1 Volume 43, Number 4 April 2013 GAO: Jones Act ensures reliable, regular service between U.S. and Puerto Rico In a report released to the public in March, the Government Accountability Office (GAO) observed the Jones Act has helped to ensure reliable, regular service between the United States and Puerto Rico service that is important to the Puerto Rican economy. This was one of several significant observations made by the GAO in its report, Puerto Rico: Characteristics of the Island s Maritime Trade and Potential Effects of Modifying the Jones Act. Although the GAO made no recommendations in the report, it offered conclusions highlighting, among other things, the important roles served by the Jones Act in nationwide commerce and national defense, the risks associated with potential modifications to the law and detrimental ramifications for U.S. sealift strategy, the lack of conclusive verifiable data linking the Jones Act to service gaps in the Puerto Rico trades, and the potential loss of beneficial transportation services for Puerto Rico under Jones Act modification or exemption. The GAO also noted a pronounced decrease in freight rates charged by Jones Act carriers in the Puerto Rico trades indicating responsiveness to market conditions and the economic recession affecting Puerto Rico and the demonstrated willingness of Jones Act carriers to invest in new capacity and expanded transportation services based on shipper demand and emerging markets. Jones Act carriers servicing the Puerto Rico trades participated in and provided data for the study. Conversely, the GAO pointed out that nine of 10 foreign carriers contacted by the agency in an effort to gather information on these topics declined to be interviewed. As a result, we were not able to gather detailed cost or rate information from foreign carriers that call in Puerto Rico, the GAO noted. American Maritime Partnership (AMP) an organization of which American Maritime Officers Service is a member, and which American Maritime Officers supports commented on the GAO report, which was compiled in response to a request from Puerto Rico Resident Commissioner Pedro Pierluisi and Northern Marianas Island Delegate Gregorio Kilili Camacho Sablan. The GAO found that American domestic shipping companies have provided regular and reliable service that has been extremely beneficial to the economy in Puerto Rico and that changes to the Jones Act could result in a reduction in service to the commonwealth, AMP stated, citing the GAO s observation: It is possible that the reliability and other beneficial aspects of the current service could be affected if the law is changed. GAO disproved charges that the Jones Act raises prices for consumers in Puerto Rico, AMP stated. GAO specifically said: So many factors influence freight rates and product prices that the independent effect and associated economic costs of the Jones Act cannot be determined. As such, GAO s report confirmed that previous estimates of the so-called cost of the Jones Act are not verifiable and cannot be proven, AMP stated. The GAO report demonstrates that many of the most pointed criticisms of the Jones Act came from individuals or groups that did not offer data to back up their concerns. In fact, container shipping rates in Puerto Rico for American companies dropped as much as 17 percent between 2006 In December 2012, TOTE, Inc. committed to the construction of two new LNG-powered containerships for the Puerto Rico trades, with options for three more vessels for additional domestic service, at General Dynamics NASSCO. and 2010, according to the study, AMP noted. GAO said there is no guarantee that shipping rates would go down further if the Jones Act was changed. In its report, the GAO noted Jones Act carriers in the Puerto Rico trades have tailored their services to accommodate shippers, allowing shippers to meet just in time delivery needs. In fact, many island importers inventory management relies on prompt and regular shipping and receipt of needed goods to stock shelves, instead of warehousing goods. The GAO also observed less reliable, less timely and less consistent service would be risks associated with Jones Act exemption, potentially resulting in difficult trade-offs, including the need for warehousing more goods for longer periods at higher expense to shippers. The GAO noted: Foreign carriers that currently serve Puerto Rico as part of a multiple-stop trade route would likely continue this model to accommodate other shipping routes to and from other Caribbean destinations or world markets rather than provide dedicated service between the United States and Puerto Rico, as the current Jones Act carriers provide. The GAO also highlighted existing uncertainty regarding the extent to which other U.S. laws would apply to foreign vessels spending most of their time in U.S. waters under Jones Act modification or exemption, and whether any related requirements under U.S. law would affect establishment of direct service tailored to shippers in Puerto Rico, as is made available under the Jones Act. The refusal of foreign carriers to be interviewed or provide data underscores the uncertainty regarding any potential cost or service benefit to shippers if the Jones Act is removed from the balance in Puerto Rico, as well as uncer- See GAO Report Page 3 The President and the U.S.-flagged merchant marine Page 2: It seems impossible to imagine the Commander-in-Chief of the U.S. Armed Forces presiding willfully over the end of the privately owned and operated U.S.-flagged merchant marine and the irretrievable loss of the civilian American seagoing workforce. But several unsettling developments since President Obama took office in January 2009 have caused many in our industry to question this administration s intent. Cut to Food for Peace program would hurt U.S. sealift capability Page 3: In commentary published by The Washington Times, retired Adm. James Lyons presented strong criticism of the reduction in U.S.- flag cargo preference approved by Congress and signed by the President as part of a highway bill in 2012, and blasted the administration s actions and plans pertaining to the U.S. merchant marine and their potential impacts on national defense capabilities and U.S. sealift strategy. Page 6: USNS Montford Point completes sea trials Copyright 2013 American Maritime Officers
2 2 American Maritime Officer April 2013 The President and the U.S.-flagged merchant marine By Tom Bethel National President I can t imagine the Commander-in- Chief of the U.S. Armed Forces presiding willfully over the end of the privately owned and operated U.S.-flagged merchant marine and the irretrievable loss of the civilian American seagoing workforce which together provide the only reliable, safe and efficient supply lines to U.S. military personnel deployed overseas. But several unsettling maritime policy developments since President Obama took office in January 2009 have caused many in our industry to question this administration s intent it seems no one in the White House has connected the dots between U.S. merchant fleet promotion and effective strategic sealift service in defense emergencies. The Jones Act On one front, the administration appears indifferent to or unaware of the lasting positive impact of the Jones Act, which restricts all domestic waterborne trade to merchant vessels owned, built, flagged and crewed in the United States. Our first hint of this was during the BP spill crisis in the Gulf of Mexico in At the height of the long, faltering struggle to contain the oil and salvage the Gulf coastline, the Jones Act was subject to harsh, inaccurate and relentless criticism. The bizarre central claim fueled by business and political interests abetted by national news media was that the Jones Act had slowed the cleanup significantly by keeping foreign-flagged skimmers and other emergency response vessels from Gulf waters. This triggered a nationwide uproar and inspired House and Senate bills to repeal this increasingly important law. Now-retired Adm. Thad Allen, commandant of the U.S. Coast Guard at the time and commander of the response operation, said emphatically at several points that the Jones Act was no impediment to the effort. U.S. maritime interests, Jones Act supporters in the House and Senate and national security experts pointed out repeatedly that Jones Act jurisdiction extends no further than three miles from the U.S. coastline, that the rig blowout was some 50 miles out and that foreign-flagged skimmers, dredges and other vessels were moving freely near the site many of them turned away from service not by the Jones Act, but by BP, which the administration had left responsible for response vessel and service procurement. The Department of Transportation s Maritime Administration echoed Adm. Allen s comments on the controversy but passed on the opportunity to make a broader public case for the Jones Act as neither a factor in the spill nor an impediment to the response. With batteries of news crews in every Gulf Coast community, MARAD could have reported in detail on the Jones Act s value to the U.S. economy, to defense strategy and to homeland security. This would have quelled much of the undue, misguided public anger that had surrounded the Jones Act. A year later, we learned that the administration has an itchy trigger finger on the Jones Act waiver mechanism intended only in the legitimate interest of national security. This was especially clear in domestic energy trades. In June 2011, Customs and Border Protection in the Department of Homeland Security acting on a request from the Department of Energy issued a blanket Jones Act waiver to allow foreign-flagged tankers to carry oil drawn down from the Strategic Petroleum Reserve directly between domestic points. This waiver said officially to be a response to turmoil in Libya and its impact on oil supply and cost was withdrawn a day later, but CBP later approved some 48 unwarranted individual Jones Act waivers for the coastal carriage of SPR oil. DOE took harmful advantage of these waivers by setting picayune rules governing these SPR shipments rules crafted clearly to deny available, qualified Jones Act vessels their lawful first access to these cargoes. DOT and MARAD had little if anything to say publicly about this calculated assault on the domestic shipping law. In a separate but no less indicative turn in 2011, DOE s Energy Information Agency released a report claiming a shortage of Jones Act vessels to move petroleum products between U.S. ports in the Northeast if a refinery in Pennsylvania were to close. The EIA later conceded that it had undercounted the Jones Act tanker and barge fleet by more than half. The EIA refused to correct its report in the interest of an honest, accurate public record, and neither DOT nor MARAD made an issue of it. The refinery in question remained in service, so the issue of Jones Act tanker and barge availability became moot but the EIA s official flawed findings about the size and state of the Jones Act fleet in this sector stand in a report distinguished as an unreliable public resource. Today, the Jones Act is held responsible almost daily for spiking gasoline prices, despite clear evidence to the contrary. U.S. maritime interests respond fully on this issue at every opportunity, but we hear little from the administration in the Jones Act s defense. Meanwhile, local business and political interests in Puerto Rico, Hawaii and Guam are stepping up calls for pointless, counterintuitive Jones Act amendment or repeal, but the administration has made no public comment on these efforts. In addition, we are braced for the possibility that the Jones Act and other statutes intended to sustain the privately owned and operated U.S. merchant fleet will be on the agenda in forthcoming trade negotiations between the U.S. and the European Union and in separate World Trade Organization plurilateral service trade talks among the U.S. and 21 other countries. The U.S. has never agreed to include maritime services in trade negotiations. and cargo preference The administration is considerably less subtle in its approach to cargo preference for U.S.-flagged merchant vessels as you know, federal laws set aside specific shares of government-financed imports and exports for American ships. In one early case, the administration let public debate about the applicability of cargo preference to wind turbines purchased overseas with DOE loan guarantees under the President s 2009 economic stimulus measure drag on for more than a year. By the time DOT and DOE agreed reluctantly that U.S. vessels were entitled to at least 50 percent of these cargoes, the program had lapsed and the funding had dried up. More recently, the administration worked quietly but unsuccessfully with major U.S. exporters to undermine cargo preference applied to goods financed through the Export-Import Bank of the United States. We also know that the administration went along gladly with last year s PL-480 food aid cargo preference reduction from a minimum 75- percent U.S.-flag share to 50 percent. This one-third cut was accomplished through a last-minute add-on to a twoyear highway and surface transportation budget bill. The pared U.S.-flag share was accompanied by elimination of the Ocean Freight Differential account through which MARAD had reimbursed the Department of Agriculture s Commodities Credit Corp. each year for the U.S.-flagged cost above 50 percent. Now, in his fiscal 2014 budget blueprint, the President proposes to replace the direct shipment of U.S. American Maritime Officer (USPS ) Official Publication of American Maritime Officers 601 S. Federal Highway Dania Beach, FL (954) Periodical Postage Paid at Dania Beach, FL, and Additional Mailing Offices Published Monthly American Maritime Officers National Executive Board Thomas Bethel, National President José Leonard, National Secretary-Treasurer Robert Kiefer, National Executive Vice President Joseph Gremelsbacker, National Vice President, Deep Sea John Clemons, National Vice President, Great Lakes Charles Murdock, National Vice President, Inland Waters Michael Murphy, National Vice President, Government Relations National Assistant Vice Presidents: Brian Krus, Senior National Assistant Vice President Daniel Shea, National Assistant Vice President David Weathers, National Assistant Vice President Representative: Stan Barnes Editor: Matt Burke Assistant Editor: Linda Brockman Contributing Editor: Paul Doell POSTMASTER Send Address Changes To: American Maritime Officers ATTN: Member Services P.O. Box 66 Dania Beach, FL crops to hungry people worldwide with cash grants for local and regional purchase of wheat, soybeans and other commodities under PL-480. This would force U.S. merchant ships out of the PL-480 food aid equation completely and permanently. The encouraging news here is that the U.S. merchant fleet and civilian American merchant mariners have considerable, strong, bipartisan support in the U.S. House of Representatives and in the U.S. Senate. Congress has already made Jones Act waivers more difficult to obtain, and the Jones Act repeal bills filed in haste in 2010 failed to advance and were withdrawn. There are several strategies in play to restore the 75-percent U.S.-flag PL-480 cargo preference allotment. The administration s proposal to replace in-kind PL- 480 food aid with cash payments faces a rough ride in both Congressional chambers, and several of our legislative allies want to tighten enforcement of existing cargo preference laws. Each of us in American Maritime Officers can sustain this support by contributing to the AMO Voluntary Political Action Fund to the greatest possible extent each year. This fund has helped many of our industry s longtime supporters remain in office, and it is helping our union s legislative staff make the merchant fleet s case to newer lawmakers likely to rise to key leadership positions. As always, I welcome your comments and questions. Please feel free to call me on my cell at (202)
3 April 2013 American Maritime Officer 3 Funding cut to Food for Peace program would have a serious negative impact on U.S. sealift capability In commentary published by The Washington Times in March, retired Adm. James Lyons presented strong criticism of the cut to U.S.-flag cargo preference approved by Congress and signed by the President as part of a highway bill in 2012, and blasted the Obama administration s actions and plans pertaining to the U.S. merchant marine and their potential impacts on national defense capabilities and U.S. sealift strategy. For more than 200 years, the United States merchant marine has been a key element in our overall national security equation, wrote Lyons, the former commander in chief of the U.S. Pacific Fleet and senior U.S. military representative to the United Nations. It has supported our nation s military operations and conflicts throughout the world. It has always been the reliable partner, particularly when foreign-flag ships and crews have refused to carry our needed military supplies and cargo into conflict areas or for political purposes. However, recent actions by the Obama administration call into question the sustainability of the U.S. merchant marine. Lyons first focused on the reduction of the U.S.-flag statutory share of U.S. government impelled food-aid shipments under cargo preference, a cut agreed to last summer by the administration and by the leaders of both parties in the House of Representatives and in the Senate as a way to help pay for a politically popular, twoyear, $105 billion highway funding measure. Over the Fourth of July holiday weekend last year and before even the Maritime Administration knew about it, the Obama administration reduced cargo preference shipments of American food aid to be carried by U.S.-flag ships from the traditional 75 percent to 50 percent, Lyons noted. Such a reduction has serious consequences, as it has a significant adverse impact on the merchant marine, particularly when combined with the numerous waivers granted by the administration to the Jones Act, he wrote. Cargo under the Jones Act must be transported by ships that are American built, owned, flagged and crewed, except if waivers are granted. Unfortunately, the Obama administration has granted more waivers to the Jones Act than any other previous administration. So much for buy American. Lyons pivoted to a plan widely reported to be under consideration by the administration to divert funding from the U.S. food-aid programs Food for Peace and Food for Progress. The new plan for food aid being considered is to give the money directly to the nations whose citizens are starving, instead of buying food from American farmers and shipping it in American-flag bottoms, Lyons wrote. Nations such as Sudan, Uganda, Ethiopia, Kenya, Colombia, Pakistan and Egypt would get direct cash payments so they supposedly could purchase food locally for their starving people. It is doubtful, to say the least, that cold, hard cash from the U.S. taxpayer would only be used by those leaders to purchase food. Under such a plan, nongovernment organizations would oversee the program. Oxfam America, a nongovernment organization with global headquarters in Boston and a policy and campaigns office in Washington, D.C., is currently lobbying Congress heavily to cease buying food from American farmers and totally end U.S. cargo preference laws for (U.S.-flag ship) operators, he wrote. Oxfam America received $78 million in revenues in 2011 and spent $28 million of it in organization salaries. Ending food aid stamped with Produced and Made in USA and sending the money and expensive nongovernment organizations overseas to ensure that people are fed will only ensure more corruption and waste. For most of these poor countries, their farmers cannot produce enough food now, which is the reason the American taxpayer is providing it. Wouldn t it be better to buy food from U.S. farmers and transport it in U.S.-flag vessels than to provide cash to questionable and corrupt regimes? The Maritime Administration estimates that if the administration goes ahead with funding reductions for the Title II Food for Peace program, it will have a serious negative impact on U.S. sealift capability, Lyons wrote. The nation will lose about 1,200 qualified merchant marine personnel, and in order to survive, U.S. ship owners will reflag their ships. The Maritime Administration has estimated that at least 30 ships will most likely be immediately reflagged to foreign registry. The loss of the ships and the mariners in the labor pool will directly impact national security objectives by limiting available mariners to crew government rapid-response sealift ships when activated for emergencies. Ready Reserve Force ships support U.S. Navy deployment training In February and March, U.S. Navy Cargo Handling Battalions 5 and 14 conducted a month-long training and evaluation exercise with the Ready Reserve Force ships Keystone State, Gem State and Grand Canyon State manned in all licensed positions by American Maritime Officers to prepare units for deployment. AMO officers working with the Navy units in Alameda, Calif., included Keystone State Chief Mate Alex Butler, Gem State Chief Mate Adena Kenny-Grundy and (not in the picture) Grand Canyon State Chief Mate Gary Kohlbach. All three RRF ships are operated by Pacific-Gulf Marine. Photo: courtesy of Adena Kenny-Grundy GAO Report Continued from Page 1 tainty regarding willingness of foreign interests to accommodate the specific needs of local shippers, and the applicability of U.S. jurisdiction to the rates and practices of foreign carriers under modifications to the cabotage law. More certain were observations regarding the potential response to changes in U.S. law from Jones Act carriers providing direct service between the U.S. and Puerto Rico carriers for which rates and practices remain under the jurisdiction of U.S. authorities. According to MARAD officials, unrestricted competition with foreign-flag operators in the Puerto Rico trade would almost certainly lead to the disappearance of most U.S.-flag vessels in this trade, the GAO reported. In the summary of its report, the GAO pointed out: The general purposes of the Jones Act include providing the nation with a strong merchant marine that can provide transportation for the nation s maritime commerce, serve in time of war or national emergency, and support an adequate shipyard industrial base. The general purposes of the Jones Act have not changed since the law s enactment. In its report, the GAO noted that full or partial Jones Act exemption could also reduce or eliminate existing and future shipbuilding orders for vessels to be used in the Puerto Rico trade, having a negative impact on the shipyard industrial base the act was meant to support. Reporting on the background of the Jones Act, the GAO pointed out: Although the Department of Defense does not administer or enforce the Jones Act, the military strategy of the United States relies on the use of commercial U.S.-flag ships and crews and the availability of a shipyard industrial base to support national defense needs. In its concluding observations, the GAO noted: A decline in the number of U.S.-flag vessels would result in the loss of jobs that employ skilled mariners needed to crew the U.S. military reserve and other deep-sea vessels in times of emergency. Furthermore, according to MARAD, the loss of U.S.-flag service would reduce their ability to ensure that marine transportation serves the Puerto Rico economy. AMP highlighted these points in its commentary on the GAO report. In fact, the study quoted the Defense Department and the U.S. Maritime Administration as saying the contributions of American commercial shipyards are more important than ever as the number of new military vessels being constructed is reduced by federal budget cuts, AMP reported. AMP reserved its main criticisms for the GAO s analysis of transportation services for LNG and other bulk cargoes in Puerto Rico. In contrast to its analysis of the container shipping market, GAO s review of the LNG and other bulk shipping markets is anecdotal, incomplete, misleading and one-sided, AMP stated. In fact, there are already fully compliant American vessels available to transport LNG to Puerto Rico, and of course, others can be built in plenty of time. If there is sufficient demand for LNG or other bulk cargoes, the American maritime industry will meet that demand, just as it has provided regular, reliable and cost-effective service for decades in other Puerto Rico shipping trades where a demand exists, AMP stated. The GAO, in its report, noted the demonstrated willingness of Jones Act carriers to invest in new vessels and expanded services, citing, among other things, the construction order for new LNG-powered containerships to operate between the U.S. and Puerto Rico. Recent announcements from two Jones Act carriers concerning plans to build new containerships and tankers indicate that the U.S. flag industry is responding to the emergence of new market demand, the GAO observed.
4 4 American Maritime Officer April 2013 Rep. Butterfield introduces legislation to facilitate recognition of World War II merchant marine veterans Congressman G. K. Butterfield (D- NC) in March introduced legislation to facilitate the recognition of World War II merchant mariners as veterans, expand honorary veterans status to include coastwise merchant seamen and provide burial benefits for merchant marine veterans of World War II. The World War II Merchant Marine Service Act of 2013, H.R. 1288, would expand the list of documents accepted by the Department of Homeland Security to establish seagoing service during World War II. The legislation would also expand honorary veterans status to a forgotten segment of the World War II merchant marine, the coastwise merchant seamen, as noted in a statement from the congressman s office. Additionally, the bill would extend burial benefits to merchant marine veterans of World War II. During World War II, thousands of Americans stepped forward to serve as an extension of our armed forces when our nation was in great need, Rep. Butterfield said. These brave men and women, who kept the war effort going here at home, were known as coastwise merchant seamen. For far too long they have been denied the proper recognition of their service. With the help of my colleagues, I hope to pass this bill so these fine Americans can finally receive the distinction they deserve. As of March 20, the bipartisan legislation had drawn 45 cosponsors. If enacted, H.R would award any commendations, ribbons or honors U.S. cargo preference laws critical to America s national, economic security The following resolution was adopted by the Maritime Trades Department, AFL-CIO, Executive Board during its winter meetings in February. For well over a century, the United States has adhered to a policy of ensuring that a portion of the goods bought and paid for with taxpayer dollars should be transported on American ships with American crews. During this period, existing cargo preference laws created good-paying jobs for American workers; provided tax revenues at the local, state, and federal levels; and helped make sure America s merchant marine remained ready and available when needed for strategic sealift and other defense interests. In short, America s cargo preference laws are critical to the national and economic security. They help maintain a ready and available pool of U.S.-citizen seafarers who have crewed vessels on missions that have done everything from See Cargo Preference Page 12 earned during time of service, and provide burial benefits to these individuals that played such an invaluable role in the World War II efforts. As noted in the congressman s statement: merchant marine veterans of World War II were private citizens employed by freight shipping companies. In an effort to support the American war effort during World War II, freight shipping companies and their employees became an auxiliary to the U.S. Navy. Their mission was to transport bulk war materials including food, clothing, (and) weapons, (as well as) troops to all areas of conflict and coastal installations here at home. Separately, coastwise merchant seamen were tasked with the critically important role of transporting materials for the war effort along the U.S. coast. Although coastwise merchant seamen did not sail across the Atlantic or Pacific Oceans into areas of conflict, they still encountered the enemy while delivering cargo that kept the war effort moving forward. As noted in the statement: Congress has previously passed laws to recognize the efforts of the merchant marine. However, these laws have failed to incorporate the entirety of those who served in the merchant marine during World War II, and have placed onerous and sometimes impossible criteria on these individuals to prove their service. In most cases, the documentation currently required to prove service no longer exists or can be extremely hard to find. (Rep.) Butterfield s bill allows Social Security Administration records, validated testimony by the applicant or closest living relative, and other official records that provide sufficient proof of service. H.R was referred to the Committee on Veterans Affairs, and to the Committee on Armed Services. Fitting out for the 2013 season on the Great Lakes American Maritime Officers members fitting out the American Integrity for the 2013 season, here in Milwaukee, Wis., included Chief Engineer Paul Newhouse and First Assistant Engineer Jerry Anderson. AMO represents all licensed officers aboard the American Steamship Company vessel. American Maritime Officers members fitting out the Cason J. Callaway for the 2013 season, here in Sturgeon Bay, Wis., included First Assistant Engineer Kevin Werda and Second A.E. Jerry Oliver. AMO represents the licensed officers and stewards aboard the Callaway, which is operated by Key Lakes. American Maritime Officers members preparing the Philip R. Clarke for the 2013 season, here in Sturgeon Bay, Wis., included Second Assistant Engineer Jeff Darga, Third A.E. Phil Bouchonville, First A.E. Dan Wadzinski and Chief Engineer John Bellmore. The Clarke is operated by Key Lakes and AMO represents the licensed officers and stewards. American Maritime Officers members working aboard the Joseph L. Block as the ship was prepared for the 2013 sailing season, here in Sturgeon Bay, Wis., included Steward Dale Clark. The Block is operated by Central Marine Logistics and AMO represents the licensed officers and stewards. Season starts with St. Marys Conquest The 2013 Great Lakes shipping season began March 2 with the sailing of the tug/barge unit Prentiss Brown/St. Marys Conquest. Operated by Port City Marine Services, the vessel (shown here in a file photo) departed its winter lay-up berth in Milwaukee, Wis. and sailed for Charlevoix, Mich., where it loaded 9,200 tons of cement for delivery to Chicago, the Lake Carriers Association reported. American Maritime Officers represents the licensed deck and engineering officers on the vessel.