DEPARTMENT OF TRANSPORTATION
STATEMENT OF
BRUCE J. CARLTON
ACTING DEPUTY MARITIME ADMINISTRATOR
FOR THE MARITIME ADMINISTRATION
July 13, 2001
Mr. Chairman and Members of the Panel:
I welcome the opportunity to discuss the Maritime Administration's (MARAD's) authorization request for Fiscal Year 2002.
Throughout our history, America's economic prosperity and national security have been closely tied to marine transportation. MARAD is an important part of the U.S. marine transportation system. Global economics and the imperatives of international competition have resulted in fewer U.S.-flag ships in the foreign trades today than in 1970. American vessels and their U.S. citizen crews have become more productive and more efficient over time. U.S.-flag vessels are actually carrying more cargo now than they did 30 years ago.
The marine transportation system moves over two billion tons of goods produced or consumed in the United States through our Nation's ports and waterways each year. Within the next two decades, cargo is expected to double. Many U.S. merchant seafarers crewing the vessels transporting this cargo are trained at outstanding institutions such as the U.S. Merchant Marine Academy at Kings Point, New York, and the six State maritime academies. These mariners serve not only our commercial vessels, but on government-owned vessels that support humanitarian and military operations as well. The end result is a unique partnership of Government, industry and labor that provides vital marine transportation services to our Nation.
The total budget request for MARAD for FY 2002 is $103,032,000. Our budget supports the Administration's intent to provide tax relief for American families and pay down the Federal debt, and it contains a single requested program increase for ship disposal,
To help ensure continued competitiveness, we must also tailor our maritime policy to the challenges of the 21st century. Thus, the Administration has proposed to make some changes affecting MARAD. I would like to address these first, and then briefly summarize our budget request and the contributions of MARAD's programs in the past year.
Maritime Security Program
As part of the Administration's policy to consolidate the management of like programs and achieve greater efficiencies, the President's budget proposes to transfer the MSP and its funding from MARAD to the Department of Defense (DOD) in FY 2002. MARAD is working with DOD to prepare for the transfer of this program which has been successful in keeping modern liner ships in the U.S.-flag fleet. I would like to stress that the Administration is not proposing to eliminate the MSP, but, rather, proposes that it be administered by DOD at its full funding level of $98,700,000.
The Maritime Security Act of 1996 established a Maritime Security Program (MSP) whose goal is to ensure the continued competitive presence of a fleet of U.S.-flag vessels engaged in international trade that are also able to meet national security sealift requirements in times of war or national emergency. Authorization for the MSP expires in FY 2005. The MSP has had 47 ships enrolled and participating in the program according to their operating agreements with MARAD since January 1, 1997.
Shipbuilding
As this Panel knows, MARAD administers a Government guaranteed loan program, commonly referred to as the Title XI program. Title XI loan guarantees enable ship owners and shipyards to borrow private sector finds on more favorable terms than might otherwise be available. As part of the Administration's policy to reduce corporate subsidies, the President's budget request for FY 2002 seeks no new funding for the subsidy costs of Title XI. MARAD will continue to manage the existing loan portfolio and associated financial activity in the program with $3.978 million of funds requested for administration of the program. The Department of Transportation anticipates a $10 million carryover in FY 2002 that will be used to continue funding for the subsidy costs for new loan guarantees.
The Administration's bill also contains a proposed amendment that would restate section 1103(g) of the Merchant Marine Act, 1936 (Act), addressing export loan guarantees. Those provisions of subsection 1103(g) that are outdated would be deleted. Additionally, the authority to provide Title XI loan guarantees for export vessels would be eliminated if the United States entered into a treaty or convention prohibiting such loan guarantees in the future.
The bill also contains an amendment to Title XI of the Act which would allow MARAD to hold and invest its cash collateral in the U.S. Treasury. Title XI program participants would no longer be required to expend substantial time and money associated with negotiating depository agreements and legal opinions in Title XI transactions.
Ship Disposal
The Department's Inspector General (DOT IG) has identified the disposal of obsolete ships in the National Defense Reserve Fleet (NDRF) as one of the Department's "Top 10" management challenges. By law, MARAD serves as the U.S. Government's disposal agent for merchant-type vessels of 1,500 gross tons or more. MARAD's fleet of obsolete ships has grown to 122 as of July 2001, and we expect to receive up to eight additional, obsolete, non-combatant ships from the Navy each year in the future. Our budget contains a request for $10 million in FY 2002 to continue the disposal of vessels in the NDRF that pose imminent environmental risk.
Before 1994, MARAD disposed of obsolete vessels on a regular basis by selling ships "as is/where is" to the highest bidder, generally an overseas entity. However, after the Environmental Protection Agency (EPA) raised concerns regarding the presence of hazardous materials such as polychlorinated biphenyls (PCBs) in various shipboard components, the sale of vessels for overseas scrapping was curtailed in 1994, then halted altogether in 1998. The few remaining domestic ship buyers soon found that scrapping under stringent U.S. worker safety and environmental protection laws was not profitable under our conditions of sale. Meanwhile, MARAD was constrained from paying for scrapping services by both a lack of specific appropriations and statutory authority. As a result, MARAD's fleet of obsolete vessels grew and deteriorated further. We were forced to expend funds to clean up leaks and remove fuel from a few of the most decrepit vessels. If obsolete vessels are not disposed of systematically, we may eventually be forced to drydock vessels to prevent environmental damage while they await disposal. Drydocking and fuel removal could cost $900,000 or more per vessel.
Specific authority to pay for scrapping provided in the National Defense Appropriations Act for FY 2001 (P.L. 106-259), enacted on October 30, 2000, included $10 million for the accelerated scrapping of those vessels in the "worst condition." This amount was transferred to MARAD early in the fiscal year to begin disposal of the worst-condition vessels in the fleet. Concurrently, the National Defense Authorization Act for FY 2001 (P.L. 106-398) extended until September 30, 2006 the deadline to dispose of all vessels in the NDRF that are not assigned to the Ready Reserve Force or otherwise designated for a specific purpose. P.L. 106-398 also charged MARAD to develop a program for the scrapping of obsolete NDRF vessels in a timely, safe and environmentally sound manner, and to report to Congress every six months on the program's progress. The initial report was transmitted to Congress on June 5, 2001.
In addition to Congressional and DOT IG oversight of MARAD ship disposal, the General Accounting Office is conducting a review of MARAD's use of a General Agency Agreement (GA) for scrapping services in the current fiscal year. As a result of using the GA, I am pleased to report that four ships will be removed from the James River Reserve Fleet as early as this month. Since enactment of P.L. 106-398, three vessels have already been removed from the fleets. Two of these ships were delivered to ship scrapping facilities and one was transferred, at no cost to the Federal government, to the State of Florida for sinking as an artificial reef.
MARAD is absolutely committed to disposing of the fleet of obsolete NDRF ships giving consideration to safety, cost and environmental protection. Ship disposal remains a priority for the Administration.
The National Defense Reserve Fleet and the Ready Reserve Force
The National Defense Reserve Fleet (NDRF) was established in 1946 in order to meet reserve sealift requirements for national defense purposes. NDRF vessels are primarily located at three major sites: James River, Virginia; Beaumont, Texas; and Suisun Bay, California. There are currently 254 ships in the NDRF, 76 of which comprise the Ready Reserve Force (RRF). RRF ships are maintained in various states of readiness by commercial ship mangers, and can sail in either 4, 5, 10 or 20 days.
The majority of RRF ships are outported throughout the country in proximity with likely loadout ports established by the Department of Defense. When activated, RRF ships are fully crewed by civilian merchant mariners working to support DOD missions. MARAD's RRF ships are called upon to play a critical role delivering supplies to support our troops and provide assistance during crises. In the Gulf War, Somalia, Haiti, Bosnia, and hurricane-ravaged Central America, the RRF carried out the DOD mission. Four RRF ships are currently stationed in Guam and Diego Garcia as part of DOD's prepositioned forces to respond quickly to regional conflicts throughout the world. Ten other ships were activated for various military exercises in the Continental United States, Caribbean and in Korea.
Readiness and reliability are the benchmarks for ships in the RRF. Readiness is demonstrated by conducting maintenance sea trials during the year, and tested by conducting "No-Notice" turbo activations at the order of the Department of Defense. MARAD's goal is to successfully activate the RRF ships under no-notice conditions 100% of the time. To date, in FY 2001, there have been 13 such tests with all of them meeting or exceeding their activation timelines. Consistent, high operational reliability is also essential for effective support of DOD. MARAD's goal is to maintain 99% operational reliability. Through the first 3 quarters of FY 2001, the RRF has achieved a reliability of 99.7% -- with 14 ships operating for 1674 days with only 15 days of unscheduled downtime.
This year, we are observing the 25th anniversary of the RRF. The tradition of the American merchant marine and U.S. citizen seafarers supporting our Armed services and national interest continues.
Cargo Preference
U.S. cargo preference laws are an important part of the overall statutory mandate to support the privately owned and operated U.S.-flag merchant marine. These laws require that a certain percentage of cargo generated by the U.S. government agencies be carried on U.S.-flag vessels. These laws are important to the financial viability of U.S.-flag vessel operating companies.
MARAD monitors federal agency compliance with the U.S. cargo preference laws as part of our overall effort to encourage them to maximize the use of U.S.-flag vessels, and we provide an annual compliance report to the Congress.
The Administration's proposed authorization bill contains a provision which would establish a three-year waiver of the existing requirement that foreign-built vessels brought under the U.S. flag must wait three years before carrying civilian preference cargoes. This amendment would provide a limited opportunity for new, foreign-built bulk and break bulk vessels to register under the U.S.-flag and be immediately eligible to carry preference cargo in international trade. In return, the vessels must have shipyard work necessary to become U.S.-flagged performed in the United States. The provision also requires that domestic shipyards be given notice before a contract is let to a foreign shipyard in order that domestic yards have the opportunity to build these vessels. The vessels receiving the waiver would not be granted pre-approval to leave U.S. registry under section 9(e) of the Shipping Act, 1916, or be entitled to any benefit of the Capital Construction Fund under section 607 of the 1936 Act.
U.S. food aid programs are expected to generate about 4.7 million metric tons of bulk grain shipments this year, including the normal flow of aid cargoes. The existing U.S.-flag drybulk ship capacity may not be able to meet the anticipated need. The three-year waiver proposal would help to ensure that there are enough U.S.-flag vessels in the future to carry at least 75 percent of the food aid cargoes to developing countries, as required by law.
This amendment would allow the U.S. fleet to grow and add jobs for U.S. merchant mariners, the same mariners we rely on to crew sealift ships in a mobilization. The proposal would also increase the percentage of U.S. foreign commerce carried in U.S.-flag vessels. Additional modern vessels in the U.S.-flag fleet would increase the competition for carriage of government-impelled cargoes. Because these vessels would only be eligible for foreign trade, this proposal has no impact on the Administration's firm commitment to the Jones Act.
The Administration also proposes changing the cargo preference year for determining compliance so that it coincides with the Federal Government fiscal year. This would simplify record keeping and management of the program without impact on any involved agencies or shippers.
Maritime Education and Training
A significant portion of MARAD's budget request is intended for ongoing maritime education and training activities. The U.S. Merchant Marine Academy (Academy) and the six State maritime schools are the only educational institutions that produce merchant marine officer graduates with a four-year bachelors degree which includes courses in marine engineering and navigation; a U.S. Coast Guard merchant marine officer's license; and practical shipboard training. These graduates gain first-hand experience in the mariner's environment, thus enabling them to enter this professional workforce with confidence and self-reliance. In peacetime, Academy graduates create and operate efficient, cost-effective marine transportation systems. In times of conflict, Academy graduates crew the ships that support our troops.
Our total request of $89,054,000 for the operations and training account includes $47,822,000 to operate the United States Merchant Marine Academy at Kings Point, New York. This year's funding request for the Academy contains a $690,000 increase over funds appropriated in FY 2001 for salary-related increases. Of the total requested for the Merchant Marine Academy, $13,000,000 is included for capital improvements, to remain available until expended. The $13,000,000 will provide much needed resources for the Academy to continue capital improvements based on the Facilities Master Plan completed in September, 2000. Having these funds available until expended will allow the Academy to award major construction projects efficiently, and will allow the Academy to negotiate better pricing by combining construction contract deliverables that optimize the Government's investment.
In addition to the funding for the Merchant Marine Academy, $7,457,000 is requested for the six State maritime academies. The State academies, like the Merchant Marine Academy, offer training for qualified individuals to become officers in the U.S. merchant marine. A portion of the requested funding will support the Student Incentive Payment (SIP) Program at the State academies, which results in a service obligation to the maritime industry and the Armed Forces reserves for the recipients. The request also includes Federal support to the State academies, and supports the costs of maintenance and repair for MARAD ships on loan to the State academies as training ships.
The balance of the request for Operations and Training, $33,775,000 is for MARAD operations which provides professional, technical and administrative support to all MARAD program areas.
American Fisheries Act
Under the American Fisheries Act (AFA), enacted as part of the Omnibus Appropriations Act of 1999, MARAD was assigned the responsibility to ensure that proper citizenship standards are adhered to for ownership of fishing vessels 100 feet or longer. Implementation of our new duties is well under way. MARAD published a final rule on July 19, 2000, and the new requirements will become effective on October 1, 2001. We are currently processing approximately 650 Affidavits of U.S. Citizenship and requests for letter rulings related to the citizenship status of vessel owners and mortgagees. All citizenship determinations will require annual review.
MARAD has also received 12 petitions from non-citizen vessel owners and mortgagees requesting determinations that the AFA and MARAD's implementing regulations are in conflict with certain international investment agreements. After consultations with the Departments of State and Treasury and other Federal agencies, MARAD recently issued decisions on three petitions related to vessel owners covered by Treaties of Friendship, Commerce and Navigation (FCN) with Japan, Korea and Denmark finding that there is a conflict between the AFA and investment agreements. As a result of those determinations, the owners may continue to maintain their fishery endorsements, but any sale of interests in the vessels must be to U.S. citizens until full compliance with the AFA standards is achieved. Nine other petitions are under review. Our budget contains an increase of $180,000 for staff costs to ensure compliance with the Act.
Marine Transportation System Initiative
Over two billion tons of goods produced or consumed in the United States move through our Nation's ports and waterways each year. This volume is expected to more than double over the next 20 years. The number of waterway recreational users is also expected to grow by over 65 percent to more than 130 million annually in the next 20 years, and high-speed ferry transportation is experiencing rapid growth in response to land-transport congestion. Cruise ships anticipate attracting 6.5 million passengers annually by the year 2002. Military reliance on the Marine Transportation System (MTS) for force projection and sustainment is also expected to grow in the new millenium.
The MTS initiative was launched by the Department over two years ago. The Coast Guard Authorization Act of 1998 charged the Secretary -- through MARAD and the Coast Guard - with establishing a task force to assess the adequacy of the nation's MTS to operate in a safe, effective, secure and environmentally sound manner. In September 1999, the Department released an initial report to Congress entitled An Assessment of the U.S. Marine Transportation System, representing an intense joint effort by industry and Government. On January 13, 2000, MARAD announced the establishment of the Marine Transportation System National Advisory Council (Council). The Advisory Council is composed of representatives from about 30 non-Federal organizations from the marine transportation industry, shippers, and state and local public entities. Four Council meetings have been held since it was established.
MARAD welcomes its continued leadership in this initiative. We look forward to continuing our partnership with the U.S. Coast Guard and many others involved in this important effort. America's marine transportation system has always been there to deliver the goods and we intend to help make sure that this tradition not only continues, but improves.
Conclusion
Mr. Chairman, and Members of the Panel, I appreciate your recognition of the maritime industry's contribution to our Nation's economic and national security. Marine transportation is a vital link in the intermodal transportation system that moves people and goods in support of the Nation's economy and security. Your continued support will help us to do our part in our national mission. This concludes my prepared statement. I would be happy to address any questions you may have at this time.
2120 Rayburn House Office Building
Washington, D.C. 20515
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