Comment on the Maritime News

April-June 2004

   HALTER'S ATB PRICE IS REVEALING.  The price that Crowley is paying Halter for two 24,000-dwt ATBs was revealed last week to be $85mm.  Would a deep-draft, self-propelled, high-speed product carrier with the same total capacity cost at least 20% more?  Think about it.  A fully developed hull form; a lot more piping systems; more electrical and electronic systems; a full-scale superstructure with accommodation for a much bigger crew; etc.  This is why (a) MARAD's MSP tanker program isn't going to happen and (b) the Jones Act tanker business is over.  O-V-E-R, over.  Tim Colton, June 20, 2004.

 

   MORE SHAMEFUL PRIDE.  The inauguration of the reflagged Norwegian cruise ship "Pride of Aloha" was greeted with considerable fanfare.  Not surprising: it's all marketing. 

 

What is surprising is the tarantara from the U.S. Coast Guard, a normally quite rational body of folks.  A Coast Guard spokesperson was quoted in the NCL press release as taking great pride in the fact that "Pride of Aloha" "met all international standards for a passenger ship."  Very good, and so it should, but the Coast Guard seems to be implying that it didn't meet international standards before it was reflagged.  That doesn't seem too likely: NCL is a pretty reputable outfit.  What exactly is the Coast Guard saying here? 

 

Now the second question.  OK, the ship meets "all international standards", but does it meet U.S. standards?  Did the Coast Guard apply to "Pride of Aloha" all the uniquely U.S. standards that it applied to the "Pride of America" when it was under construction by Ingalls, where the Coast Guard insisted that U.S. standards over-rode international standards, thus significantly contributing to the high cost of that project?  And if not, why not?  Tim Colton, June 11, 2004.

 

   ANOTHER NAIL IN THE COFFIN.   The unconfirmed report from "Tradewinds" that NASSCO's price for each of the two 100,000-dwt Alaskan-trade crude carriers for SeaRiver Maritime (ExxonMobil's US-flag shipping company) is going to be around $220mm is both astonishing and profoundly depressing, even to a hardened cynic like me.  $2,200 per deadweight ton!  BP is paying NASSCO about $1,135 per ton for its 185,000-tonners, on the first of which NASSCO is believed to be losing about $50mm, which would make its true cost about $1,405 per ton.  ConocoPhillips is paying Avondale about $1,430 per ton for its 140,000-tonners, on each of which Avondale is believed to be losing about $30mm, which would make their true cost about $1,645 per ton.   Even if we assume that the $220mm price has a profit in it, it's still hard to swallow.

 

How bad is this?  An Aframax crude carrier costs about $370 per ton in Korea right now, making the rumored NASSCO price close to 6.0 times the world market price.  A Suezmax crude carrier costs about $330 per ton in Korea right now, making the Avondale cost about 5.0 times the world market price and the NASSCO cost about 4.3 times the world market price.  Well, ok, the spec for a Jones Act ship designed for the Alaskan trade is a lot more elaborate than that for a ship intended for conventional international trade, and that should result in only a marginal cost increase - maybe 30% or 40% - but SeaRiver's spec is apparently much more elaborate and stringent than either BP's or COP's.  I had reluctantly got used to the idea that U.S. shipbuilding costs are now around 3.5 times Korean shipbuilding costs, but these figures seem to indicate that the ratio is over 4.  Aaaaargh. 

 

Let's face it, we already know that NG's not going to let any of its yards try to build any more commercial ships and now it looks as though GD's going to have to go the same way.  With the demise of the coastal tanker market (see the preceding article) I fear that the future of commercial deep-draft shipbuilding in the U.S. depends on Kvaerner Philadelphia.  Not a happy thought.  Tim Colton, June 4, 2004.

 

   DOES MARAD'S PRODUCT CARRIER PROGRAM MAKE SENSE?  On the positive side, the market must be there, or the operators wouldn't be interested.  On the other hand, not one of the interested shipyards has ever built a self-propelled, deep-draft, oceangoing tanker and Kvaerner Philadelphia is the only one that's equipped to build such a ship efficiently.  And these shipbuilders are not suicidal: if the first ship costs over $90mm, the average of five is still going to be over $80mm, not the $70mm that some people are hoping for.  But add about 10% for construction financing, plus legal fees, and you're nearly back to $90mm again.  Subtract the $50mm subsidy per ship and you've got about $40mm, 87.5% of which can be financed with Title XI.  Subtract the saving from the small break on US-fabricated steel, but that doesn't amount to much.  Would a $40mm ship work for the operators when they can buy the same ship in the Far East for $30mm?  Probably not, in my view.  Definitely not if the program is split between two yards.

 

Then you get the second question.  If this program, which, by the way, is still not funded, goes ahead, will the operators piggy-back on it by ordering a bunch of Jones Act product carriers?  Only if the price is right and I doubt that it will be.  A Jones Act tanker has a different spec. from a foreign-trade tanker and much of the learning from the first series of ships would be lost in the transition to a second series.  I hate to be a cynic and, goodness knows, it would be great to see some product carriers being built in U.S. yards, but I don't think it's going to happen.  In fact, I fear that we have already built our last Jones Act product carrier: from here on out, it's going to be all ATBs in the coastwise trades.  Tim Colton, May 28, 2004.

 

   IS IT TIME TO CREATE A SINGLE FEDERAL MARITIME AGENCY?  Times have changed and we need to change with the times.  We have five federal governmental bodies controlling the commercial maritime industry and it's time we made them one:

  1. The U.S. Coast Guard.  It's now part of the Department of Homeland Security and that is entirely logical as far as its primary duty of guarding the coast is concerned.  But the Coast Guard is also responsible for all kinds of regulatory activities that have nothing to do with guarding the coast and will, inevitably, be treated as low-priority in the DHS;

  2. The Maritime Administration.  It's a promotional agency rather than a regulatory one: that's why it was in the Department of Commerce until the Reaganauts moved it.

  3. The Federal Maritime Commission.  It's a regulatory agency that's not part of anything.  It's very small and the world would not be much the worse off if it was abolished.

  4. The U.S. Army Corps of Engineers.  Keeping the ports and waterways open to shipping may have been a military function in the Civil War but it certainly isn't today.   The Corps should concentrate on throwing bridges across the Tigris and similarly martial activities.

  5. N.O.A.A.  Ocean research, ocean surveying and fisheries research are maritime activities, wholly unrelated to NOAA's other activities.  Separate them.

So, let's take all the activities of these five bodies that do not relate directly either to defense or to homeland security and combine them into a new Federal Maritime Administration.  Put a 4-star Coast Guard admiral in charge, not a lobbyist, fundraiser or other political hack, and let the coasties, who are way up there when you rate public employees on the basis of intelligence, charm, energy, dedication, wit, etc., have two tracks to the top.  Yes, it will be difficult and confusing at first, but we have to do something: what we've got now doesn't work.  And yes, this is all very simplistic, but this is a comment, not a position paper, designed to set you thinking and arguing, not as a basis for legislation.  Tim Colton, May 28, 2004.

   A FABLE FOR OUR TIME.  A Japanese company challenged a U.S. company to a crew race.  Both crews practiced long and hard to reach their peak performance for the race but, when the big day came, the Japanese crew won by a clear mile, possibly because the Japanese crew had 8 people rowing and 1 person steering, while the U.S. crew had 1 person rowing and 8 people steering.

The U.S. crew was naturally very discouraged and depressed.  The U.S. management decided that there had to be a reason for their crushing defeat and appointed a Task Force to study the problem and recommend appropriate action.  The Task Force hired a consulting company with a silly name and paid them an incredible amount of money.  The consulting company studied the problem for two years and then advised the U.S. crew that the problem was that too many people were steering their boat, while not enough people were rowing. 

 

The U.S. crew's management took this advice very seriously and reorganized the crew so that it had 4 steering supervisors reporting to 2 steering superintendents, reporting to a steering manager, who was, of course, a retired admiral.  They also implemented a new performance system that would give a greater incentive to the 1 person assigned to row.  This was called the "Rowing Crew Quality First Program", and it involved frequent meetings, dinners at local restaurants and a free ball-point pen with the company's logo on it.  A new boat, new oars, new uniforms and improved medical benefits were promised to the crew if it won the rematch.  "We must give our rower empowerment and enrichment through this quality program!", they cried.

In the rematch, however, the Japanese crew won by two miles.  Humiliated, the U.S. management laid off the rower for poor performance, halted development of the new boat, sold the old boat and the oars and canceled all plans for future investments in the crew program.  The money remaining in the current budget was distributed to the company's senior executives as bonuses.
 
Tim Colton, April 2, 2004.

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

First Quarter of 2004

Fourth Quarter of 2003

Third Quarter of 2003

Second Quarter of 2003

First Quarter of 2003

Fourth Quarter of 2002

Third Quarter of 2002

Second Quarter of 2002

First Quarter of 2002

Fourth Quarter of  2001

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