MarAd's Schubert: Building a Better U.S. Business

In part one of a two-part series, William G. Schubert, the new U.S. Maritime Administrator (MarAd) speaks with H. Clayton Cook, Jr. about the current standing and future direction of maritime activities in the United States.

Mr. Administrator, this interview is being conducted for a piece that will be published in the August 2002 issue of Maritime Reporter and Engineering News, the largest magazine of general circulation in the maritime community. So, we have a good many readers who are interested in what you are doing. Your interview will be headlined on the magazine cover. And, we are very pleased that you have agreed to speak with us today.

Cook: Would you tell our readers about yourself and life in Washington as the Maritime Administrator?

Schubert: It is great to be in Washington, serving the President of the United States. It's a great honor and opportunity that I never imagined when I graduated from the U.S. Merchant Marine Academy (Kings Point) in 1974. After I left Kings Point, I went to sea for 12 years, sailing as an officer aboard U.S.-flag vessels.

Also, I served 10 years as a commissioned officer in the United States Navy Reserve. I then worked at the Maritime Administration for nine years, spending four years in Washington (1986-1990) as an offshore industry expert advising the Maritime Administrator in policy development for the management, maintenance and liquidation of assets acquired through defaults under the Federal Ship Financing Program. The following five years (1990-1995), I served as MarAd's regional representative for all of the Agency's program interests in the southwestern region of the United States. During Operation Desert Shield/Storm, I monitored the Port Readiness Program, vessel load-out operations, and interagency planning meetings for the Port of Houston. I have dedicated my entire career to the Maritime industry. And, I believe in the Maritime Administration and in the importance of the MarAd mission Cook: Do you miss Texas?

Schubert: Of course of I miss Texas. My home is in Texas. President Bush recently said something that made a lot of sense to me. "My address may have changed, but my home remains in Texas." I was very happy in Houston with my business, International Trade & Transportation, Inc. (IT&T), however, when the President asks you to serve in his Administration, you don't say "no." My son is in college in Texas. My wife Gail is here in Washington with me.

Cook: Tell us about the business you left behind in Houston?

Schubert: At IT&T we provided transportation consulting services to ocean carriers, project exporters, freight forwarders and lending institutions. We dealt with major international infrastructure projects, which over the course of the last half dozen year aggregated over $7 billion in value, which generated over $50 million in revenues for U.S.-flag ocean carriers.

Cook: How have your experiences as a transportation transportation consultant, MarAd regional representative and sailing as a Master mariner shaped your leadership style?

Schubert: I believe that I have seen all sides of the picture, from operational to management to government.

There is one overriding issue that plagues every aspect of the U.S. maritime industry — a lack of public understanding of the importance of the U.S.

shipbuilding and the U.S.-flag merchant marine. We all need to do a better job promoting ourselves, our mission, and expressing the importance of the U.S.- flag merchant marine and U.S. shipbuilding, for protecting our economic and national security.

Cook: Many of our readers are not from the United States and may not be familiar with MarAd's mission.

Can you explain your agency's mission?

Schubert: The mission of the Maritime Administration is to promote the development and maintenance of an adequate, well-balanced United States merchant marine, sufficient to carry the Nation's domestic waterborne commerce and a substantial portion of its waterborne foreign commerce. Our merchant marine must also be capable of serving as a naval and military auxiliary in time of war or national emergency.

MarAd must also ensure that the United States enjoys adequate shipbuilding and repair services, efficient ports, effective intermodal water and land transportation systems, and reserve shipping capacity in the event of a national emergency.

Our mission is important and I hope to take it one step further by enhancing the visibility of the U.S.-flag merchant marine worldwide and making MarAd a better agency than when I arrived. MarAd is a great agency with great people who have dedicated their lives to its mission. However, we can do more as a promotional agency to support our existing U.S.-flag fleet as well as looking ahead into the future in developing a U.S.-flag presence where one does not already exist. For example, there are niche markets where the U.S.-flag can succeed, such as carriage of Export Import Bank cargoes and other government preference cargoes.

Cook: How have the events of 9/11 changed the Maritime Administration? Will MarAd be included in the new Department of Homeland Security?

Schubert: We have had a greater post 9/11 role in the area of training. At the U.S. Merchant Marine Academy we are working on developing opportunities for our graduating midshipmen who do not go to sea or cannot find jobs at sea. Our midshipmen are ideal candidates for the Transportation Security Administration because of their familiarity with the marine environment.

Also, they have already obtained training in important related areas, such as small-arms training and anti-piracy safeguards. A year at sea is already a part of their training, so they make great candidates for the new TSA and the Coast Guard.

The Global Maritime and Transportation School at the U.S. Merchant Marine Academy is being considered as a training center for port personnel. In fact, the State of Florida is sending over 20 of its law enforce enforcement personnel for port security training. The school, also known as GMATS, is a valuable resource to train port managers and other people in critical specialties who are charged with ensuring the safety and security our Nation's ports.

MarAd will remain at the Department of Transportation under the President's proposal and the Coast Guard and the Transportation Security Administration will fall under the Department of Homeland Security.

Cook: You mentioned earlier that MarAd seeks to ensure that the United States enjoys adequate shipbuilding and repair services as a part of its mission.

What do you foresee in this regard?

Schubert: Let me begin by reiterating MarAd's mission — it is absolutely essential that we maintain sufficient infrastructure to build and maintain vessels to meet our military and commercial requirements.

That means we must be certain that we are able to domestically build and repair our own vessels during peacetime and declared national emergencies.

The trends in U.S. Shipbuilding over the past twenty years has not been positive. Since the early 1980s it is estimated that shipyard employment has decreased by over 50 percent. During the same time frame, U.S.

shipyards have: • Lagged in productivity compared to other U.S.

industries, • Have not had sufficient Research and Development resources to keep pace with world shipbuilding practices, • Experienced difficulty in retraining an adequately trained supply of production workers. This is especially critical in a labor-intensive industry such as shipyard repair and construction, and • Been in the almost impossible position of competing in an international shipbuilding environment that is notoriously heavily subsidized and has significant over capacity.

So, the world shipbuilding market is such that U.S.

shipbuilding opportunities are limited.

Now, having said that, I nevertheless believe that there are existing and near-term U.S.

domestic transportation needs which will provide significant building opportunities for our U.S. commercial shipbuilders.

Cook: Would you expand on this?

Schubert: Certainly. The Jones Act and the Passenger Vessel Services Act reserve the carriage of cargo and passengers between U.S. ports to vessels built in the United States. The most important shipbuilding opportunities are those, which are resulting from the Oil Pollution Act of 1990, and the requirement for double hulled vessels in our U.S. coastwise and Gulf of Mexico services.

The OPA 90 and other petroleum related requirements should provide shipyard employment for yards across the entire spectrum of shipyard size. Of perhaps equal importance for our larger shipyards, the ocean-going container and RoRo tonnage fleets in our noncontiguous trades, Alaska, Hawaii and Puerto Rico, are going to require near term replacement. And, there may be opportunities for construction for coastwise container operations. For our smaller yards, perhaps the single most important subject matter may be vessels to meet the expanding passenger and passenger/vehicle ferry service needs.

Cook: Could you explain the importance of OPA 90 for our readers?

Schubert: OPA 90, The Oil Pollution Act of 1990, requires the replacement of all single hulled tank vessels used in the U.S. petroleum crude and product carrier and related trades in five-year intervals at the end of 2005, 2010 and 2015. The current U.S. flag tanker fleet is comprised of approximately 100 vessels; roughly two-thirds product tankers, and one third crude carriers.

Only ten of these vessels are double hulled and of recent construction.

The remaining 90 plus vessels will be phased out at the five-year intervals that I've mentioned. The replacement of Alaska crude carrier tonnage by the major energy companies involved in North Slope production is well underway.

The replacement of product carriers, the greater number of which are owned by independent operators, has hardly begun.

Cook: What about the "non-contiguous trades"? Would you explain the importance of these?

Schubert: The container and RoRo vessels of our U.S. citizen carriers serving Alaska, Hawaii and Puerto Rico are old and inefficient. While none of these trades is experiencing rapid growth, the involved vessels are expensive to operate and increasingly expensive to maintain. Replacement build buildings have been gotten underway. Totem Ocean Trailer Express, which serves Alaska, will be replacing three 1970's vintage RoRo vessels with two newly commissioned 600 trailer vessels now being built at National Steel & Shipbuilding Company. Matson Navigation Company, the predominant carrier in the Hawaiian trade, has recently announced that it will purchase two new 35,000- dwt container vessels from the Kvaerner Philadelphia Shipyard. If Kvaerner is successful with this delivery, it appears that Matson may be prepared to move forward with Kvaerner for two more vessels of the same Kvaerner design. If so, this would certainly a major step forward for everyone involved in this transaction and for U.S. shipbuilding more generally.

Cook: I see that we are running out of time, what do you believe MarAd should do to support the shipyard and ship repair industry?

Schubert: MarAd is committed 100 percent to working with the Navy, our U.S. shipbuilding and repair yards, labor, our U.S. commercial vessel operators, and Congress to develop a unified long-term strategy to maintain our shipyard capacity.

We must address the issues of shipyard productivity, modern shipyard infrastructure, R&D investment, manning and training sufficient skilled workers. To the extent that we expect to be concerned with building for export, we may need to address issues related to international business practices involving subsidies.

On the commercial side, MarAd will work to identify and assist our U.S.

shipyards in opportunities in our domestic trade. Everyone agrees that our shipyards need to identify vessel designs that they can build in series in sufficient numbers to reach adequate economies of scale. The Kvaerner Philadelphia Shipyard may be headed in that direction with its container vessel design. 1 believe this can be done with other vessel designs and I am up for the chal- lenge.

Cook: I have one more question.

There has been a great deal of concern expressed about port security focusing on non-citizen owned foreign flag vessels and their cargoes entering our ports.

However, I have not read anything concerning the monitoring of movements of U.S.-flag vessels entering or already in our U.S. ports that might be chartered to non-citizens. I see that the House Armed Services Committee report accompanying the FY 2003 MarAd authorization urges MarAd to review its post 1992 policy of "blanket" approval of "time charters and other forms of temporary use agreements" to non-citizens and requests a report back to the Committee by November 1. Would you comment?

Schubert: Yes. We believe that these charters to non-citizens present a potentially serious problem. MarAd has had the problem under study for sometime.

The House Committee report request comes, as it were, mid-stream in MarAd's work on the problem. The world is a different place today from what it was in 1992. A time charterer determines what cargoes will be loaded and discharged, and directs the vessel's schedule and its ports of call. We are concerned. And, we will wish to have the benefit of the Maritime community's thinking on the problem. We will be publishing a notice in the Federal Register inviting public comment through written submissions.

About the Author H. Clayton Cook, Jr., B.S. Princeton University, LLB The University of Virginia. Mr. Cook served as General Counsel of the U. S. Maritime Administration from 1970 to 1973, where he was responsible for the implementation of the Merchant Marine Act of 1970, and the drafting of the Federal Ship Financing Act of 1972. Upon completing his government service, Mr. Cook joined Cadwalader, Wickersham & Taft as the partner responsible for the development of that firm's Washington Maritime practice. Mr. Cook continues his law practice today as Counsel to Bastianelli, Brown & Kelley, Chartered, in that firm's Washington, D.C.

offices. He is also a partner in Management & Transportation Associates, Inc., a management consulting firm based in Essex, Conn. Mr.

Cook's email address is PlimsollDC@ aol.com.