April 25, 2018

Port congestion, federal funding, and national security were on the agenda at the Senate Subcommittee on Surface Transportation and Merchant Marine Infrastructure, Safety, and Security’s hearing on maritime transportation yesterday.

Led by Subcommittee Chair Deb Fischer (R-NE), the hearing focused primarily on preserving U.S. ports and maritime infrastructure as critical engines of the U.S. economy and on bolstering the U.S. merchant marine’s ability to respond to national security emergencies—though it also digressed into other topics, such as the impact of the Jones Act on the maritime industry and the response to sexual assault on Merchant Marine Academy campuses.

The committee featured testimony from Mark H. Buzby, USN, Ret., administrator of the Maritime Administration; Michael Khouri, acting chairman of the Federal Maritime Commission; Rear Admiral James Helis, USMS, superintendent of the U.S. Merchant Marine Academy; and Craig Middlebrook, deputy administrator of the Saint Lawrence Seaway Development Corporation.

The hearing came just one day before the full Senate Commerce Committee approved the Fiscal Year 2019 reauthorization of the Maritime Administration (as amended), which Fischer and Subcommittee Ranking Member Gary Peters (D-MI) introduced together.

Helping ports respond to new challenges

A major focus of the hearing was on helping ports respond to new challenges, from the formation of ocean carrier alliances to the rise of “mega-ships” that bring more containers to port at a single time. Fischer also called out the 2015 West Coast port slowdown (brought about by labor disputes) and the bankruptcy of Hanjin Shipping as other challenges for the industry to consider.

Khouri did not seem overly concerned. “Labor unrest pops up on occasion,” he said, but “labor harmony has come to be more the norm rather than stress right now.” On Hanjin, he pointed out that Korean shipping company Korea Line bought Hanjin’s Asia-US container line business out of bankruptcy and is using the assets to connect China, Korea, and Japan to the U.S. Pacific Northwest. “The business shows itself to be resilient in that regard,” he said.

Of congestion, Khouri said that the problem wasn’t at the ports, but rather inland: “We don’t have any port congestion as we speak, but it could come back,” he said. “Where we’re having trouble now is not at the sea ports, but in the inland legs of container shipping. Dallas, Chicago, Detroit – at the rail head end of shipments, there’s a shortage of truck drivers, there’s a shortage of chassis, that American cargo owners are saying their cargo’s getting stuck in those inland places.”

Buzby agreed that the intermodal connectors are bottlenecks. “Because of the age of our ports,” he said, “the connectors from these ports are wanting.” He called out rail connections, highways out of the ports, and the waterway connections (i.e. barge traffic) as all being points of congestion.

Asked by Sen. Roger Wicker (R-MS) about the sufficiency of current federal infrastructure investment plans, Buzby agreed they were not sufficient to support the size and scale of the need at U.S. ports. He said MARAD takes advantage of the TIGER (now BUILD) and INFRA grant programs but that there is nevertheless a “fairly large backlog of port projects.” Buzby said he would support a port-specific infrastructure plan.

Khouri underscored that a new federal funding stream alone was not a panacea. “There’s only so much money you can put into a fixed footprint of acreage, and we’re going to have to find ways to get more efficiency out of the acreage we have in these ports,” he said.

The key to that efficiency? Technology and better data sharing. “When a ship is loaded in Hong Kong or Shanghai, that information is transferred over to the terminal where it’s going to berth in LA or Long Beach, and they know where every single box on that ship is going, and the order it’s going to come off, and the truckers can be queued in—it’s these kind of efficiencies that are going to have to be brought into the system,” he said.

Inland maritime transportation: the Saint Lawrence Seaway

On the subject of maritime freight transportation, Peters regularly brought the conversation back to the Great Lakes region, which includes his home state. The Saint Lawrence Seaway, which allows ships to navigate from the Atlantic to the Great Lakes, provides shippers with $4 billion in annual cost savings (over the next cheapest shipping option) and sustains $35 billion in business revenue, in addition to supporting 227,000 U.S. and Canadian jobs. But, he said, many of the locks and dams throughout the seaway are in need of repairs.

Middlebrook testified that the Saint Lawrence Seaway Development Corporation—which manages the locks on the U.S. side of the seaway—has taken advantage of the Asset Renewal Program (ARP) to repair and modernize its locks and channels. The corporation has obligated $139 million in ARP funds on 48 projects, including to replace its 60-year-old tugboat, which aids in navigation; equip its locks with hands-free mooring, which allows for safer and more efficient locking of vessels; maintain the Seaway International Bridge; and re-dredge the channels.

Middlebrook also said that the Canadians are doing their part to maintain the seaway as well, investing over $500 million in their locks. (He broadly painted the seaway as a bilateral success story, noting that as a ship must cross the border between the US and Canada 27 times over the course of the seaway, cooperation between the two countries is of utmost importance.)

Peters prodded Middlebrook on the Trump Administration’s interest in studying options for commercializing portions of the seaway. He asked Middlebrook whether the Corporation was considering charging tolls; the operation and maintenance of the seaway is currently funded by user fees (a harbor maintenance tax paid by shippers), whereas a toll would be paid by the carrier and might result in making the seaway less competitive with other inland transportation modes.

Middlebrook responded that the study was not yet underway (as their authorization does not currently allow for it) but that their intention is to determine the best way to generate revenue to support the seaway. Alternative options presumably on the table are privatization (selling or long-term leasing public assets) or commercialization (the U.S. government continues to own the assets but contracts out the maintenance).

But, both Peters and Middlebrook agreed on the need to ensure the seaway remains competitive.

Maintaining fleet readiness

Another major focus of the hearing was on the maritime industry’s role in national security and the needs of the U.S. Merchant Marines, which Fischer called “crucial for national security.”

MARAD manages and maintains a fleet of inactive, Government-owned vessels in the National Defense Reserve Fleet (NDRF), including the Ready Reserve Force (RRF). The RRF responds to “surge” shipping needs and can transport combat support, resupply, and unit equipment to support the rapid deployment of U.S. military forces. Fischer noted that the reserve fleet—and the U.S. Merchant Marines—played a critical part in the federal response to last year’s hurricanes.

America’s strategic sealift—which moves 90 percent of the equipment and supplies that move and sustain American military forces around the globe—includes not only these government-owned vessels, but also privately owned U.S. flag commercial vessels and the intermodal systems that support the transportation of supplies.

A sticking point is finding enough commercial vessels that are willing and able to fly the U.S. flag as a member of that reserve force. MARAD subsidizes those flagships through the Maritime Security Program, which is authorized to support 60 vessels at $300 million—that’s $5 million per ship per year, which Buzby said just about offsets the differential in operating costs between a U.S. flagship and a similar sized international ship. (That $300 million figure was unchanged in the FY19 reauthorization passed out of committee on Wednesday.)

Buzby said the fleet is “in urgent need of recapitalization,” though the funding of that program was not further discussed at the hearing.

Related to the RRF was the sea training of midshipmen and the availability of enough (and enough kinds of) vessels to supply this training; midshipmen at the U.S. Merchant Marine Academy spend a year at sea working as cadets on a U.S. flagged merchant ship.

Helis noted that as of April 5, 2018, MARAD has certified 17 eligible commercial operators to host midshipmen for their sea training. He thus said they have an adequate number of vessels to provide training. He also said they have added tanker companies and a cable-laying company to diversify the kinds of ships on which midshipmen can get their training, and are still working to bring ferry companies on board.

Buzby agreed they have enough vessels to execute that mission but are working with industry to bring more companies onboard – including by modifying criteria to reduce the administrative burden to become qualified.

(Ed. Note: See also the discussion of the state merchant marine academy training ship replacement in the “FHWA, FTA, MARAD Defend FY19 Budget Request” article in this week’s issue.)

Everyone loves the Jones Act

For jobs, business, and fleet readiness, three of the panelists spoke highly of the Jones Act, which requires that domestically built ships be used for domestic maritime shipping. (Khouri demurred, saying FMC has no jurisdiction over Jones Act vessels.)

Buzby called it “vital across the board,” saying that Jones Act vessels provide employment for the majority of U.S. mariners, thus ensuring there are enough mariners to crew surge fleets when needed. He also said it is “absolutely critical” to the workforce and to the ship repair and construction industry. “We’ve got to have it,” he said.

Helis echoed this sentiment, saying the U.S. Merchant Marines extensively use Jones Act ships and that the number of training platforms they would have available would drop quickly without the Act. “If those jobs went away,” he said, “it would be much more difficult to attract students.”

On the business side, Middlebrook called the maritime industry a “three-legged stool” (the three legs being US, Canadian, and international fleets), and that the U.S. fleet is vital not only to our industry but also to Canada’s.

Video of the hearing and written testimony can be found here.