Military

STATEMENT OF 
RICHARD H. VORTMANN, PRESIDENT
NATIONAL STEEL & SHIPBUILDING CO.
AND
CHAIRMAN OF THE BOARD
AMERICAN SHIPBUIDLING ASSOCIATION

BEFORE THE 
HOUSE ARMED SERVICES COMMITTEE
SPECIAL OVERSIGHT PANEL ON MERCHANT MARINE

JULY 23, 2002
 

Thank you, Mr. Chairman, Members of the Panel, for this opportunity in my capacity as Chairman of the American Shipbuilding Association (ASA) to present our industry's recommendation to strengthen America's national security, our merchant marine, and the maritime industry.

ASA represents the six largest shipbuilders in the United States. We build large oceangoing commercial ships, as well as all of the capital ships for the U.S. Navy. ASA also represents 22 major companies engaged in the manufacture of ship systems and components. 

Unfortunately, as you heard last week, the United States is at serious risk of not having a merchant marine engaged in international commerce in the future. Our merchant marine, and the maritime industry in the United States is dying. This death is analogous to a patient afflicted with cancer where each segment of the industry grows weaker over time, until gradually, we are no more. It is past the time for all segments of the maritime industry to come together to rebuild our merchant marine and the industry that supports our merchant marine. This cannot be accomplished, however, without the help of the United States Government.   

While I strongly believe that it is in the national security interest of our Government to have a strong merchant marine and maritime industry, it is not what I believe that matters. It is what you in Congress, and what the Administration think and believe that matters.

Should you determine that it is in our national security interest to have a commercial fleet of militarily useful ships -- owned, built, crewed, and controlled by Americans -- to serve as a military auxiliary in times of war and national emergency, a financial investment will be required. A simple band-aid, like the extension of the existing Maritime Security Program or the changes MSP shipowners recommend, will neither save nor foster an American merchant marine to meet our nation's sovereign military requirements in time of war and national emergency.    

As this chart demonstrates, in 1980, the U.S. merchant marine fleet engaged in international commerce numbered 165 American owned, American built, and American controlled ships, employing 13,313 American merchant mariners. Today, the active fleet numbers 45 ships, employing 2,600 mariners. Similarly, in 1980 there were 22 shipyards engaged in the construction of oceangoing commercial and naval ships employing 140,000 people. Today, there are just eight shipyards employing 59,000.

Today, ninety-nine percent of the ships in the MSP fleet are foreign-built, and 87 percent are foreign owned. It is just a matter of time until there will be only two - and quite possibly - just one company left in this fleet. These companies are Neptune Orient Lines of Singapore and Maersk of Denmark. 

The current MSP program has not achieved the intended objectives. By all measurement, the U.S. merchant marine is worse off today than 10-20 years ago.

If Congress reauthorizes the existing MSP program, the Department of Defense will have no say in the types of ships these companies enroll in the MSP program. They may have little or no military utility, and there will be no assurance that when the going gets tough that these ships will be available to the Department of Defense.

To address these serious deficiencies in the Maritime Security Program, we propose that the Department of Defense pay for the design and construction of ships over a multi-year construction period. The general types, tonnage, and numbers of each ship type would be identified by the Transportation Command, in consultation with the Maritime Administration, to meet DOD sustainment lift requirements.

Under this program, DOD would request proposals annually from U.S. citizen ship operators for commercial ships meeting the general description and functionality required by DOD. The U.S. citizen operator would enter into a contractual agreement with DOD, based on the design selected by the operator, to lease the commercial vessel over a twenty-year period. DOD would then pay for the construction of that ship in a U.S. shipyard. Lease payments by the operator to DOD would commence on the date of delivery of the vessel.

The lease payments to DOD would be based on the international bareboat charter rate for a comparable vessel. Lease payments to DOD could be made on a monthly basis. While the contractual length of the lease would be for 20-years, the contract could either be at a fixed rate for 20 years, or alternatively, provide for an annual adjustment of the lease payment to reflect any increase or decrease in international charter rates.

This program is a win-win-win for commercial U.S. ship operators, DOD, U.S. crews, and U.S. shipbuilders. U.S. operators, which are financially hard pressed to invest in new ships - no matter where they are built -- would have access to ships at international prices, without having to finance the up-front capital investment.

Under this program, the Department of Defense would own the ships ensuring their utility and availability in times of emergency. This program would strengthen the U.S. defense shipbuilding and repair industrial base, and create thousands of long-term jobs for skilled craftsmen essential to building both commercial and naval ships.

While DOD would have to finance the construction of the fleet, it would realize savings in the costs of naval ships. Shipbuilding generated by this program would enable us to achieve series production in our shipyards and supplier base. Increased production would drive down the unit cost of ships and ship systems under this program as our workforce becomes more efficient with each ship of the same design we produce. This building program would foster insertion of commercial technologies and manufacturing processes in naval shipbuilding programs. These commercial practices, combined with quantity production would drive down the cost of naval ships.

The lease payments from U.S. operators would be deposited into the National Defense Sealift Fund of DOD to defray the up-front acquisition of MSP eligible ships. The contractual terms and conditions of the voluntary intermodal sealift agreement of DOD would still apply to U.S. operators participating in the program.

A renewal of the existing MSP, under its existing construct or MSP shipowner proposed changes, would place the Department of Defense at the mercy of foreign shipowners to take whatever ship types those owners make available to DOD - regardless of their military utility.

This was the case when the MSP program was enacted in 1996, and MSP owners have already indicated that they plan to bring 5,000 TEU containerships into a reauthorized program. While TRANSCOM may question the military usefulness of such large containerships, they will have no say in the matter.

DOD has normally needed ships that can enter a majority of the world's ports, rather than just those few that can handle extra large ships. DOD has also wanted increased flexibility by having ships that can transit the Panama Canal. Maybe TRANSCOM will determine that it requires some very large ships, but TRANSCOM should at least have a say in the decision.

DOD also requires car carriers, or Ro/Ro's. However, neither Maersk nor Neptune Orient Lines, for example, own any Ro/Ro's participating in the MSP program today.

TRANSCOM has a requirement for tankers. Yet, there are no tankers in the MSP program.

The mix of ships that TRANSCOM needs, while still ensuring a competitive commercial market for these ships, will be achieved under the program we propose.

I recognize that there needs to be a balance between military usefulness and commercial viability, because these ships will have to compete in the international commercial shipping business in peacetime. I am confident that this balance can be struck. 

In closing, let me emphasize that our industry supports an enhanced Maritime Security Program. We support a 20-year annual per ship operating subsidy to offset the higher costs associated with U.S. merchant mariners and doing business under the laws of the United States. But a program that does not provide for a fleet of American-built ships with military utility, under the ownership and control of America, fails to meet the sovereign security requirements of the United States. A program that lacks these critical elements cannot be called a Maritime Security Program.

Will the program we propose increase the price? Yes. However, 95 percent of all military cargo and supplies for our forward deployed troops will continue to have to go by sea. Given this indisputable fact, this is a small price, which America can no longer ignore if the U.S. needs a merchant marine and supporting shipbuilding industry.

Thank you.