Comment on the Maritime News

April-June 2003

   COULD THE AUSTAL CONTRACT SIGNAL THE START OF A COASTAL SHIPPING INDUSTRY?  The announcement that Austal USA has signed a contract to build a fast ro-ro ferry for service between Milwaukee WI and Muskegon MI, is excellent news.  It's not a pure-freight common-carrier operation, but it's a start.  Maybe a few trucking operators will now discover that coastal shipping beats highway congestion every time.  If this works, let's hope that the trucking industry will consider investing in some more.  Tim Colton, June 26, 2003.

   THE NAVY'S LONG-RANGE PLAN LOOKS GOOD BUT ..........  Last week the Navy submitted the new "long-range plan for the construction of naval vessels that was required by the FY03 Defense Authorization Act.  In summary, it looks like this:

The only thing worth saying about this exercise in wishful thinking is that it will be interesting to look back in 2033 and see how wildly different was the reality.  You look back: by that time, I doubt that I will care very much.  Tim Colton, June 24, 2003.

   EVERY TIME YOU TURN AROUND ......  in this industry, you find someone doing something stupid.  Santa Maria Shipping, a start-up Jones Act shipping company that applied to MARAD in August 2001 for Title XI financing for two small containerships to be built by Bender Shipbuilding, is now planning to build them in Olympia, Washington.  That's right, Olympia, Washington.  According to the Olympia and Seattle newspapers, they are planning to assemble and outfit the ships at a green-field site in the Port of Olympia, using blocks built by other West Coast shipyards.  Yeah, right.  As a stupid idea, this is right up there with the recent plan to build cruise ships at Sparrows Point.  Never heard from those guys again, did we?  Fortunately, MARAD knows this new scheme to be stupid and it will never get off the ground.  Tim Colton, June 23, 2003.

   THE CONGRESS IS RIGHT TO BLOCK THE NAVY'S PROPOSED GIVE-AWAY OF PCs.  The Navy proposes to give eight of the 13 "Cyclone"-class PCs to foreign navies, specifically those of the Philippines, Colombia and Egypt.  Some sensible members of the Congress (how nice to be able to apply the adjective "sensible" to "members of the Congress" for once) are blocking this move on the grounds that these ships are (a) too young to be given away and (b) may be needed by the Department of Homeland Paranoia.  These may well be good reasons but there's a better one.  If these countries need coastal patrol ships, as indeed they do, we should be giving or selling them new ones that suit their needs, not old ones that don't.  This is what the Foreign Military Sales program is supposed to be about.  The Navy keeps forgetting that it is statutorily obligated to help U.S. shipbuilders sell ships to foreign navies.  Giving away ships that the U.S. Navy no longer needs is not helpful, it's obstructive.  Tim Colton, June 6, 2003.

   MARITIME ADMINISTRATOR'S TESTIMONY ON THE TITLE XI PROGRAM.  Click on this link to read Captain Schubert's testimony before the Senate Commerce Committee yesterday.  Tim Colton, June 6, 2003.

http://commerce.senate.gov/hearings/testimony.cfm?id=782&wit_id=2177

   EU PRESS RELEASE ON SINGLE-HULL TANKERS.  The following is the full text of the EU press release.

Report on the proposal for a European Parliament and Council regulation amending Regulation (EC) No 417/2002 on the accelerated phasing in of double hull or equivalent design requirements for single hull oil tankers and repealing Council Regulation (EC) No 2978/94

Never a "Prestige" or an "Erika" disaster again! This was the clear message from the European Parliament this morning when it adopted a legislative resolution by 501 votes in favour, 5 against and 14 abstentions on double hull or equivalent design requirements for oil tankers. Old, unsafe and dangerous oil tankers like the 26 year old single-hull tanker "Prestige" will no longer be allowed to transport oil in EU waters. In future, heavy grades of oil will be transported by double hull tankers only. MEPs demanded a "full steam ahead" for the entry into force of the new rules by 1 September 2003 at the latest and therefore refrained from a second reading. It was generally felt that the adoption of this report will contribute considerably to more maritime safety in EU waters.

The main points adopted in the resolution are the following:

• the accelerated phase-out for so-called Category 2 tankers , generally constructed between 1982 and 1986, should also be extended to Category 3 tankers, which are smaller and are often operating in regional traffic. These category would therefore have to be phased out by 2010 instead of 2015 as had been proposed;
• all tankers of the Erika and Prestige type (category 1) may be operated only up to the age of 23 years and no later than 2005;
• the new rules should also apply to vessels leaving ports and offshore terminals and those anchoring in areas under the jurisdiction of a Member State;
• in order not to jeopardise the EU's oil supply, Parliament adds a new clause providing for a transitional period (until 2008) for smaller tankers with a deadweight of less than 5000 tonnes. To ensure that oil supplies are not endangered in the northern regions of the EU (i.e. the Baltic Sea) a new clause has been introduced providing for a two-year transitional period for single hull tankers equipped with special ice protection equipment.

The consequence of the entry into force of these new rules is that the EU and the candidate countries urgently need new and better oil tankers. It is generally hoped that these vessels will not be built at cheaper Korean shipyards, but by EU shipbuilders, even at a higher price. The EU owes this to the citizens of Europe, to the environment and to those affected in the fishing and tourism industries, following the terrible shipping accidents of recent years, MEPs believe. And only this week there was a new incident with a Chinese vessel off the Swedish coast, which also underlines the fact that the new legislation cannot come into place too early.

So, the EU will shortly have stricter rules than the U.S.  Tim Colton, June 6, 2003.

   SUMMARY OF HOUSE DOD AUTHORIZATION BILL.  The key naval shipbuilding provisions in the House Armed Services Committee's FY04 Authorization Bill for DoD are $1,512mm for 1 SSN, $3,198mm for 3 DDGs, $1,192mm for 1 LPD, $722mm for 2 T-AKEs.  So, despite all the rhetoric about the Navy needing a minimum of 10 ships a year, they are only willing to fund 7 new ships next year. 

The good news, however, is in the maritime section: the Committee recommends $40mm for Title XI and $20mm for ship recycling.  In addition, the Committee recommends modifying the Maritime Security Program to (a) increase it from 47 to 60 ships, (b) provide $250mm toward the cost of five product carriers, (c) extend the life of the program by 10 years, (d) increase the annual payment from $2.1mm to $2.6mm per ship.    Tim Colton, May 20, 2003.

   SUMMARY OF LCS PROPOSALS.  After some consolidation and reorganization, here's how the teams look now, I think.  The next step is for the Navy to award three $10-million design contracts in July.  Let me repeat: it is essential, in the Navy's, the industry's and the taxpayers' long-term interests, that the LCS be built by the second tier of U.S. shipbuilders, not by either of the "big two".  Tim Colton, April 14, 2003.

   DoT INSPECTOR-GENERAL CRITICIZES MARAD'S TITLE XI PROCEDURES.  The IG's report can be found on the DoT web site, or you can click here.  It's not long and it's worth reading, if you're at all concerned about the future of our industry.  There are two things worth commenting on here: the IG's recommendations and the AMCV numbers.

The IG makes five recommendations, all of which are pretty straightforward - even obvious - and all of which MARAD accepts, albeit with a little squealing.  The IG says that the Maritime Administrator should:

(1) require a rigorous analysis of the risks from modifying any loan approval criteria and impose compensating provisions on the loan guarantee to mitigate those risks;

(2) formally establish an external review process as a check on MARAD's internal loan application review and as assistance in crafting loan conditions and covenants;

(3) establish a formal process for continuously monitoring the financial condition of borrowers, including requirements for financial reporting over the term of the guarantee as a condition of loan approval;

(4) establish a formal process for continuously monitoring the physical condition of guaranteed assets over the term of the loan guarantee; and

(5) develop an improved process for monitoring the physical condition of foreclosed assets and for recovering the maximum amount of funds from their disposal.

#1 arises because apparently MARAD bent its own rules in order to be able to approve practically every application in recent years.  I find #2 particularly interesting because I've been saying that for years: of course, I have a particular interest in the idea of MARAD using outside experts.  It's hard to imagine that MARAD needs to be told to do the other three: you would think that they would be standard practice. 

With regard to the AMCV projects, here's how it all worked out:

Since these figures were put together, Independence was sold at auction for $4mm: not exactly full recovery.  MARAD should do better on the other three ships, all of which are new and for which there is a market.  The really shocking figures relate to Project America: it boggles the mind that, after investing $185mm of the taxpayers' money in this ill-conceived and incompetently executed project, MARAD sold its interest for a mere $2mm.  Tim Colton, April 1, 2003.

   DoHS TO HAVE AN ADVISORY COUNCIL.  An announcement in the Federal Register today reveals that the Department of Homeland Security is establishing the Homeland Security Advisory Council (HSAC), to "provide advice and recommendations to the Secretary on matters relating to homeland security".  Well, they certainly won't ask me to serve on this predictably toothless body, but here are my advice and recommendations anyway:

(1) Don't keep declaring orange (or whatever) emergencies.  It's crying "wolf".  After the second one in which nothing happened, nobody pays attention any more.  Only put people on alert if you are really sure that something is planned.  Only do it in the targeted area: there's no reason for the entire country to get agitated.  And provide a debrief afterwards so that we will know that it wasn't just another false alarm.

(2) Recognize that your existence and, in particular, your budget are recognition that the terrorists have already won.  They have forced us to change the way we live, even as we maintain publicly that we won't let them do that.  One of your goals needs to be to provide the security we need with the minimum of disruption to our daily lives.

(3) Don't turn this country into an armed camp.  It's a huge country.  We've never been able to do more than nibble at the problem of keeping out drug smugglers: what makes us think we can be much more successful at keeping out determined and resourceful terrorists?  Once in a while they are going to hurt us.  Is there any point in spending billions to reduce the probability by a few percentage points?  What are the economic trade-offs between the billions being spent and the risks being averted?

(4) In particular, don't go mad on maritime security.  The nation's trade must flow freely or its economy will grind to a halt.

(5) Remember that some of your agencies, notably the Coast Guard, have important responsibilities that are not directly related to homeland security.  These must continue, not be pushed to the back burner.

(6) The Attorney-General may not be interested in civil liberties but you don't work for him.  U.S. citizens and permanent residents have rights and freedoms and DoHS employees need to remember that at all times.  This shouldn't be a problem but somehow it seems to be one.

(7) Oh and please change the name of the department to something that doesn't remind us of Nazi Germany.

Just suggestions.  Tim Colton, April 1, 2003.

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

First Quarter of 2003

Fourth Quarter of 2002

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.