Matsuda draws connections
Maritime administrator views U.S.-flag shipping from shore to sea.
By Chris Gillis
Maritime Administrator David T. Matsuda strongly believes U.S.-flag shipping's well-being must be considered beyond the water.
In his view, the industry's scope is much broader than it appears to most individuals familiar with the nation's merchant marine activity. Matsuda points out that U.S.-flag shipping is just as much linked to freight transport activities on land as it is to the sea.
'You've got to understand the connections,' he said in a recent interview. 'In the business of shipping, you have to be aware of the entire supply chain, and if we're supposed to be promoting the industry than we better understand that.'
The Obama administration has expressed support for developing the country's so-called marine highway system, which aims to reduce congestion by transporting truck trailers and their freight along the coast by vessel instead of completely over the road. Congress has also backed the initiative over the years through the 2007 Energy Independence and Security Act, and this year with specific language in the National Defense Authorization and Consolidated Appropriations acts.
'We're very excited about the great potential this has to grow the industry,' Matsuda said. In addition to the anticipated efficiencies and environmental improvements from the marine highway project, it will increase the U.S.-flag vessel base, maritime jobs and domestic shipyard work, he said.
While the concept offers great potential, it's been a tough sell to U.S. vessel operators and shippers. 'There has to be a market for it before we can build a single vessel. Then we have to give shippers good reliable service in order for them to be willing to use it,' Matsuda said.
Congress and the administration have attempted to stimulate development of marine highway initiatives by offering various grants, including $7 million provided by the 2010 Consolidated Appropriations Act. In February, the Transportation Department provided $120.4 million for seven seaport and marine-related projects through the $1.5 billion Transportation Investment Generating Economic Recovery (TIGER) Discretionary grants. 'These grants will support new marine highway services, add capacity to ports, and improve shoreside linkages to inland markets,' Matsuda said.
MarAd is also talking with the Defense Department about potential marine highway U.S.-flag vessel designs that could meet both commercial and military transport requirements.
'The upside is that we could build ships again and (the military) needs to replace a lot of tonnage,' Matsuda said. 'If we could come up with some standardized designs, it could make construction easier.'
Stimulating Shipbuilding. U.S. shipyards are known for their expertise in building sophisticated vessels, but have struggled to compete effectively in recent decades with the Far East's large-scale cookie-cutter shipbuilding operations.
Matsuda recently addressed the status of MarAd's Title XI program before the House Armed Services' subcommittee on seapower and expeditionary forces. Title XI offers loan guarantees for shipyard modernization projects and building vessels in U.S. shipyards. The program provides approved applicants with long-term financing at stable interest rates, sustains efficient facilities for shipbuilding and ship repair within the United States, improves system capacity and sustains U.S. jobs.
As of June 30, MarAd's Title XI portfolio was about $2.1 billion, which includes 60 loan guarantee contracts for more than 300 vessels and two shipyard modernizations, Matsuda told the subcommittee on July 14.
Since 1993, the Title XI program has experienced 13 defaults, including two in fiscal year 2009 (AQ Boat LLC and Riverbarge Excursions Lines) and two in fiscal year 2010 (Hawaii Superferry Inc. and AHL Shipping Co.).
Matsuda told the subcommittee the agency continues to strengthen its Title XI loan approval process to try to prevent future defaults, and that applicants must meet strict information requirements to gain approval. 'The program is driven by the applicants,' he said.
MarAd is processing six applications for loan guarantees in excess of $1.6 billion in total loan amounts. The pending applications involve 11 shipyards in nine states and are for a variety of vessels and projects, including articulated tug-barges, shuttle tankers, drill rigs, and platform supply vessels. The agency has $76.6 million in budget authority to cover the subsidy costs of these loan requests. This amount would support about $1.1 billion in new loan guarantees, Matsuda said.
Due to current market conditions, the agency expects an uptake in interest among companies seeking to build vessels under Title XI. 'Given the current credit situation, Title XI is the best deal in town,' Matsuda said.
Future Mariners. Matsuda has assured House lawmakers that his agency is committed to revitalizing the nation's primary academy for educating future merchant marine officers. In recent years the academy has suffered from crumbling infrastructure and financial management woes.
'Improving the profile and prestige of the U.S. Merchant Marine Academy is one of Secretary of Transportation (Ray) LaHood's top priorities,' Matsuda said in testimony before a House Armed Services subcommittee.
President Obama's budget request for fiscal year 2011 calls for $100 million for the academy at Kings Point, N.Y., a $26 million increase above the 2010 amount. This increase will support capital improvements, operational funding for information technology upgrades and academic program improvements, and compensation for Midshipman Fee overcharges, Matsuda said.
The administrator also told the subcommittee that MarAd has made 'significant progress' in implementing management and process improvements at the academy based on recommendations from a Government Accountability Office report and its own advisory panel. He said the agency has implemented 32 of the 47 GAO recommendations and will fulfill the rest before the end of the fiscal year ending Sept. 30.
House subcommittee chairman Rep. Gene Taylor, D-Miss., noted the Merchant Marine Academy has about 60 vacancies, from maintenance to teaching spots. He asked Matsuda to consider filling some of those positions with wounded veterans recovering at Walter Reed Army Medical Center in Washington.
In addition to Kings Point, MarAd provides financial support and training ships to five state maritime academies. The training ships at these schools, located in California, Texas, Maine, New York and Michigan, are expected to become increasingly expensive to maintain as they age and environmental regulations imposed upon the shipping industry increase, Matsuda warned.
Collectively, the Merchant Marine Academy and state schools graduate more than 700 trained, Coast Guard-licensed deck and engineering officers each year.
MarAd also works with 19 maritime high schools around the country to attract young people into the industry by learning about the merchant marine.
Matsuda visited one of these schools in Baltimore last February. 'I was impressed with the dedication the students at the Maritime Industries Academy demonstrated towards learning about a key component of our nation's economy: maritime transportation. These young men and women are the future of this industry and I will be working with the school to help them achieve success,' he told the House Transportation and Infrastructure Committee's subcommittee on Coast Guard and marine transportation, in testimony on July 20.
Strengthening Programs. According to MarAd, there are 115 U.S.-flag ships ' five tankers, 11 dry bulkers, 28 roll-on/roll-off vessels, 61 containerships and 10 multipurpose vessels ' engaged in international trade.
The U.S.-flag ships all participate in the federal government's cargo preference program. Sixty of them operate in the Maritime Security Program (MSP).
MarAd's latest five-year data review of cargo preference shows the program generates more than 16 million revenue tons of cargo topping $1.3 billion in ocean freight revenue per year. Military freight represents about 64 percent of the revenue while food aid is 29 percent and other programs are 7 percent. Preference cargoes provide a minimum revenue base of 5 percent to 7 percent of cargoes for liner vessels and more than half for vessels in tramp or charter services, Matsuda explained.
MSP, which is part of the 2003 Maritime Security Act, provides the government immediate access to 60 modern container, ro/ro, tanker and heavy-lift vessels. All ships enrolled in MSP are also part of the Voluntary Intermodal Sealift Agreement (VISA), which provides the government with assured access to U.S.-flag assets, specifically the staged, time-phased availability of U.S.-flag commercial carriers' shipping services and intermodal systems.
In return for making their ships available, MSP provides participants a payment to help offset some of their operations costs. For fiscal years 2006-2008, MSP authorized $156 million annually, followed by $174 million a year for fiscal years 2009-2011, and $186 million a year for fiscal years 2012-2015. In fiscal year 2009, the $174 million offset equates to about $2.9 million for each of the MSP fleet's 60 vessels.
With expiration of the current MSP program looming, U.S.-flag vessel operators have expressed concern about the need to begin the legislative process to reauthorize MSP beyond 2015 to maintain continuity of both U.S.-flag vessel construction activities and transport services.
'Shipbuilding is expensive and investors need to have confidence in order to commit their dollars to building vessels with a 25-plus-year life,' Matsuda told the House Transportation and Infrastructure subcommittee. 'The concern that the program may not be renewed, or renewed at a sufficient level, could negatively affect investment decisions.'
Worst-case scenario for the U.S.-flag vessel industry is that MSP expires without reauthorization and there are not enough cargo preference volumes to sustain the vessel operators. 'Then you starve the program,' he told American Shipper.
