reasonably available suitable tank vessel capacity, vessels which may only be available in part or which may not be available for sale or on a bareboat charter basis.  The Conferees do not intend the Secretary to grant a waiver pursuant to this section to any person seeking to circumvent the U.S.-build requirement or to avoid contracting for available suitable tank vessel capacity merely because, among other reasons, it will not be under the requester's control or may be only available to such requester at a higher rate than a re-flagged vessel.

A waiver may not be granted to a self-propelled tank vessel with substantially greater capacity than the vessel being constructed.  The waiver shall terminate on the earlier of: (1) 48 months after the contract delivery date; (2) 60 days after delivery of the vessel being constructed in the United States shipyard; or (3) the date which the Secretary determines that the delay in construction or delivery of the vessel being constructed is no longer due to unusual circumstances.  Additionally, the Secretary may suspend the waiver for any period during which a suitable coastwise trade qualified tank vessels (including tank barges) becomes reasonably available. The provision defines unusual circumstances.

*   *    *

SEC. 214. JONES ACT WAIVER FOR DELAYED VESSEL DELIVERY.

(a) IN GENERAL.

Notwithstanding section 27 of the Merchant Marine Act, 1920 (46 U.S.C. App. 883), section 8 of the Act of June 19, 1886 (24 Stat. 81, chapter 421; 46 U.S.C. App. 289), and sections 12106 and 12108 of title 46, United States Code, the Secretary of Transportation may issue a certificate of documentation with appropriate endorsement for employment in the coastwise trade for a self-propelled tank vessel not built in the United States as provided in this section.

(b) WAIVER REQUIREMENTS.

The Secretary may not grant a waiver under subsection (a) unless (1) the person requesting the waiver is a party to a binding legal contract, executed within 24 months after the date of enactment of this Act, with a United States shipyard for the construction in the United States of a self-propelled tank vessel; (2) the Secretary determines, on the basis of the terms of the contract, the parties to the contract, the actions of those parties in connection with the contract, and the circumstances under which the contract was executed, that the parties are making a bona fide effort to construct in the United States and deliver a self-propelled tank vessel in a timely manner; (3) the vessel for which the waiver is granted will meet otherwise applicable requirements of law regarding ownership and operation for vessels employed in the coastwise trade; (4) the shipyard owns a facility with sufficient infrastructure to construct the self-propelled tank 4 vessel; (5) the self-propelled tank vessel that is the subject of that contract will not be available for use on the contracted delivery date because of a delay in the construction or delivery of the vessel due to unusual circumstances; and (6) the Secretary determines that no other suitable tank vessel or vessels, or tank vessel capacity, that would not require such a waiver are reasonably available to the person requesting the waiver. Prior to making the determination under paragraph (6), the Secretary shall provide public notice of a waiver request and shall provide persons who may have such suitable tank vessels an opportunity to indicate to the requester and the Secretary the particulars of available tank vessels or tank vessel capacity not requiring a waiver under this section.

(c) LIMITATIONS

(1) CAPACITY OF TANK VESSEL.-The Secretary may not grant a waiver under subsection (a) for a self-propelled tank vessel that has substantially greater capacity than the vessel described in sub-section (b)(1).

(2) MAXIMUM DURATION OF WAIVER.-The Secretary may not grant a waiver under subsection (a) for a period prior to, or extending more than 48 months after, the original contract delivery date of the vessel described in subsection (b)(1).

(3) MAXIMUM NUMBER OF WAIVERS.-The Secretary may grant waivers under subsection (a) for not more than 3 self-propelled tank vessels.

(d) DETERMINATION OF WAIVER.

(1) IN GENERAL.-A waiver grant under sub-section (a) shall terminate on the earlier of (A) the date established by the Secretary as its expiration date under subsection (c)(2); or (B) the date that is 60 days after the day on which the vessel described in subsection (b)(1) is delivered.

(2) TERMINATION FOR INTENTIONAL DELAY.  The Secretary may terminate a waiver granted under subsection (a) at any time if the Secretary determines that the delay in the construction or delivery of the vessel described in the subsection (b)(1) is no longer due to unusual circumstances.

(e) SUSPENSION OF WAIVER.

The Secretary may suspend a waiver granted under subsection (a) for any period of time if the Secretary determines that a suitable tank vessel, or suitable tank vessel capacity, that would not require such a waiver is reasonably available to the person requesting the waiver.

(f) CONTRACTED-FOR VESSEL DELIVERY.

If the Secretary grants a waiver under subsection (a), the shipyard constructing the vessel described in subsection (b)(1) shall deliver the vessel, constructed in accordance with the terms of the contract, as soon as practicable after the delivery date established by the contract.

(g) UNUSUAL CIRCUMSTANCES DEFINED.

In this section, the term ''unusual circumstances'' means bankruptcy of the shipyard or Acts of God (other than ordinary storms or inclement weather conditions), labor strikes, acts of sabotage, explosions, fires, or vandalism, and similar circumstances beyond the control of the parties to the contract which prevent commencement of construction, or timely delivery or completion, of a vessel.

   NAVY PICKS SIX FOR "FOCUSED-MISSION" SHIP CONCEPTUAL DESIGN STUDIES.  NAVSEA has selected six teams to develop conceptual designs for what they call a focused-mission ship.  (A curious label.  Don't most naval ships have focused missions?  What sort of naval ship has an unfocused mission?)  The six are shown in the table below.  I will round up the names of the other team members over the next few days and add them to the table.

Contractor General Dynamics Bath Iron Works Gibbs & Cox Northrop Grumman Ship Systems Lockheed Martin Marine Systems John J. McMullen Associates Textron Marine & Land Systems
Hull Form Trimaran Deep-V Monohull Monohull SWATH SLICE SES SES
Hull Material Aluminum Aluminum Carbon Fiber Aluminum FRP Sandwich Aluminum
Big Integrator Boeing LM Surface Systems Northrop Grumman LM Surface Systems Raytheon  LM Surface Systems
US Shipbuilder Austal USA Marinette Marine Ingalls Sbldg. Bollinger Shipyards Atlantic Marine  Textron Marine
Foreign Shipbuilder BAE Systems Fincantieri Kockums   Umoe Mandal  
Naval Architect Bath Iron Works Gibbs & Cox Ingalls Sbldg. M. Rosenblatt & Son McMullen Assoc. George G. Sharp
Others CAE Marine Blount Associates   LM Undersea Systems B. F. Goodrich Bell Helicopter 
MAPC Charters Technical     AMT   
  Technomics        
  Angle        
Votes

22

19 7 14 18 7

 

 

 

 

 

 

 

Which team do you think represents the highest probability of a cost-effective solution, as opposed to just another gravy train?  E-mail me your votes at tim@coltoncompany.com and I will tabulate them in the bottom row of the table.

Note that these are not Phase I contracts, in which each team submits a design accompanied by a construction proposal: it is just a design effort and the Navy will subsequently pick one and invite proposals for detailed design and construction.  It is also expected that the number of boats needed will require more than one shipbuilder.  If you didn't read it already, click here to see what I wrote about this program in August.  Tim Colton, November 15, 2002, updated several times already.

   SSN HITS LNGC.  The news that one of the U.S. Navy's nuclear-powered attack submarines (USS Oklahoma City) tried to surface in one of the busier Mediterranean sea lanes while immediately below an LNG carrier (Norman Lady) should be of great concern.  We are fortunate that the LNGC was in ballast and that the force of the collision was minor.  Good grief, just think about what might have happened.  Of course, this actually counts as a relatively minor incident in an industry in which safety is still not a particularly high concern.  After all, incompetent ferry operators kill hundreds on a regular basis, bulk carriers continue to disappear without trace, more lives are lost in commercial fishing than in any other occupation, and the cruise industry seems to be doing its best both to pollute its ports of call and poison its passengers.  The terrorists don't need to target ships at sea: the maritime industry can wreck enough ships and kill enough people without any outside help.  Tim Colton, November 15, 2002,

CORRECTION:  It has been pointed out to me by one who knows a lot more about these things than I do, that the second sentence in the comment above is incorrect.  We are indeed fortunate that the force of the collision was minor: the Norman Lady apparently only sustained dents and cracks in her bottom plating: the cargo tanks were not damaged.  But an LNGC in ballast is much more dangerous than an LNGC fully loaded, not less, because an LNGC in ballast has gas in its tanks and is, therefore, something of a floating bomb, whereas a fully loaded LNGC has LNG in its tanks, which, if released, evaporates.  Tim Colton, December 5, 2002.

   INGALLS REDELIVERS "ALMIRANTE BRION".  Ingalls Shipbuilding has redelivered the second of two Italian-built, "Lupo"-class frigates to the Venezuelan Navy, following its major overhaul and modernization.  When they redelivered the first ship, the "Mariscal Sucre", (F 21), in May, Northrop Grumman put out a self-congratulatory press release that made no mention of the fact that, when the $315mm two-ship contract was awarded to Ingalls in December 1997, they said that the work on both frigates would take two years and at that point it had taken almost four and a half.  They also said that the second vessel, the "Almirante Brion", (F 22), which came in at the same time as the "Mariscal Sucre", in January 1998, would be finished "this summer", and here it is the end of October.  How can it take almost five years to overhaul a couple of frigates?  Tim Colton, October 26, 2002.

   NAVAL SHIPBUILDING GETS $9.0 BILLION IN FY-03.  This year's Defense Appropriations Act contains funds for naval shipbuilding programs as shown below:

Program

# of New Ships

Amount

Prior-Year Costs

Principal Beneficiaries

CVN(X)

1

$493,703,000   

 

Newport News

CVN refuelings

 

$221,781,000   

 

Newport News

SSGN conversions

 

$825,305,000   

 

Electric Boat

NSSN

1

$2,144,361,000   

$326,682,000   

Electric Boat and Newport News

Submarine refuelings

 

$499,792,000   

  EB, NN, PNSY, PSNSY

DDG 51

2

$2,321,502,000   

$383,536,000   

Bath and Ingalls

LHD 8

 

$243,000,000   

 

Ingalls

LPD 17

1

$596,492,000   

$569,681,000   

Avondale and Ingalls

LCAC upgrades

 

$89,638,000   

 

Textron

Minehunter SWATH

 

$7,000,000   

 

 

Service craft

 

$9,756,000   

 

 

Other

 

$300,608,000   

   

Prior-year costs

 

$1,279,899,000   

   

In all

5

$9,032,837,000   

$1,279,899,000   

 

Only two DDGs and no T-AKE, but completely ridiculous amounts of money for the CVN(X) and SSN programs. 

The prior-year costs are disgraceful: almost 15% of the budget has to go for over-runs.  Even more disgraceful when you look at the prior-year costs that were included last year: click here for the corresponding table.  It seems that neither the Navy nor the big two have any clue about how to control costs.

To put these figures in perspective, the table below shows the last ten years of SCN appropriations, including the redistribution of prior-year costs, as done in the table above.  (The figures are millions of dollars, of course.)

Program FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 Totals Averages
SSN 21           700.0       699.1       153.4              1,552.5       155.3
NSSN           804.5       997.2    2,599.8    2,002.9       748.5    1,706.2    2,490.2    2,471.0  13,820.3    1,382.0
SSN Refueling                     282.7       476.3       499.8    1,258.8       125.9
SSGN Conversion                       365.4       825.3    1,190.7       119.1
CVN 68      2,284.9            50.0       124.5       751.5    4,075.5        7,286.4       728.6
CVN (X)                         308.3       493.7       802.0         80.2
CVN ROH/Refueling        31.1        38.3       222.0       237.0    1,661.9       275.0       345.6       723.4    1,221.8       221.8    4,977.9       497.8
DDG 51    2,642.8    2,660.7    2,169.3    3,909.1    3,569.0    2,674.5    2,681.7    3,160.4    3,234.7    2,705.0  29,407.2    2,940.7
LHD 1       943.8        50.0    1,300.0                  2,293.8       229.4
LHD 8                  45.0       375.0       460.0       267.2       243.0    1,390.2       139.0
LPD 17           974.0         100.0       638.8    1,508.3       560.7       328.0    1,166.2    5,276.0       527.6
LCAC SLEP                3.0        20.0        16.0        31.8        15.6        46.1        89.6       222.1        22.2
MCS Conversion       124.2                         124.2        12.4
AGOR/AGS       110.0            99.4        16.0        60.3               285.7        28.6
AKE                   440.0       339.0       370.8      1,149.8       115.0
Other Purposes       343.1       378.5       474.2       248.6       137.5       198.8       171.1       291.1       381.2       317.4    2,941.5       294.2
Total    4,195.0    5,412.4    6,644.0    6,193.4    8,307.6    6,035.8    7,053.5  11,614.6    9,490.0    9,032.8  73,979.1    7,397.9

These numbers fair boggle the mind.  Almost $14 billion so far for the NSSN!  Almost $5 billion for CVN 77!  A smaller number but just as amazing: $1.4 billion for LHD 8!  Oh well, it's only the taxpayers' money.  I suppose it's useless to expect our elected leaders to worry about how it's spent.  Tim Colton, October 24, 2002.

   STILL NO FORMAL ANNOUNCEMENT OF THE TERMS OF THE PROJECT AMERICA DEAL.  It's been over two months since the deal was done to sell the wreckage of the grandiosely named Project America to PVSA-bender Norwegian Cruise Lines (NCL) and still no announcement of any kind from the U.S. Maritime Administration.  They must think that how they dispose of the taxpayers' assets is none of the taxpayers' business.  Why doesn't Senator McCain ask for a full accounting? 

And now comes more bad news, just when we might have thought that it couldn't get any worse.  Northrop Grumman said in its August 19 press release, that NCL would take possession by September 30, but here it is October 22 already and our sources tell us that the incomplete hull will not now be ready for tow until some time in December.  Tim Colton, October 22, 2002.

(In fact, the ship was towed out of Pascagoula on November 5: see NCL's press release, with a photograph, at http://www.ncl.com/news/pr111102.htm.)

   TIDEWATER'S FLEET RENEWAL PROGRAM REACHES 33 VESSELS.  The latest 10-Q from Tidewater, Inc. (NYSE:TDW) reveals the scale of its current fleet renewal program: 5 anchor-handlers, 18 platform supply boats and 10 crewboats, with a total contract value of $550mm.  The following paragraphs are quoted verbatim.

On January 10, 2001 the company entered into agreements with three shipyards for the construction of seven large platform supply and five large anchor handling towing supply vessels. All of these vessels are capable of working in most deepwater markets of the world. The total estimated cost for the vessels is approximately $339.1 million, which includes shipyard commitments and other incidental costs such as spare parts, management and supervision, and outfitting costs. The new-build program was initiated in order to better service the needs of the company’s customers in the deepwater markets of the world. Four of the platform supply vessel contracts were awarded to the company's shipyard, Quality Shipyards, LLC, while the remaining eight vessels are being constructed at two Far East shipyards. All four platform supply vessels constructed at Quality Shipyards, LLC will be built to full Jones Act compliance.

Ten of the 12 vessels under contract are still under construction. Quality Shipyards, LLC has completed the construction of two large platform supply vessels for an approximate cost of $56.1 million. The first vessel was delivered to the market during the fourth quarter of fiscal 2002 and the second in July 2002. As of September 30, 2002, $212.6 million has been expended on the remaining 10 vessels of the total estimated $283.1 million of commitments. Scheduled delivery for the 10 remaining vessels is expected to begin in October 2002 with final delivery of the last vessel in June 2004.

The company is also committed to the construction of two large, North Sea-type platform supply vessels and 11 next generation supply vessels, ranging in size from 205-foot to 220-foot, for approximately $162.1 million. The two large platform supply vessels, designed and equipped for deepwater work, are being built in Brazil. The company’s shipyard, Quality Shipyard, LLC, will construct two of the next generation supply vessels. Five of the remaining nine next generation supply vessels will be constructed by one U.S. shipyard while a different U.S. shipyard will construct the remaining four vessels. The 11 vessels are intermediate in size and are technically capable of working in certain deepwater markets; however, these vessels are being constructed in order to replace older supply vessels. Scheduled delivery of the 13 vessels is expected to commence in October 2002 with final delivery in May 2004. As of September 30, 2002, $64.7 million has been expended on these vessels.

In September 2001, the company assumed four new-build contracts from Crewboats, Inc., a privately held, leading independent provider of crewboat services in the Gulf of Mexico, for approximately $20.7 million. One of the vessels was delivered to the market during the current quarter for an approximate cost of $5.1 million. Scheduled delivery for the remaining three crewboats is expected to commence in November 2002 with final delivery in November 2003. No amounts have been expended on the remaining three crewboats of the total $15.6 commitment cost, as the individual vessels’ purchase prices are due upon delivery of the respective vessels.

During the second quarter of fiscal 2002, the company committed $25.5 million to the construction of four, 175-foot, state-of-the-art, fast, crew/supply boats that blend the speed of a crewboat with the capabilities of a supply vessel. The four crewboats are being constructed at a U.S. shipyard and scheduled delivery of the four crewboats is expected to commence in November 2002, with final delivery in October 2003. As of September 30, 2002, $1.6 million has been expended on these vessels.

During the second quarter of fiscal 2003, the company entered into an agreement with a shipyard in Holland to construct two water jet crewboats for an approximate cost of $1.9 million. The two vessels are scheduled for delivery in August 2003. No amounts have been expended on the vessels as of September 30, 2002.

Now reflect that 33 new vessels represents only about 6% of Tidewater's fleet, the average age of which is still around 20.  If you have a fleet of 560 vessels, you need to be replacing about 20 of them every year, on average.  Seems like there must be more new construction to come.  Tim Colton, October 22, 2002.

   ANOTHER FINE OLD SHIP, THE ICEBREAKER "GLACIER", IS SAVED FROM THE BREAKERS.  After three years of effort, the Glacier Society has finally reached agreement with MARAD and the icebreaker "Glacier" (WAGB 4) will be moved next month from the Reserve Fleet in Suisun Bay to a mooring first at the former Mare Island Naval Ship Yard and later in Bridgeport CT, where she will be restored and will become a "platform for scientific and environmental education and research".

Glacier was built by Ingalls Shipbuilding in Pascagoula, Mississippi, (hull # 580), at 8,650 tons the largest purpose-built polar icebreaker ever built by a U.S. shipyard, much larger than the seven "Wind"-class icebreakers built by Western Pipe & Steel at the end of WWII. 

She was commissioned as USS Glacier (AGB 4) on May 27, 1955, transferred to the Coast Guard in 1966 as USCGC Glacier (WAGB 4) and retired in 1985.  On her maiden voyage, she served as Admiral Byrd's flagship and in 30 years of service made 29 trips to the Antarctic and 10 to the Arctic, steaming almost a million nautical miles.  There are great pictures of Glacier and other USCG icebreakers at www.uscg.mil/hq/g-cp/history/Icebreaker_Photo_Index_1.html

Visit www.glaciersociety.org, send them money - they need a whole lot - and, if you live in the San Francisco Bay area, go and help.  Tim Colton, October 9, 2002.

For comment on maritime news reported in earlier quarters, click on one of the following links:

Third Quarter of 2002

Second Quarter of 2002

First Quarter of 2002

Fourth Quarter of  2001

If you have comments or questions, suggestions or complaints, please e-mail me.