Segment 2 Of 2 Previous Hearing Segment(1)
SPEAKERS CONTENTS INSERTS
Page 13 PREV PAGE TOP OF DOC Segment 2 Of 2 EFFECT OF THE PASSENGER SERVICES ACT ON THE DOMESTIC CRUISE INDUSTRY
WEDNESDAY, APRIL 29, 1998
U.S. House of Representatives,
Subcommittee on Coast Guard and Maritime Transportation,
Committee on Transportation and Infrastructure,
The subcommittee met, pursuant to notice, at 10 a.m. in room 2167, Rayburn House Office Building, Hon. Wayne Gilchrest (chairman of the subcommittee) presiding.
Mr. GILCHREST. The hearing will come to order.
The subcommittee is meeting today to hear testimony on the effect of the Passenger Vessel Services Act on the domestic cruise industry. As you know, we will limit opening statements to the Chairman and ranking minority member. All of the members can have their statement included in the record.
I want to welcome everyone here today to discuss the effect of the Passenger Vessel Services Act on the development of the domestic cruise industry. The subcommittee will receive a full day of testimony on various proposals to revitalize the domestic cruise industry. We have nearly every viewpoint represented, so the subcommittee should get a balanced picture of this important industry.
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Unfortunately, the Administration is not represented here today. The subcommittee issued an invitation to the Secretary of Transportation, and we expected the Secretary to send a representative from the Department of Transportation. We are somewhat disappointed that the Secretary declined our invitation to testify, since this topic is extremely important to our committee and to the coastal areas around the country.
As we proceed to the legislative process on this issue, I hope the Secretary will be somewhat more open and participate in the development of methods to revitalize the domestic cruise industry.
There are many proposals to expand the relatively small domestic cruise market. While withholding judgment on any approach at this point, I hope that our dialogue will help move the process forward to a reasonable compromise on the issues. It is important that we continue to work with our coastal regions, including in my particular situation the Port of Baltimore. But I also realize that there's a number of ports around the country that could be affected by some different approach in our domestic cruise industry. This will promote jobs, economic development and an expansion of the domestic cruise industry could aid in that effort.
I also believe that we must work toward a goal which will return American tourist dollars back to America. And I hope today will be the starting point in that effort.
One last comment. This is a gathering today, sometimes known as a hearing, where we're going to exchange information. And one of the fundamentals of progress on any scale, the fundamentals, as responsible adults, is to improve our acquisition of knowledge, so that we can pass on to the next generation a better situation.
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Now, this is very controversial, I realize that. But so was Copernicus and Galileo. But the foundation upon which they made their decisions was based on the acquisition of knowledge, and not dogma.
So that's what we're going to do here today. So even though this hearing and this issue is volatile, there are some pieces of information, that if they come together in a comprehensive way, which is what we're attempting to do here today, people that have all kinds of different perspectives on this particular issue, I think we can have a meeting of the minds and improve tourism, put more dollars into the American economy and more jobs.
So we're not going to make any decision at the end of this hearing, and there may not even be a bill in this session of the Congress dealing with this particular act. But we're going to move forward for the acquisition of this information, so that all of us will become more knowledgeable on the issue and hear other people's perspectives.
So we're going to have an exchange of information with a sense of tolerance for someone else's opinion. And we'll move forward from there.
I'll now recognize Mr. Clement.
Mr. CLEMENT. Thank you, Mr. Chairman.
Thank you, Mr. Chairman, for scheduling this oversight hearing on the Passenger Services Act. Over the past decade, various members of Congress have attempted to mend or grant limited exceptions to the Passenger Services Act in order to help promote the development of a cruise ship industry in the domestic commerce of the United States.
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The only U.S.-flag cruise ship in existence is the S.S. Independence, which sails between the Hawaiian islands. All other cruise ships sailing into our ports are registered under the laws of countries that have very different standards for their ships with regard to taxation, safety standards, labor laws, collective bargaining, minimum wage, the Americans With Disabilities Act, equal employment opportunities, and shipbuilding subsidies.
The most recent House action on this issue occurred in the 103rd Congress. Then Representative Jolene Unsoeld introduced H.R. 3821, the United States Passenger Vessel Development Act. This bill actually passed the House twice, first on September 22nd as a part of the Coast Guard Authorization Act, then again on October 7th as part of the Oceans Act of 1994.
As passed by the House, ship owners would have been allowed to use one foreign-built cruise ship in the coast-wise trade for each cruise ship they had contracted to build in a U.S. shipyard. Had the Senate chosen to act on either of these bills, we probably would not be sitting here today. Instead, businessmen around the country would be deciding whether this law provided sufficient incentives for them to make investments in the U.S.-flag cruise ship business.
Meanwhile, we have thousands of small passenger vessels providing inland cruises, dinner cruises, and ferry services. The Passenger Services Act has worked well in this segment of the market to provide a stable financial environment in which to invest.
I was very happy to see the announcement this week by American Classic Voyages that they plan to build up to five small U.S.-flag coastal cruising vessels that will operate along the east, west, and north coast of the United States. This may be the beginning of the growth in this domestic market.
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I look forward to receiving testimony today from the various segments of the U.S. travel, port, seagoing maritime industry, and labor, all of which have an interest in seeing the U.S. cruise ship industry develop, while not impacting on the investment of thousands of small passenger vessels currently operating. I am hopeful that they can reach a consensus on an approach that will provide investment opportunities for the promotion and development of a U.S.-flag cruise ship industry.
Mr. GILCHREST. Thank you, Mr. Clement.
We're going todon't run away, Mr. Smith, we have a couple more statements here that are going to be brief, to some extent. Mr. Coble.
Mr. COBLE. Mr. Chairman, I will be brief.
Mr. Chairman, I'm going to have to go back and forth from Judiciary here today. As you pointed out, this is indeed, this is potentially volatile. But I look across this room and I see many faces, some adversarial, some harmonious. But all reasonable. These people before you, as you know, Mr. Chairman, are not unreasonable people. And given your laid-back, low-key demeanor, I'm sure we'll see the day through intact.
Thank you, Mr. Chairman.
Page 18 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Thank you, Mr. Coble.
Mr. BORSKI. Thank you, Mr. Chairman.
Let me first thank you and the ranking member, Mr. Clement, for holding this important hearing today.
As you know, Mr. Chairman, the legislation has been introduced to repeal the PVSA and permit foreign-flag ships to operate directly between U.S. ports. The Passenger Vessel Service Act is needed to ensure a level playing field for the cruise ships that are built, owned and crewed by American citizens.
As you know, Mr. Chairman, foreign flag cruise ships have an immediate advantage over their foreign flag counterparts. They are built and registered in foreign countries to avoid paying U.S. taxes. They are crewed by foreign nationals who are paid substandard wages. Furthermore, they are not bound by U.S. labor, health, safety and immigration law and regulation.
Imagine what would happen if we allowed these foreign flag ships to compete in the domestic coast-wide trade with U.S. cruise ships, which are not subsidized, which must pay income taxes, and are bound by all U.S. laws and regulations. Who would wish to create a system which would so overwhelmingly favor foreign companies over domestic industry?
Yet, this is exactly the kind of unfair competition that would result from the repeal of the PVSA. How can we possibly ask U.S. companies to survive in such an environment?
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Proponents of repealing the PVSA argue that such action will increase trade in the U.S. cruise industry and help local economies. Yet, in my view, there is no evidence that this will happen. In fact, the International Council of Cruise Lines has expressed no interest in changing law to open new U.S. routes for its member companies. It even stated publicly that while the reformed PVSA might add some U.S. ports to cruise itineraries, most of our members believe that this would not be significant, especially in light of restrictions that would likely be attached.
In 1984, Mr. Chairman, as our distinguished ranking member, Mr. Clement, mentioned, and then as a member of the Merchant Marine and Fisheries Committee, I heard a similar refrain that new cruise routes would be created if we changed the PVSA. The Congress that year enacted legislation to permit foreign flag vessels to transport passengers between Puerto Rico and other U.S. ports.
Proponents of this legislation estimated that it would create new cruise routes that would bring 80,000 new visitors to Puerto Rico in its first year after enactment. Yet, to the best of my knowledge, no foreign flag vessels are taking advantage of this exemption. And the promise of increased tourism from this legislation has simply gone unfulfilled.
The same would be true, in my view, if we applied the same exemption to other ports in the United States. The fact of the matter is that the Passenger Vessel Services Act is working well. And the U.S. cruise industry is undergoing vibrant growth.
Last year, Congress enacted a U.S.-flag cruise ship pilot project that is designed to jump start the U.S.-flag cruise industry and cruise ship construction in U.S. shipyards, which have not built cruise ships in more than 40 years. As a result, the American Classic Voyages Company recently announced plans to build two ocean going cruise ships for the Hawaiian market and five coastal passenger vessels to operate along the U.S. coast in 1999. Each of these vessels will be built in a U.S. shipyard.
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I am anxious to hear the comments of Mr. Philip Calian about the pilot project and the company's other projects which will create thousands of American jobs.
As you are well aware, Mr. Chairman, and members of the subcommittee, in Philadelphia, that the Caverner Philadelphia Shipyard, a wholly owned subsidiary of a Norwegian company, is establishing a shipbuilding facility at the former Philadelphia Naval Shipyard. One of the reasons Caverner is coming to Philadelphia is to build cargo ships that would comply with our maritime cabotage laws, specifically the Jones Act.
Under the PVSA, Caverner could build cruise ships for U.S. domestic trade, and has already expressed an interest in doing so in Philadelphia. Thanks to our strong cabotage laws, Caverner has to build its ships in America to compete in our domestic maritime trade. Without these laws, it could simply build them overseas and flag them for foreign cruise.
Mr. Chairman, under the auspices of the Passenger Vessel Services Act, our domestic cruise industry is growing stronger. Instead of changing or repealing this law, we should be looking at even more ways to encourage domestic trade involving U.S. built, U.S.-flag and U.S. crewed ships. This certainly can be done without compromising the broad national interests served by the Passenger Vessel Services Act.
Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Borski.
Page 21 PREV PAGE TOP OF DOC Segment 2 Of 2 We'll move on to the witnesses. The Honorable Nick Smith.
TESTIMONY OF HON. NICK SMITH, A REPRESENTATIVE IN CONGRESS FROM MICHIGAN; AND HON. GENE TAYLOR, A REPRESENTATIVE IN CONGRESS FROM MISSISSIPPI
Mr. SMITH. Mr. Chairman, members, thank you very much for the opportunity to talk to you today about the Passenger Vessels Act. I've been working for 4 years on modifications to the Jones Act and the PVA that I think would expand the opportunity for competition, strengthen our domestic fleet, and provide for the prosperity of American seamen.
I would suggest that the PVA in its current form is nothing more than pure protectionism. Rather than fostering a domestic cruise industry the Act has presided over its virtual extinction. The PVA has been, I think, a total failure. It has led to a loss of ships, a loss of jobs for seamen and dock workers, and has dramatically increased the cost of domestic cruising for American citizens.
The Act requires that all passengers transported from one U.S. port to another travel on ships built in the United States. Those ships must also fly the United States flag and be owned and crewed by U.S. citizens. My proposal would eliminate the U.S. build requirement and allow for the construction of U.S. cruise ships to bid competitively on the international marketplace. All the other requirements of the PVA are essentially left intact.
I have mentioned the decline of the domestic fleet. The U.S.S. Independence is the only ocean going cruise ship left in this country. The U.S.S. Independence was built in 1956 and it was last cruise ship built in this country.
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No new cruise ships are currently being built in the U.S. to replace the vessels that we've lost. However, Senator Inouye of Hawaii managed to get a waiver to allow two foreign built cruise ships to operate in the Hawaiian Trade, while granting them, a virtual monopoly, because no other ships even if they are PVA qualified, can pick up U.S. passengers at one port and transport them to Hawaii.
Without that exemption, when the U.S.S. Independence is scrapped the ocean-going domestic cruise industry would cease to exist. That in essence, has been the Act's effect.
The rhetoric surrounding this law suggests that reform would jeopardize thousands of U.S. jobs and put our Nation at risk, including a national security risk. Nothing could be further from the truth. In reality, none of the six U.S. shipyards capable of building large commercial vessels are interested in or capable of building for this market. They build almost exclusively for the U.S. Navy and should be considered defense contractors.
To illustrate the point, Newport News Shipbuilding last month lost $330 million in its first attempt in 30 years to build commercial tankers despite subsidies from the Title XI export financing program. After completing the first four ships from an overall order of eight, the company canceled the rest of the orders. They announced that from that point forward, they would only build for the military.
Overall, the big six shipyards have built just five commercial vessels for the domestic trade since 1985. In terms of passenger vessels, a few years ago. Disney Corporation wanted to build ships into get into the domestic cruise business. They were willing to pay extra to build the ships in the United States.
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But when they solicited over a billion dollars in contracts, not a single U.S. shipyard would even bid on the projects. Now those ships are being built in Italy. But because of the PVA, those vessels will not be legally allowed to transport passengers from one U.S. port to another, even dropping off those passengers for a short visit.
The reality under the PVA is that if you want to take a cruise that stops at any other U.S. destination, you are forced to debark from a foreign country. So you have to go up to Vancouver, Canada or Ensanada, Mexico, or some other foreign place that generates millions of dollars for those particular areas and deprives Americans from having that advantage.
In the absence of the PVA, those cruises would originate from Seattle or San Diego and the money American tourists spend would remain within the U.S. economy. This would also provide thousands of portside jobs associated with the cruise industry that are now being lost to foreigners.
There are many other routes that would be serviced by U.S.-flag vessels if the PVA didn't bar them from participating in these trades. Destinations on the Great Lakes, the east coast and the west coast, are all routes that in absence of PVA could have a thriving cruise industry. Current law seems to make no sense to me. It harms the U.S. economy, exports thousands of jobs, reduces tax revenues to local, State and Federal Government and provides nothing in return.
I suggest it's time to scuttle this anti-competitive, archaic law. The Jones Act has also had a similar effect. I'm testifying in Senator Lugar's committee tomorrow on the Jones Act portion.
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In 1945, there were some 2,500 self-propelled vessels over 1,000 tons in the Jones Act fleet. Today, there's 122. So we've not only lost the ships, we've lost the jobs for sailors, and we've lost that kind of economic activity in this country.
My bill, the Coastal Shipping Competition Act, H.R. 1991, and its Senate counterpart, the Freedom to Ship Act, S. 1138, will bring common sense reform to the Passenger Vehicle Act and the Jones Act by eliminating the U.S. build requirement. In my legislation, I still require that the ship be U.S. owned, that fly the U.S.-flag, and that it follows all of the laws of this country, environmental and State law.
But the largest reason, according to the maritime economists, that we're losing our domestic fleet is the fact that ships cost too much to build in this country.
If the Passenger Vehicle Act and the Jones Act are not reformed, this country will never have an ocean-going domestic cruise industry, and our ability to move cargo by ocean-going vessels will be severely constrained.
I appreciate the opportunity to testify, and would be glad to answer any questions.
Mr. GILCHREST. Thank you, Mr. Smith.
Mr. Gene Taylor, former Coast Guardsman. Welcome, Gene.
Page 25 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. TAYLOR. Thank you, Mr. Chairman.
Mr. Chairman, before I begin my prepared remarks, I'd like to remind members of the subcommittee that I've had a long-time interest in this subject. Back when we had a Merchant Marine Committee, a number of us worked to try to reform our laws, to be fairer toward Americans, to close the loopholes that are unfair to Americans.
I would like to remind you of an incident that as I was walking across the street to manage the bill that the former Merchant Marine Committee passed to close some of the loopholes that give such incredible advantages to the foreigners, that a representative of the foreign cruise ship industry stops me. He says, boy, you sure tore them up in committee yesterday. I said, thank you.
He said, we'd sure like to get to know you better. Really? He said, yes, we'd like to give you a free cruise, you and your family, so that you can get to know our industry better. And I said, oh, really? Well, I'm going across the street right now to try to pass legislation that will get Americans back into that business. He said, well, I'm aware of that.
And he said, but we'd like to get you to know us better, just like, and he named several very influential members of the House and Senate.
Folks, we passed that bill through the House by a very large margin. The Senate never acted on it. I don't believe it was a coincidence. And that's what we're up against. And I think you ought to be aware of that. And I'll testify in court to what I've just said.
Page 26 PREV PAGE TOP OF DOC Segment 2 Of 2 Since 1952, the year that gaming became prohibited on U.S.-flag vessels, our Government has essentially handed over the lucrative cruise ship industry to foreign interests. Over the years, short-sighted legislation and administrative blunders have created a system that discriminates against our citizens. It is a system that holds U.S. cruise ships to higher standards and costs than their foreign competitors, their foreign competitors who are docked across the American paid-for dock from where they are.
The United States flag cruise ships are required to be United States built, United States crewed, United States Coast Guard inspected, and to pay United States corporate taxes. I'd like to remind Mr. Smith and others that a beginning welder getting his very first paycheck at Ingalls Shipbuilding this week will pay more in Federal taxes than the entire foreign cruise ship industry that makes about $9 billion off of Americans this year will pay collectively. One welder will pay more than the entire cruise foreign ship industry collectively.
The ships that they're competing against are built in foreign, subsidized shipyards, and by and large are exempt from United States safety, labor and tax laws. Some of the oldest and wisest laws in our Republic are the so-called cabotage laws, from the French word meaning between the capes. And these laws, way back when, reserved all coastwise commerce for United States made, American-owned and American-crewed ships.
The spirit of these cabotage laws was embodied and codified in the Passenger Services Act, Title 46, United States Code, Section 289, which provides, ''No foreign vessel shall transport passengers between ports or places in the United States.'' This law is almost 200 years old. It's a good law. It's designed to protect American sovereignty in our territorial waters, and it should be protected.
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And the loopholes in this law should be closed, not broadened. For example, one of those loopholes is when the United States Customs Service ruled the Passenger Services Act does not prohibit a foreign-owned, foreign-crewed vessel from leaving an American port, going a mere three miles out to sea, turn around and coming back is considered a foreign cruise to get to avoid all the American laws by doing that. And that is what this House tried to close a few years ago when we passed legislation through the House, the legislation that the Senate refused to even consider.
They return to the same American port with no stops at a foreign port. The Customs Service rule created a loophole in the law and it exempts that vessel from the U.S. law. It ultimately gave rise to a huge industry referred to as the cruise to nowhere industry, which operates out of our ports and it's dependent upon American passengers and American dollars. These foreign flag cruise to nowhere vessels are making millions of dollars in profits. And again, they don't pay one penny in United States taxes.
The passenger cruise industry as we know it today really started in the 1970s. It changed from going to one continent to another to basically an industry where people get on it for a weekend as an alternative to land-based resorts and sight-seeing destinations.
According to the Cruise Line International Association, the industry trade group, in 1970, approximately half a million North American passengers took cruises for three consecutive nights or more. It is estimated that this number has now reached 5 million passengers. New ship deliveries, both foreign and domestic, are scheduled over the next several years to meet the needs of this growing industry.
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This is a point that I think we ought to pay attention to. Worldwide, 85 percent of those people who get on a cruise ship are Americans. And 80 percent of the itineraries involve American ports. These United States citizens spend an estimated $8 billion to $10 billion a year. Yet less than 3 percent of this money is spent on American flag ships, because our Government allows foreign vessels all the privileges of doing business in America without having to pay any of the costs.
The foreign cruise lines are already enjoying an overwhelming advantage over American cruise lines, with cruises to nowhere and other sweetheart deals at the expense of their American competitors. Why, then, should our Nation represent, the American people, even consider offering further advantages to our foreign competitors, while limiting and therefore weakening the scope of the Passenger Vessel Service Act?
Legislation has been introduced in both the House and the Senate to allow the Secretary of Transportation to waive the Passenger Services Act for foreign-flag cruise ship vessels over 4,000 gross tons. A 4,000 ton vessel carries as few as 200 passengers. There are currently 130 foreign-flag cruise ships operating out of our domestic ports.
If the Passenger Services Act is waived for all of them that exceed 4,000 gross tons, virtually all of these vessels will suddenly be allowed to participate in the American domestic trade. Let me repeat. More than 95 percent of all foreign-flag cruise ships operating out of our domestic ports over 4,000 gross tons.
I sincerely believe, Mr. Chairman, this would open a Pandora's box. It would be a kick in the face to the American cruise lines.
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There are 15 U.S. primary ports that routinely see significant cruise ship traffic. Last year, fiscal year 1998, $61.8 million was earmarked in the Energy and Water Development Appropriations Conference bill for operation and maintenance of these ports, paid for by the American taxpayer, to be used by foreign ships. Another $47 million for general construction purposes.
The United States Coast Guard will spend approximately $623 million on aids to navigation, again, to be used by foreign ships, out of a total Coast Guard budget of $4 billion. And let's remember, when these ships get in trouble at sea, they don't call the Panamanian Coast Guard. There is no Liberian Coast Guard. They call the United States Coast Guard to bail them out, at the expense of the American taxpayer.
If these U.S. ports are maintained, dredged and kept safely navigable with American tax dollars, it is absurd to allow foreign-flag cruise vessels access to them free of charge. U.S.-flag cruise vessels pay corporate taxes to use the same ports, but their foreign competitors do not. Again, foreign-flag cruise ships generate billions of dollars in revenue from American travelers, use our ports, and pay zero corporate tax, less than a beginning welder at Ingalls Shipbuilding.
Mr. Chairman, foreign-flag cruise ships docked at the Port of New Orleans during the Superbowl. Foreign-flag cruise ships, four of them, docked at the Port of New Orleans during the Superbowl, in direct competition with hotels, restaurants and other establishments in Mississippi and Louisiana. They hired foreign nationals at almost slave wages. They were foreign-built vessels. The supplies they served were in all probability purchased elsewhere.
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Safety is another issue. According to the April 14, 1998, Associated Press news article, an Alaskan cruise ship fire that killed five crew members spread the fire safety doors were roped open. A safety bulkhead had been removed, and the ship lacked an internal radio system and sprinklers. The incident took place on July 27, 1996, aboard the Universal Explorer. This foreign-flag vessel, registered in Panama, is frequently used by colleges for semesters at sea programs.
En route to Juneau, Alaska, to Glacier Bay, Alaska, with 1,000 people on board, a fire started in the main laundry room. Dense smoke and heat spread upward to the deck on which the crew accommodation quarters were located. Five crew members died from smoke inhalation, and 69 crew members required hospital treatment.
After undergoing an estimated $1.5 million in repairs, the Universal Explorer is now back in service. The Associated Press reports that the National Transportation Safety Board Chairman, Jim Hall, stated his concern last September that the ship was back hauling students across the Pacific when it might not possibly meet new Coast Guard standards taking effect October 1st. In particular, he complained about a lack of automatic sprinklers.
The United States transportation and shipbuilding industries and the United States military have historically enjoyed a longstanding and successful partnership. This partnership has served our Nation well through two World Wars and numerous regional conflicts.
From the time of my birth in the 1950s until the present date, however, the United States merchant marine has gone from the greatest maritime presence in the world to a fleet of less than 100 ships. Along with the virtual disappearance of the U.S. maritime fleet, American mariners and shipbuilders have seen their jobs vanish. The vision of President Reagan of a 600 ship Navy now is realized in a little over 300 ships.
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When Congress finally saw fit to revitalize the Title 11 Loan Guarantee Program through the National Shipbuilding Initiative, to help save our commercial shipbuilding industry in 1993, it was not without the fundamental understanding that throughout history, the great nations of the world have been great maritime powers.
As a result of the National Shipbuilding Act, we have gone from a nation that built fewer ships than the Vietnamese in 1990, they built one, to a nation that has $2 billion worth of ships on order. This is something we did, something we as Congressmen ought to be proud of. We're getting our Nation back into the shipbuilding business.
Why on earth, when things are going right, do we pull the rug out and take away a market that should be ours almost exclusively? Now just 5 years later, this legislation and others would destroy the incentive to build U.S.-flag vessels in American shipyards, by weakening the Passenger Vessel Act.
The oldest U.S.-flag cruise ship line, the Delta Queen Steamboat Company, is finally launching new plans for expansion. The company has just announced plans that will extend the cruise ship's reach from coast to coast, beyond its established routes on the Mississippi River and its tributaries. The Delta Queen is planning new itineraries for the Pacific Northwest, Northern California and the entire eastern seaboard.
The company is also planning the construction of up to five new small coastal ships over the next 7 to 10 years. The vessels will cost about $25 million each, and will accommodate 200 passengers.
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Based primarily on design, 11 shipyards have expressed interest in building the vessels. Why would our Nation choose to weaken the Passenger Vessel Act at a time when American companies are at last willing to risk an investment to compete against foreign-flag vessels?
Foreign-flag cruise ships already enjoy overwhelming advantages, courtesy of the American Administration and the American Congress. They employ third world labor, they pay third world wages. They do not pay American corporate income taxes.
Foreign operators also benefit from foreign government subsidies designed to encourage capital investment there, not here. They provide employment for their citizens. They are not subject to United States Coast Guard safety standards. How on earth can it be considered an act of sound judgment, let alone fair practice, to allow foreign-flag vessels to continue to reap all the benefits of the American market without sowing any of the cost? How can it be considered an act of sound judgment or fair practice to weaken the Passenger Vessel Act?
Mr. Chairman, I know it's been lengthy, but thanks for hearing me through.
Mr. GILCHREST. Thank you, Mr. Taylor.
Mr. TAYLOR. Mr. Chairman, if I may. In response to earlier remarks, Ingalls shipbuilding did express an interest in bidding on those vessels, as well as National Steel and Shipbuilding.
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And the other thing I'd like to point out is one of the great ironies of the Reagan years, and I do like President Reagan, is he took us from a Nation that was building about 100 commercial ships a year to building no commercial ships a year when he did away with the American subsidies. He took us from a Nation that had some dependence on the Government for our shipyards to total dependence.
Well, the big 600 ship Navy that he was talking about will not be. So the question is, are we going to maintain our American industrial might in the capability of building ships, and if we are to do so at a time when we have a frozen defense budget, how do we do it? We do it by building commercial and passenger ships. And we can't do that if we give away this market.
Mr. SMITH. Gene, would you pass me a glass? I was hoping for a while you wouldn't show up and I could testify for both of us.
Mr. TAYLOR. Thank you, Mr. Chairman.
Mr. GILCHREST. You're welcome, Mr. Taylor.
I think what we want to do here, Mr. Taylor, is to gather information from all sides of this issue to encourage the commercial shipbuilding industry growth in the United States. That's the purpose of this whole exercise. Are there any members that have any questions of the witness?
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Mr. TAYLOR. Mr. Chairman, one last observation.
Mr. GILCHREST. Mr. Taylor.
Mr. TAYLOR. I would welcome you and the members of your staff to visit the Mississippi Gulf Coast. Visit the floating casino industry. All but one of those floating palaces were built in America. Because they only have to compete against other Americans, and they all make money.
Perfect instance where there are no loopholes, where they're only competing against other Americans. They make a quality product, and they're all making money.
Mr. GILCHREST. Thank you, Mr. Taylor.
Mr. Smith, do you have any closing comments?
Mr. SMITH. I would just like to suggest, Mr. Chairman, to you and the committee, that the only reason that a company would agree to buy an American ship at two or three times the world price is because with this monopoly that they would gain by being able to drop off passengers at U.S. ports. They won't do that unless they can charge enough more money because of that monopoly.
And I just would conclude in saying I think it's unfair, considering the loss of seamen, the loss of dock workers, and the additional amount that's being charged to Americans, to have this monopoly on who is able to pick up and dropped off passengers at an American port. And again, this monopoly is destroying the American cruise ship industry. The last last ship was built in the 1950s or in the 1940s, and we're virtually out of cruise ships that are American-built.
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Mr. GILCHREST. Thank you, Mr. Smith, Mr. Taylor.
Our next panel I hope is just as interesting. It will be Admiral William Kime, U.S. Coast Guard Retired, World City Corporation; Mr. Philip Calian, President and Chief Executive Officer, American Classic Voyages Company; Mr. Edmund Welch, Legislative Director of Passenger Vessel Association.
Welcome, gentlemen. We appreciate your agreeing to testify this morning. We will unfortunately have to use the lights for your 5-minute testimony. We're going to be fairly strict about that. It's a little more difficult to be strict with our colleagues up here, because we see them every day. And then we'll open it up to questions from the members.
TESTIMONY OF ADMIRAL J. WILLIAM KIME, U.S. COAST GUARD, RETIRED, VICE PRESIDENT, TOTEM RESOURCES CORPORATION, AND SENIOR ADVISOR TO THE AMERICAN FLAGSHIP PROJECT; PHILIP C. CALIAN, PRESIDENT AND CEO, AMERICAN CLASSIC VOYAGES CO.; AND EDMUND B. WELCH, LEGISLATIVE DIRECTOR, PASSENGER VESSEL ASSOCIATION
Admiral KIME. Thank you, Mr. Chairman, and members of the committee.
The thrust of my prepared statement, which I have submitted to the committee, is simply this: America and its maritime industries are missing the boat. For years, we've yielded a booming cruise market and its millions of American passengers to foreign-built, foreign-subsidized, foreign-owned, foreign-flag, foreign-crewed passenger ships.
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The good news is that it's not too late for American-flag ships and American crews to get into this business and claim a share of the fastest growing and one of the most profitable segments of the maritime industry. And that's only fair when you consider that the entire cruise industry receives as much as 90 percent of its billions of dollars in annual revenues from American passengers sailing from North American ports.
The estimated $7.5 billion in revenue to foreign-flag cruise ships earned in 1996 was larger than our entire motion picture box office. It exceeded the gate for our four largest professional sports combined. And it exceeded the combined revenues of all Disney and Universal Studio theme parks.
Mr. Chairman, please be clear that I stand second to no one in my admiration of the accomplishments of the foreign-flag cruise companies and the industry they have built. And America should have no interest in taking away from them. But America certainly should have no interest in further rewarding them by giving away to these foreign fleets an American domestic market protected by the Passenger Service Act, which can be the foundation for America's own entry into the lucrative cruise industry. That would indeed be to snatch defeat from the jaws of victory.
Nor is this just a maritime or leisure issue. Quite aside from the taxes not paid and the U.S. workers not hired to serve this huge American-financed market, foreign-flag dominance of this market represents a drain of U.S. dollars estimated at $6 billion for 1996, which ranks the foreign-flag cruise industry after some of our largest trading partners as the ninth largest contributor to our Nation's record and growing trade deficit.
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America not only has the inherent technical capability, but has one overwheling commercial advantage with which to enter this industry: the enormous domestic leisure and commercial markets reserved to American-built, American-flag ships under existing law. These markets, the coastwise cruise market, the much larger tax deductible meeting and conference market, and the even larger leisure travel and resort market, are found along one of the most valuable pieces of real estate in the world, America's 11,000 mile coastline.
These territorial waters are the equivalent of a 51st State, encompassing 25 metropolitan areas, 12 of our country's top 15 tourist destinations, and 100 million persons living within an hour's drive of a point at which they could access an American-flag passenger ship trading along our coastline. I emphasize that these are domestic markets and that, like other domestic transportation, areand quite rightly should bereserved to American companies hiring American citizens, paying taxes and abiding by the rules of the work place.
In short, these markets should be built upon, harnessed to create jobs for Americans on land and at sea, to stimulate increased economic activity along our coastal communities and to generate new tax revenues and to bolster our balance of trade.
Is America positioned to take advantage of these markets? The answer is a resounding yes. American shipbuilders are once again positioning themselves to build passenger ships, even now in the process of working under a contract with major European passenger shipbuilders to acquire the necessary expertise in this specialized field. American mariners and hotel service staff personnel are positioned and eager to staff these ships.
Page 38 PREV PAGE TOP OF DOC Segment 2 Of 2 This is certainly not the time to give these markets away so that we can earn a few more dollars serving foreign-flag ships, mere crumbs by comparison with the money to be made and the national benefits generated by a revived American-flag fleet serving domestic markets. Nor do we lose anything by retaining these domestic markets for Americans. The promised gains for permitting foreign-flag ships to expand into our domestic markets will in due course be realized, plus much, much more from a revived American-flag fleet operating on these itineraries.
Nor should this foreign intrusion be permitted in view of the unfair competition which these low-cost, subsidized, foreign floating resorts along our coastline would pose to America's land-based hospitality industry.
I would also address the suggestion that pending legislation that would allow foreign-flag cruise ships into our domestic market is innocuous in terms of future American-flag operations and would even stimulate America's entry into cruise shipping, since foreign-flag ships would purportedly be required to leave the scene if and when American flags enter. Nothing could be further from the fact.
As detailed in my prepared statement, the terms of these proposals deferring departure of foreign-flag ships from American trade, for example, providing for an overlap with new American-flag operations for up to 3 years and in some respects, indefinitely, would assure that a potential American ship, with its significantly higher cost and tax structure, could never possibly enter the trade in the first place.
Finally, the irony, Mr. Chairman, is the extent to which Americans are unaware of these bread and butter economic issues and of the fact that the cruise fleets, so widely advertised with American personalities, are in fact a foreign industry. Perhaps this should not seem so surprising when millions of Americans tune their TV sets every Monday to Love Boat, the Next Wave, to see actors impersonating American officers manning one of the world's largest cruise ships. This is certainly fiction today, but it could be reality tomorrow, if we don't adopt a defeatist attitude and turn our domestic markets over to foreign-flag fleets for short term gains.
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Mr. Chairman, and I'd be pleased to answer any questions.
Mr. GILCHREST. Thank you, Admiral.
Mr. CALIAN. Mr. Chairman and members of the subcommittee, thank you for the opportunity to testify on behalf of American Classic Voyages. I ask that my written statement be entered in the record, and I will summarize those comments this morning.
I am excited to be here this morning. American Classic Voyages, through its two subsidiaries, the Delta Queen Steamboat Company and American Hawaii Cruises, is the largest owner and operator of U.S.-flag overnight cruises. It's a pleasure to hear comments from Congressman Borski, Congressman Clement and Congressman Taylor about the positive steps that our company has been taking over the past few years.
The Delta Queen Steamboat Company provides 3 to 13 night overnight cruises, calling on more than 70 ports in 16 States in the heartland of America. Delta Queen also recently announced plans to construct up to five new coastal overnight cruise vessels in the United States. These will be built in the U.S., and already there's been about a dozen shipyards who are very anxious to bid on the project.
Page 40 PREV PAGE TOP OF DOC Segment 2 Of 2 In addition to the coastal cruise itinerary, we are also considering routes along the Great Lakes and Alaska. Very, very exciting expansion opportunities for us at Delta Queen.
At American Hawaii Cruises, which will be the main focus of my testimony this morning, we operate the only large ocean-going cruise vessel under the U.S. flag, the S.S. Independence, which is nearly 50 years old. It sails around the Hawaiian Islands, and it's the fifth island our passengers visit. Our stick is that it's the way Hawaii was meant to be seen.
When we acquired American Hawaii in 1993, we made a commitment to grow that business to better serve the Hawaiian vacation market. We put in more than $100 million of private capital to that business.
However, because U.S. shipyards have not built an ocean-going cruise ship in more than 40 years, the first builder, or first mover of these vessels, faces substantial cost and risk. It was these costs and risks that have been the primary obstacle to American Hawaii expanding its fleet.
We know that U.S. shipbuilders can build ships that are economical. But because they have not built an ocean-going cruise ship of this size in more than 40 years, we together will have to learn how to do so once again. And it is the initial investment to learn how to build these ships that poses the risk and will result in substantial added premium cost.
As part of an effort to revitalize a segment of the U.S.-flag ships, Congress passed the U.S. Flag Cruise Ship pilot project. The pilot project will result in the construction of at least two new ocean-going ships, with the delivery of the first ship by 2005, and the second by 2008. It will also permit the interim operation of one, one foreign-built cruise ship under U.S. flag and with American crews while the new ships are being constructed.
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It will also provide a limited trade preference, much like a patent, for new vessels to help overcome the first mover issue. So it would make good business sense to be the first builder of these ships in a U.S. shipyard in more than 40 years.
Under this pilot project, American Classic, will make a private capital investment of nearly $1 billion. This considerable investment by American Classic will not only enable us to grow our fleet, but will also enable us to compete in the booming cruise ship industry.
We are pleased to report that the pilot project is right on course, and we're steaming full ahead. American Classic has completed its marketing study, we've assembled an experienced project management team. We've engaged the financial services of both Goldman Sachs and Chase Manhattan Bank. And we've participated extensively with three U.S. shipyards, Avondale, Ingalls and National Steel and Shipbuilding Company, on the development of a conceptual design for these new vessels. And we've held discussions to acquire a modern, interim vessel to be redocumented for operation under the U.S. flag to serve the Hawaii trade while these new vessels are being built.
Looking ahead, we are very, very excited about the future of the pilot project. Our accomplishments to date are significant, but much remains to be done. The design of the new ship must be completed, and the contract with the U.S. shipyards must be signed by April of next year. The crew for the interim vessel must be trained, and an apprenticeship program for the 2,000 plus employees on board the new vessels is under development.
Page 42 PREV PAGE TOP OF DOC Segment 2 Of 2 The pilot project creates many substantial direct benefits. It expands capacity in the passenger vessel industry for the United States. It constructs the first large cruise ships in more than 40 years, and it creates more than 5,000 American jobs.
But it also serves a number of broader national interests. It will preserve our shipbuilding industrial base necessary for our national security, and it will reduce the reliance of our shipbuilding industrial base on defense spending. And it saves tens of hundreds of millions of dollars for the Defense Department.
In conclusion, the pilot project is an example of how Congress can promote the national interests without compromising the Passenger Vessel Services Act, one of the principal foundations of our cabotage laws and our maritime strength. American Classic is relying on the new law to grow its cruise business, and may others have a great stake in the continuation of this project.
It is essential that the statutory basis upon which the pilot project is based not be changed so that the benefits can be realized. Not only has American Classic made significant investment in the project, but U.S. shipyards are investing time and money in the pilot project, and American workers are counting on the more than 5,000 new jobs created by the project.
This pilot project truly is a win-win project for the Nation. Thank you, and I'm pleased to answer questions.
Mr. GILCHREST. Thank you, Mr. Calian.
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Mr. WELCH. Mr. Chairman and members of the subcommittee, I'm Ed Welch, Legislative Director of the Passenger Vessel Association. We're the national voice of U.S.-flag passenger vessels of all types. That includes dinner cruise vessels, sight-seeing and excursion vessels, gaming boats, car and passenger ferries, private charter vessels, and overnight cruise ships.
You may be under the misimpression that there are no U.S.-flag overnight cruise ships other than the Independence in Hawaii. And you may hear such a statement like that later today. But it's simply not so. There is a vibrant and exciting market segment in the U.S. trades consisting of small-ship overnight cruise vessels.
You may not be aware of these small passenger vessel companies, but they embody everything Congress wants in a maritime policy. Their vessels are built by American workers in U.S. shipyards. They employ American citizens as crew and on their shoreside staff. Their vessels operate on popular itineraries throughout the U.S. The companies and their employees all pay U.S. income taxes and other taxes.
Let me describe to you a few of our overnight cruise members. Of course, we're proud to call American Classic Voyages Company one of our members, and you've heard about them from Mr. Calian. Alaska Sightseeing/Cruise West is headquartered in Seattle, Washington. They operate seven vessels in Alaska and along the west coast of North America. The vessels accommodate anywhere from 54 to 107 passengers.
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Special Expeditions/Wilderness Cruises is another Seattle-based company that operates two 70-passenger vessels on the west coast and in Alaska. American Canadian Caribbean Cruise Line of Rhode Island currently operates three overnight cruise vessels with passenger capacities of between 90 and 100 along the Atlantic and Gulf coast. They've just put a new vessel into service this last year, and they are building a fourth right now in Rhode Island.
Clipper Cruise Line of St. Louis, operates one 138-person passenger vessel on the Great Lakes and the Atlantic east coast and a second, a 102-passenger vessel, in Alaska and the west coast. And Glacier Bay Tours and Cruises of Seattle has 5 vessels with capacities from 36 to 250. And these vessels operate throughout southeast Alaska.
In addition, we have associate members that supply and build small passenger vessels, including, Mr. Chairman, Chesapeake Shipbuilding Corporation of Salisbury, Maryland, in your Congressional district. And Mr. Chairman, yesterday Mr. Tony Severne, the President of Chesapeake Shipbuilding, had a letter delivered to your office explaining how his company would be seriously harmed in the absence of the Passenger Vessel Services Act. I ask that you include his letter as part of the record here today.
Mr. GILCHREST. Without objection, so ordered.
[The information follows:]
Page 45 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. WELCH. Our message to you today is that we are here. We are U.S-flag, U.S.-owned, U.S.-crewed passenger vessels, and we depend on the Passenger Vessel Services Act, and we fully support all the principles underlying it. Make no mistake, if Congress were to change the law so that foreign-flag vessels could enter our markets, we would suffer enormously.
How could we stay in business, paying good wages to American citizens, while competing against foreign vessels paying far lower wages to non-citizens? How could we continue to pay income taxes on all of our operations, no matter where our vessels sail, even if our vessels sail in Mexico, which they do, while our foreign competitors pay lesser or even no income taxes to the United States?
Proponents of bills such as H.R. 2420 claim that these bills prevent head-to-head competition against existing U.S. operators. That's simply not so. The bills give absolutely no protection to our U.S.-flag passenger vessels smaller than 4,000 international gross tons against the possibility of a larger foreign passenger vessel invading the market we have developed and taking them over. Why would Congress even want to consider favoring a foreign business at the expense of American ones?
Finally, let's make one thing clear. The Passenger Vessel Services Act is not the absolute bar to foreign vessels serving U.S. ports that some erroneously claim. Under the existing law, a foreign-flag vessel can sail on a cruise-to-nowhere into international waters from a U.S. port any time it wishes. And it can also have passengers embark at a U.S. port, subsequently call at other U.S. ports, where the passengers go ashore but not disembark permanently, and then sail on to a foreign destination.
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In the Great Lakes, it's a simple matter for a foreign vessel to embark passengers at a U.S. port, call upon subsequent U.S. ports, and then disembark the passengers at a Canadian port, or vice versa, such as the Columbus vessel has done. In fact, you need only to look at the ads in the Sunday Washington Post travel section to see that a foreign passenger vessel will offer extensive service this summer from Alexandria, Virginia.
Does the Passenger Vessel Services Act serve a purpose today? Does it accomplish that purpose? You bet it does. Under its auspices, there has developed a strong industry of small passenger vessels flying the U.S. flag and serving U.S. coastal routes. And we will soon see the entry of even more U.S.-built coastal passenger vessels.
We have a positive story to tell about the Passenger Vessel Services Act, and we intend to tell it over and over. Rather than turning this growing U.S. industry over to foreign interests, Congress should look for creative ways to promote the further growth of the U.S.-flag passenger industry.
And thank you, Mr. Chairman and members of the subcommittee.
Mr. GILCHREST. Thank you, Mr. Welch.
Admiral Kime, could you give us an update on the World Phoenix project?
Admiral KIME. I certainly can, sir. As you know, this represents almost 10 years of work, and an investment of over $40 million of private funds to build a series of major ocean-going passenger ships, the largest in the world, that would be built in the United States, operated under the American flag and crewed by American citizens.
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The project itself is moving along quite well. The economics, we believe, have been firmed up with commitment of in excess of $100 million in private capital for funding. We are finalizing the design efforts now by doing another review, even though the U.S. Coast Guard has recently reaffirmed their acceptance of design and all the many features that it has.
We have requested of the Maritime Administration, to satisfy their remaining concerns, a meeting to come up in late May or early June. We believe that this is a ship that can be built in the United States, will be built in the United States. We have shipyards committed to the major sections, including the assembly of the vessel. That, by the way, is BMI in your area of concern, of Baltimore.
And we believe that we are well on the way to making this project happen, and expect to see the ship sailing within 3 years from the date of receipt of the Title XI conditional letter from the Maritime Administration.
Mr. GILCHREST. Thank you. Admiral, could you tell us in your opinion the impact of changing the Passenger Services Act. But based on some of the information that is now floating around in various bills between the House and the Senate, what impact would a modification to the Passenger Services Act have on your project?
Admiral KIME. It would have a significant, if not killing impact, Mr. Chairman. We're talking about foreign-flag cruise ships being able to compete in this market. Ships that are built with subsidies of up to 40 percent by the foreign country in which they are built, operating with crews that, if we are to believe the New York Times articles, where crew members are paid $1.75 an hour if they don't get tips, and $1.75 a day if they do.
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And paying no U.S. income taxes, not having to comply with the Americans With Disabilities Act, not having to meet the labor rules that have been enacted in this country. The working hours, minimum wage, these things.
So under those circumstances, it would be extremely difficult to compete.
Mr. GILCHREST. Mr. Calian, do you see any modifications to the Passenger Service Act at all?
Mr. CALIAN. Again, we're a strong supporter of the PVSA, and clearly see that, along with the Jones Act, as really the cornerstone of the U.S. maritime policy. As Mr. Welch spent a great deal of time discussing, U.S. companies have thrived under the PVSA, certainly in the smaller vessels to mid-size vessels, including American Classic, our company.
The PVSA clearly has not worked completely on the large cruise ship side. And that is where the Hawaii pilot project was just so critical for us to move forward and actually take the steps necessary to build
Mr. GILCHREST. The two ships that are going to be built in the next few years, how many passengers will they hold? What will be the size of those ships?
Mr. CALIAN. Approximately 2,000 passengers each. These are megaships. Again, consistent with the same size, the same type of cruising capability as the modern ships that are rolling off the European yards today.
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And the Hawaii pilot project, Mr. Chairman, clearly addresses getting larger ships under the auspices of utilizing the PVSA. Perhaps there's other creative approaches, again, we cannot think of them, that still deal with the same national interests and concerns other than the manner than how we were able to address it through utilization of the Hawaii pilot project.
Mr. GILCHREST. Thank you.
Mr. Welch, in your area, your size ships, if the entry of foreign-flag passenger vessels of 10,000 gross tons or above, let's say that was the figure that was used in the Passenger Service Act reform, how would that have a negative impact on your industry?
Mr. WELCH. Well, there are two things, Mr. Chairman, you need to take into account. First, currently in Alaska, we do have members with small-sized U.S.-flag passenger vessels, operating in an area where there are foreign-flag large cruise vessels. And our members tell us they have a struggle just to be heard in the marketplace. They are contending against larger corporations with fairly big advertising budgets.
And our guys are somewhat niche players, where they have to scramble real hard to keep putting their message out that ''We are here, we are offering an attractive package.'' To the extent that there were foreign passenger vessels of any size coming into the coastwise trade, it would just make it that much harder for our people to get their advertising message out.
Page 50 PREV PAGE TOP OF DOC Segment 2 Of 2 Second, you mentioned 10,000 gross tons, as a threshold, but the bills that have been presented use a threshold of 4,000 international tons. That's not a big ship at all. You talk about the type of cruise vessels that are down in Miami, they are talking 25,000 or 30,000 or 50,000 international gross tons. If people are talking about putting together a bill to encourage large cruise ships of the type that you see down in Miami, why come in at a threshold of 4,000 or 10,000 tons?
Mr. GILCHREST. What's the size of your vessels?
Mr. WELCH. Our largest one is about 2,400 international gross tones. With the exception fa Mr. Calian's vessels. His are larger. And his five coastal steamers that he's going to build will be considerably larger, too. I think they will be about probably 10,000 international tons.
So in other words, there could be some head-to-head competition in a situation like that.
Mr. GILCHREST. Thank you very much.
One last question, Mr. Calian. Do you feel that you need protection from other U.S. operators in the plan that you have now to build those two extra ships?
Mr. CALIAN. Well, again, under the Hawaii pilot program, which provided and again, the word monopoly has been used, again, at length, kind of walk through why it's not a monopoly, again, involving the fact that right now there is 14 cruise lines with about 21 different ships essentially doing a very similar route that we do right now with the Independence. They still hit the four islands, five ports in Hawaii. Along their route, they're coming from Ensanada or they're coming from Vancouver or coming from Tahiti.
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But clearly, we compete against those vessels. In fact, those vessels account for more than 50 percent of the cruise market in Hawaii already.
In addition, in Hawaii, cruising itself is a very small piece of the Hawaii tourism market. Approximately 98 percent of tourists who go to Hawaii actually stay at land-based resorts. They don't cruise. And so from a price point standpoint, that's our real competition, is land-based resorts in Hawaii.
Now, the preference really does not, was attached not based upon the competition. It was really a function of being the first one into the marketplace, the first mover. And again, estimates range from 33 percent to 50 percent premium attached with providing and educating and providing the means and the project management expertise to really get U.S. shipyards to build these ships in a cost comparative manner with the European yards right now.
Mr. GILCHREST. Thank you.
Mr. BORSKI. Thank you, Mr. Chairman.
Mr. Welch, let me start with you if I may. What I reference din my remarks, the Act in 1984, if memory serves me correctly, you were the chief counsel to the Merchant Marine and Fisheries Committee in 1984.
Page 52 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. WELCH. I admit it.
Mr. BORSKI. Could you go back in time and tell us the motivation for that, and follow that up with the evidence that you know of of any vessels that are using the exemption that we created.
Mr. WELCH. Mr. Borski, I have not researched it, but if my memory serves me, the government of Puerto Rico came to the committee, committee leaders, and made the pitch that there was an unserved market of people who would like to travel between Puerto Rico and the mainland who did not care to fly and that there was no means of transportation for them.
They felt like if there were a change in the law, foreign-flag vessels or U.S.-flag vessels could come in and provide that type of service. The law gives a preference to U.S.-flag vessels, but if there are no U.S.-flag vessels, then it opens the market to foreign-flag vessels.
To my knowledge, no vessel of any type has taken advantage of it, and I suppose that's because it's relatively easy and inexpensive to fly from San Juan to the mainland.
Mr. BORSKI. Thank you.
Mr. Calian, let me welcome you and ask you a couple questions, if I may. First, are you aware of any of your foreign competitors who have expressed interest in entering the domestic trade market, either the market you serve or new routes?
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Mr. CALIAN. First-hand knowledge, no, I'm not aware. In fact, almost the reverse. My understanding, and again my knowledge really just relates to the public record and some letters to the editor in the Journal of Commerce and elsewhere, in terms of conversation. And my understanding is that the foreign cruise lines have been very clear that if there are changes to the PVSA, not just that they don't necessarily support those changes, but they've also publicly stated they have no plans to take their ships to other U.S. ports.
Mr. BORSKI. Let me ask you, has the talk of changing or even repealing the PVSA had any impact on your business or financial plans?
Mr. CALIAN. It absolutely has. And to the extent that the playing field is about to change and become uneven for us, it obviously puts a number of our business plans at risk.
Mr. BORSKI. The pilot project has added two more U.S. built ships to the domestic industry. Is there a sufficient demand for these ships?
Mr. CALIAN. At this point in time, there's one ship sailing around the Hawaiian Islands that's U.S.-flag. And that's the Independence. There is clearly sufficient demand for that vessel.
We believe, again, with the positive demographics of cruising, and just a quick visit to Miami or the ports in Florida tell you that this business is growing dramatically, we believe that growth will and can extend to Hawaii. But again, it needs to be provided with modern vessels as opposed to 1950, one classic vessels.
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Mr. BORSKI. If the demand exists and no taxpayer funds are used, why was legislation necessary to create this pilot project? What legal changes were made to allow this to become a profitable enterprise for your company? And what conditions were created by the legislation to secure a billion dollars in private capital to finance the construction of the two ships?
Mr. CALIAN. Let me try and answer the first part of your question first. With regard to making this a profitable venture, the fact is, we don't know whether this will be profitable or not. We're taking business risks attached to this venture. And it will require about a billion dollars of business risk before we truly find out whether it is profitable and whether there's a potential to truly get a return on our investment.
Now, with regard to demand in Hawaii right now, what we're seeing is a number of foreign-flag cruise ships, in fact, increasing by, I think the magnitude is almost threefold over the past 4 years, their trips to Hawaii from a repositioning standpoint. And that's a market right now that unless we have the ability to build in the U.S., is business that is going to go to the foreign-flag operators. So the legislation was absolutely critical, in fact, it was the only means that would allow us to take the private capital risk of being the first one, the first mover, to build in a U.S. yard, pay the premium attached from a cost standpoint to build the ship.
And again, it's interesting, because the technology resides in the U.S. yard, and it's not labor rate. Because these ships are being built in northern Europe, where the labor rate is actually higher than the U.S. And steel, which is the other raw material, is very similar. It really has to do with the education and the process engineering.
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So again, this is an industry that once the United States is educated as to the processing, there is no reason why it cannot be competitive in the world market in producing cruise vessels.
I'm not sure if I didn't answer any other part of your question.
Mr. BORSKI. You did very well.
Let me ask you this. The pilot project permits the operation of an interim foreign-built cruise ship. What happens to the ship after the two U.S. built ships are delivered?
Mr. CALIAN. Well, again, pursuant to the law, the interim ship needs to leave service. It is strictly an interim vessel, and it's only one vessel, and it's only permitted at the time a shipyard contract is signed to build two new U.S.-flag vessels. And the actual statute requires it to leave service the 2 years following the last vessel built.
Mr. BORSKI. Could this project serve as a model for other shipyards around the country? You heard me in my opening remarks about Caverner and what they're doing in Philadelphia. Is there hope, particularly for a new yard, which could think in the near term about potentially building cruise ships?
Mr. CALIAN. It depends how you define near term. If near term is defined as the next year, probably not. If near term is defined as 5 to 10 years, absolutely yes. And in part, the key to this process is really transferring knowledge and information. And again, this is public record. Avondale Shipyard is working with a European yard to help get the design and process information so that they can bid competitive on this project.
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Ingalls is also working with actually Caverner-Masa, again, probably the foremost, one of the two or three foremost builders of cruise vessels in Europe, again, with the intent of learning and training so that these new vessels can be as cost competitive as possible. And so has National Shipbuilding Company.
Mr. BORSKI. Thank you very much.
Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Borski.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. Welch, Mr. Calian, some of the representatives of maritime labor today I believe are going to testify they believe that Congress should consider perhaps a new framework for shipowner to have a realistic opportunity to operate U.S.-flag cruise ships between American ports. Are you willing to join that type of effort to amend the Passenger Services Act, promote more U.S.-flag cruise ships?
Mr. WELCH. Thank you, Mr. Johnson. I'm not sure exactly what they're going to say, so I hesitate to comment in advance. In the past, our association did support the two bills that were introduced by Congresswoman Jolene Unsoeld that had some changes in the Passenger Vessel Services Act, and also had some tax incentives for U.S. construction and U.S. operation of vessels.
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Her bill insisted on the fundamental premise of a U.S. flag on all vessels in all coastwise service. And that's something that's absolutely crucial to us. We just don't see any justification under any circumstance for a foreign-flag vessel serving in the coastwise trade.
But if someone has a proposal, we're willing to take a look at it and possibly respond to it at that point.
Mr. JOHNSON. Admiral Kime, Congress has heard for a few years that various operators are planning on building cruise ships for the domestic U.S. market. Your company, World City Corporation, are they, or do you know if they have plans to sign a contract with U.S. shipyards to begin constructing a ship?
Admiral KIME. They certainly do, Congressman, once we receive the Title XI letter, conditional letter of commitment, we expect that we would be signing contracts within about a 6-month period.
Mr. JOHNSON. Do you think there are any changes Congress would make to the Passenger Services Act that would help you to build that cruise ship?
Admiral KIME. Speaking directly at the project I'm representing here, I don't think so. I think the status quo is what we'd be looking for.
However, let me say that the initiative that was taken in Hawaii, which is really, I think, an offshoot of the Unsoeld bill that Mr. Borski talked about, is something that I think, that I can certainly support. I think that's a good way to jump start an industry, to provide work for U.S. shipyards, for U.S. shipyard workers, and for U.S. merchant mariners, and for the communities where these vessels would serve.
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Let me say that, and I think Mr. Calian has addressed this, in response to some, I guess, stated or inimitated concern about the provisions of the law governing his pilot project, that it restricts trade to just those vessels. And he's indicated why, I think, with the very significant risks that they have to take in capital being the first one. And I certainly can agree with that.
But also further to that, I think there is concern among people such as him or anyone else getting into this market right now with all the activity on the Hill that in fact the Passenger Vessel Service Act could be modified to allow either foreigners in or drop the Build American provision which would make the debt service very, very much easier, since these ships would be built foreign with a subsidy.
So I think one thing that is perhaps hurting the growth of the larger U.S. passenger vessel fleet is the uncertainty about the PSA.
Mr. JOHNSON. Just one quick question, any of you, maybe Mr. Calian. Price differential between building a large cruise ship in a U.S. shipyard and building it in a non-subsidized foreign shipyard. Any idea of the price differential we're talking about there?
Mr. CALIAN. Sure. I mean, we'll tell you with probably much greater certainty in about 6 or 9 months. But the working estimate is about a third premium. And again, when you start trying to dissect that one-third, whether it's a labor component or raw material component, it really more than anything else just resides with this process and timing. Right now, in European yards, an 18-month period from cutting the steel to completion. The timing for this project that we anticipate is approximately 3 years.
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So again, other than just time, can't really put a finger on where the premium comes from.
Mr. JOHNSON. Thank you very much, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Johnson.
Gentlemen, thank you for your testimony. It was very helpful.
The next panel will be John Poimiroo, Deputy Secretary for Tourism, California Trade and Commerce Agency; Mary Brennan, Legislative Chair, National Association of Cruise Only Travel Agents; Michael Spinelli, President, American Society of Travel Agents; Veronica Sanchez, Executive Director, Cruising America Coalition.
Ladies and gentlemen, thank you so much for coming here this morning. We look forward to your testimony, and we painfully and regrettably request that you try to stay within the 5-minute timeframe.
Mr. Poimiroo, you're first.
TESTIMONY OF JOHN POIMIROO, DEPUTY SECRETARY FOR TOURISM, CALIFORNIA TRADE AND COMMERCE AGENCY; MARY BRENNAN, LEGISLATIVE CHAIR, NATIONAL ASSOCIATION OF CRUISE ONLY TRAVEL AGENTS; MICHAEL A. SPINELLI, PRESIDENT AND CEO, AMERICAN SOCIETY OF TRAVEL AGENTS; AND VERONICA SANCHEZ, EXECUTIVE DIRECTOR, CRUISING AMERICA COALITION
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Mr. POIMIROO. Thank you, Mr. Chairman, members of the subcommittee and fellow citizens.
My name is Poimiroo, and I am Deputy Secretary of the California Trade and Commerce Agency, Chairman of the Western States Tourism Policy Council, which represents the state tourism offices of Alaska, Arizona, California, Hawaii, Nevada, Oregon, New Mexico, Utah, Washington and Wyoming, and a member of the board of directors of the National Council of State Tourism Directors.
All of these organizations have endorsed changes to the Passenger Services Act of 1886 as embodied within S. 803. And in my State, political leaders as diverse as Governor Pete Wilson and Mayor Willie Brown are supporters of this legislation to open America's ports to visits by all cruise ships.
One hundred twelve years ago, there was no leisure passenger cruise industry. If you got on a passenger ship back then, it was to transport yourself from one place to another. Today, people get on cruise ships to vacation. And the world's most desirable destination is the United States. We are the number one travel destination on Earth.
California, by the way, is by itself, the eighth most visited destination in the world.
Unfortunately, if you want to visit America by sea, your options are very limited. Few U.S. ports today are visited by ocean-going cruise ships. And that is because America has become a travel destination that penalizes cruise ships for bringing vacationers to our shore.
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Ironically, most of the passengers aboard cruise ships today are Americans. Yet they are prevented from sailing to their own country by their own government. Instead, our Government has forced Americans to visit other countries if they want to take a cruise vacation. I ask, ''What's wrong with this picture,'' and I answer, ''It's the Passenger Services Act.''
This past September, the State of California completed a study on the economic impact of proposed changes to the Passenger Vessel Services Act of 1886. We found that if S. 803 is passed, total passenger visits to California alone would increase by more than 30 percent. This would result in a 35 to 60 percent increase in revenues, jobs, payroll and taxes, including a doubling of longshore positions supported by the cruise industry.
The job growth potential is particularly striking. By the year 2003, cruise-related jobs and payroll in California alone would increase 140 percent. Compare this to overall employment in California, which is projected during that period to increase 9 percent, or in the Silicon Valley, which is projected to increase less than 40 percent.
Additionally, by 2003, tax revenues collected by local, State and Federal Governments from cruise ship calls at California ports would increase by over 170 percent to almost $113 million. I've read projections from various sources that estimate the impact of the cruise industry in America todayeven without the ability of foreign ships to call freely at portsas being almost $6.5 billion in tax revenue to the United States.
Our study shows that 477 additional port calls would be stimulated at California ports through a waiver to the Act, an increase of 166 percent, bringing almost 688,000 more travelers to our State, who would spend almost $400 million visiting California, and that's per year.
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S. 803 is not just good for California, it's good for every State that has a deep water port, and many others that can benefit from bus tours from these ports. Imagine, if America's ports were open to cruises, cruise ships would soon call on a regular basis at the Great Lakes, New England, along the Mid-Atlantic Seaboard, from Charleston south around the entire State of Florida and through the Gulf Coast.
New Orleans and Texas would be opened up, as would the entire west coast, Alaska and to and from the mainland to the Hawaiian Islands. Additional tours from coastal ports would lead inland, spreading economic and job benefits throughout our country.
All this would happen without one American job being lost. Because existing maritime jobs are protected by S. 803, as American ships would have the right to bump foreign cruise ships from any route. The Passenger Services Act would still apply to all vessels below 4,000 tons, meaning there would be no change to the protections provided to inland passenger vessels and ferries.
In the meantime, thousands of jobs repairing, maintaining, maneuvering, loading and offloading, and supplying the big cruise ships and serving their passengers would be created by the increased calls to U.S. ports that would surely result.
Now, concern was just raised that an indefinite waiver to the PSA discourages financing for new American ships. Just previously, the word the ''uncertainty'' was used to describe this concern. Well, let me propose a possible solution. Don't make the waiver indefinite. I propose waiving the PSA as described within S. 803, only through the year 2005, which has been specified as the year in which the next American cruise ship will come on-line.
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What a waiver through 2005 would do for us is provide a period to demonstrate that contrary to the comment that's been stated earlier that cruise ships don't want to come to America, that if we're the most popular destination in the world, and if we believe in American ports and American travel destinations, then we believe those ships will want to come if the product's available. It is not available today.
So I would say, waive the Passenger Services Act only until 2005 when the first U.S. Cruise ship goes to sae. We can demonstrate in the interim that cruising can work along the U.S. coast. This would I believe create the incentives for financing that American shipyards and ship building companies want. And it would give us a chance to create American jobs in American ports.
Mr. GILCHREST. Thank you very much.
Ms. BRENNAN. Good morning, Mr. Chairman.
I'm a Maryland cruise-only travel agency owner. I teach cruise selling at a local community college, and I also represent the National Association of Cruise-Oriented Agencies, and the 900 agencies that sell over 60 percent of the cruises sold in America.
Page 64 PREV PAGE TOP OF DOC Segment 2 Of 2 We put the passengers on the ships, foreign and domestic. And we know that ultimately in a free market, it's the passengers who decide what the cruise itineraries will be. I'd just like to say that the cruise industry as we know it today arose about 40 years ago from the remnants of the old ocean liner trans-Atlantic vessels.
The cruise trade as it is now has made possible a luxurious vacation not just for the elite, the well-to-do, the seniors, the newlyweds, and the nearly dead, but it's open now to the baby boomers, the family market, the Baltimore City worker, the Hibbing teacher, the Kansas City postman. It's open to Middle America now. We've got this wonderful vacation that did not happen before. And what has happened is that we have got more people vacationing than ever before. We have a growing tide and it's surging, it's rising. There's a lot for everybody and it continues to grow.
It's estimated that about 126 million Americans have the interest and means to cruise. About 60 percent of those, or 75 million, have not yet cruised. Our clients and your constituents are looking for shorter cruises, they're looking for interesting places to go, reasonable prices, local access, people don't like flying to Miami or out to Vancouver just so they can start their vacation.
A lot of people don't like to fly. A lot of people are afraid of flying. I have calls every day for people saying, why can't I cruise out of Baltimore, Old Town, Alexandria. Why do I have to drive 20 hours to get to Miami. It's ludicrous.
I did want to say one of the things that was mentioned is that the ships entering U.S. markets or U.S. ports are subjected to U.S. Coast Guard standards. I don't put my clients in unsafe ships. I never have, and I never will. These standards and the new SOLIS standards, which even exceed U.S. Coast Guard standards ensure that what we have is the safest vacation industry possible.
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We travel agents want a U.S. cruise industry. I have 20 years in the U.S. military, I'm pro-America. But we have wanted the U.S. industry for years. We have heard in the past about fleets that would be coming on-line. It has not happened. We're still waiting.
What we do have here in the States is a fine fleet of intimate vessels, small enough to travel America's inland waterways. The clients on these vessels are well-to-do seniors seeking soft adventure. And they don't miss the array of facilities that are found on large cruise ships.
The clients that I put on small American ships differ greatly in their interests from the people who take the Caribbean fun-loving, entertaining cruises. We're talking apples and bananas.
The small vessels can and do thrive in the presence of big ships in Alaska, because they fulfill different needs. And the small ships that serve in Alaska are expanding their fleet now.
I am pleased that the Delta Queen Steamboat Company is contemplating building some 5 ships of 200 passengers each in the future. They will be about the same size as the current boats that they currently have serving the rivers of inland America.
But at only 200 passengers, these boats will have to divide their overhead costs among relatively few people, resulting in higher overall prices. Perhaps 10 to 15 percent of my clients would be candidates for those vessels because of the start-up costs, and I know that based on the current vessels they run and what their price ranges are.
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The rest of my clients, and we cruise selling agents, await larger ships sailing to America from our home ports. I'm frankly hopeful, but skeptical, about U.S. new-builds in the near future. I'm sorry, history has not proven that very successfully. For 40 years, the cruise industry has existed. In the past 15 years, the cruise industry has exploded. And we're still waiting on U.S. vessels.
We need to build the cruise market. And we need to use existing products that are not costly to bring on-line, that can happen now, that can prove the market that we know exists, so that we can tempt investors to build the U.S. industry. The light at the end of the tunnel is that we will be very happy to put American passengers on American ships going to the fine destinations that we have in America.
I look forward to the day when I can send people past the airports and right onto the cruise ship to start their vacation immediately.
Thank you, gentlemen.
Mr. GILCHREST. Thank you, Ms. Brennan. I'm sure the airports will be glad to hear that.
Mr. GILCHREST. Mr. Spinelli?
Page 67 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. SPINELLI. My only regret is that Mr. Taylor and Mr. Borski are not here. Because my remarks address their concerns. And like this full glass of water, when something is full, you've got to listen carefully and empty it before you can get anything else in.
What I'm referring to is, I've heard some comments this morning about a non-existing bill. I mean, we're talking here, as you had mentioned earlier, about ideas. And my name is Mike Spinelli, of course. I'm glad he's backMr. Borski.
I want to address a couple of comments that were made by him and Mr. Taylor. I'm President of the American Society of Travel Agents. I've been a travel agent for 40 years. I run a big company of 2,500 travel agents. My concern is really that this PSA has existed over the years the way it is, because it's cheated us, the U.S., out of tons of revenue and a lot of shipbuilding.
The bill that was introduced in the Senate answers all of the questions of Mr. Borski and Mr. Taylor, because they mention this thing about competition with U.S. ships. Well, our bill has a bump clause in it, that the minute a U.S. ship arrives, the foreign ship is bumped, number one.
What we're pleading for is to do again what Mr. Taylor's objection was. He said that the supplies are built elsewhere. Well, if we've got them locked into U.S. ports, they're forced to buy from us on a cruise like that. And what will cause them to do it, right now they can do anything they want. They don't even need the changes in the bill, because all they have to do is go to a foreign port to come to U.S. ports.
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I think what would happen is if this opens up, it will allow them to do coastal cruising. Because they're running out of ports, basically. They're all in Miami and they're all in Puerto Rico. Where are they going to go next? They have no place to go, so they're going to Europe and they're going to the far east.
I'd like to see this minor change to keep them here, to get the revenue here.
Let me go on with my comments. I don't appreciate the fact that for an American to take a cruise from New Orleans to Key West they must buy a ticket to Veracruz, because that's what happens now. Those cruises have to go to a foreign port. These changes will be a win-win for ports, for labor and for vacationers. Because I'm a laborer, I've been a laborer all my life. My family's been member of unions. We're not anti-union, we're not anti-shipbuilding. We're not pro foreign companies.
All we're saying is, where we don't have U.S. ships here, why let these millions and millions of dollars go to foreign ports, which is happening?
I have sailed on virtually all ships. The bill is not about foreign ships calling here. They can do this now. The bill is not about competing with foreign ships at our ports. The bill includes a bump clause, the bill that we're proposing.
The Senate bill is not about foreign subsidies where foreign governments allow shipyards to bid against foreign shipyards. Much to my dismay, U.S. shipyards just don't build ships. So those subsidies have no effect on our shipbuilding.
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The change is not about wages paid on ships, because we're not a wage bureau. Those people that are on those ships are getting far more than they could get elsewhere. In other words, it's voluntary, it's not slave labor. I would love in a home that was worth $350 billion myself.
As I begin my testimony, I'd like to make some points clear. Changing this act is not sponsored nor endorsed by any foreign cruise line. I have personally spoken to the head of one of the huge ones, and he assured me, they don't need any changes. They can do all of these things now. What we're saying is, why make an American buy a ticket to Veracruz to go to Key West? That's the only thing that bothers us.
The ports of the U.S. need it. Port revenue means tax revenue. Port debarkations mean spending.
If you look at the chart I've got here, Seattle went from 1982, from 2,300 boarding passengers to 2,400 in 10 years, I mean, to 1996, which is more than 10 years. You take a port like Vancouver, they went from 65,000 to 353,000, because they go to Alaska. So those ships could have started in Seattle.
And I think as Representative Borski had mentioned earlier, that the PSA is working well, you can see in a case like this, Mr. Borski, it's working well for the foreign ports, because they're getting it from us, they're getting our passengers and our ships.
All of the Alaska cruises depart Vancouver. I want to stress again that the flags can do this. What's happening now is, our citizens spend everything at the foreign ports where they could be spending it at U.S. ports.
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Let me summarize by saying this. Right now, there are 75 ships and there's going to be about 120 in the next 10 years. These ships are worth $350 million each. They each carry 2,500 passengers.
What we're asking is this. That the House come in with a bill sort of to match the Senate bill, with the bump clause, that if, in other words, what the bump clause means is, if a foreign ship is going from Boston to Savannah to Miami, back and forth, that the minute a foreign ship comes in, they're bumped, then what that will do, if we have that change, it will allow these ships to be locked in U.S. ports. That means the multi-million dollars of spending would be spent in the U.S.
One case in point, to give an example of how it works. I was on a ship, Boston-Bermuda, that was an Oktoberfest cruise. And I assumed I'd be drinking German beer. It was all beer bought in Boston, because they were locked in those two ports, where Boston is the only producer of beer. And they have to buy thousands and thousands of cases of beer.
This would mean that ships that are based in Boston, doing cruises along the east coast to only U.S. ports, they're forced to buy and spend every nickel in our ports.
Thank you very much, and I appreciate the opportunity.
Mr. GILCHREST. Thank you, Mr. Spinelli.
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Ms. SANCHEZ. Thank you.
Mr. Chairman, Mr. Clement, members of the committee, my name is Veronica Sanchez. I'm the Executive Director of the Cruising America Coalition, a founding member of the coalition, and I also serve as the manager of governmental affairs for the Port of San Francisco. I am pleased to be here today to have a discussion and bring forward some ideas on how we can open up domestic cruising in the United States.
The Cruising America Coalition is a grass roots coalition of U.S. ports, cities, convention bureaus, tourism businesses ranging from travel agents to bus operators to taxicab drivers to limo drivers, to maritime businesses, including ship repair yards, stevedores, pilots, tug operators. It includes consumers, elected and appointed officials.
California started this coalition in 1995, and we created it out of sheer frustration that we have one of the most spectacular coastlines in the United States, and yet our hands are tied in our ability to promote cruises up and down our State without having to touch a foreign port. Because we don't have foreign islands off of California, as you do on the eastern seaboard, California is in fact disproportionately affected by the PSA.
Our coalition joined forces in 1995 with the tourism industry, and we succeeded in getting a recommendation out of the White House Conference on Travel and Tourism that in fact recommended that the PSA needed to be changed, because it was a barrier to developing domestic tourism and it urged legislation that would in fact give protections to U.S. companies.
Page 72 PREV PAGE TOP OF DOC Segment 2 Of 2 And Mr. Chairman, for the record, I would like to introduce a copy of the recommendation from the report of that White House conference.
Mr. GILCHREST. Without objection, so ordered.
[The information follows:]
Ms. SANCHEZ. Our coalition began small but today, the list continues to grow. With my testimony, I have submitted, Mr. Chairman, a list of all our members. And you will see how broad our support is.
Our coalition is saying something very simple. We need to modify the Passenger Services Act, because we think that Charleston, Savannah, Chicago and Galveston should get the same relief from the PSA that in fact was given to Puerto Rico in 1984.
Some of the very fundamental principles and specifics of our proposal are the following. First and foremost, this is a tourism bill. This has nothing to do with the Jones Act. That regulates the cargo industry.
We believe so strongly in that that we are willing to put that in plain language in any piece of legislation, and we did so in S. 803 that is pending in the Senate Commerce Committee.
Page 73 PREV PAGE TOP OF DOC Segment 2 Of 2 Secondly, we would like a waiver to the Passenger Services Act to fill the holes that exist in the domestic market. And there are indeed big holes. We would like to be able to bring foreign-flag cruise vessels into those trades where there is no existing large U.S. ocean liner serving those trades. And when those foreign-flag cruise vessels come in, they will be adhering to safety standards that are in force by the United States Coast Guard, because the U.S. Coast Guard enforces these standards as a signator to an international safety standard.
And in fact, these standards are higher than our own American standards, because the foreign vessels are traveling to international ports, and therefore, the standards must be higher.
They will also be paying corporate income taxes, so we fixed that problem. The problem of the corporate income taxes, we have argued, is actually a product in some ways of the PSA. Because by going to foreign ports, you are now doing an international voyage, and you are exempt from paying corporate income taxes. These are the same rules that apply to APL, Sealand, Crowley Maritime, or TWA, where they are going to international cities.
Also, the employees of the foreign-flag cruise lines will be paying payroll taxes. An officer that serves, an American officer, by the way, that serves on a cruise ship sailing out of San Diego foreign-flag, will be paying payroll taxes. The travel agent that is running a small business will be paying all those taxes when they sell that cruise to the United States Government. The shipyard worker that is repairing a cruise ship in San Francisco, my painter, the carpenter, the welders, will be paying employee taxes.
So I think the impression that this is an industry that is not generating tax revenue to the United States is a false perception. If you dig deep enough, you will find that there are billions of dollars being paid to the United States not only by the industry itself, but by its employees and its suppliers.
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But to go on further, we propose protecting the existing U.S. ocean liner in Hawaii, the Independence, and any future U.S. ships, of course, that enter that market. With the smaller U.S. vessels, we are not interested in bringing foreign competition, direct competition with ferry operators, or the very successful fleet of small boat operators in Alaska and inland waterways and other itineraries around the United States. They are doing a good job, and we are here to support their efforts.
But a U.S. ocean liner, a foreign-flag ocean liner with 1,200, 1,500 passengers, coming into a U.S. port is very much different than a smaller U.S.-flag vessel with only 200 passengers.
Furthermore, we would, as Mr. Spinelli pointed out already, include a bumping clause for any future U.S. operator, so the foreign operator must leave that domestic trade when the U.S. operator comes in. What we are saying here behind this bumping clause is that we want to get off the pause button. This is an industry that's been in a holding pattern for over 40, for 40 years, and we want to go out and seize the opportunities of foreign vessels right now and bring them into more U.S. ports and not force them to have to go abroad.
We would require that any repair work be done in U.S. shipyards. In San Francisco this year, San Francisco Dry Dock will do five cruise ship repair jobs. Each job employs 400 metal trade workers in my city. This is a new niche for this yard, which is transitioning from base closures. Similar situations are happening in yards in Baltimore, Mobile, Alabama, Tampa.
Mr. Chairman, last summer there were 22 foreign-flag cruise vessels sailing in Alaska alone. If we even had 15 cruise vessels sailing off the coast of the United States, we wouldn't be here today, if we had the equivalent. But they're not. And that is why we are trying to fill the hole.
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Mr. Poimiroo has introduced today a very interesting concept of giving foreign-flag vessels a pass until the year 2005, when Mr. Calian's company will be able to bring his ships intro the market. That is a concept that we have not had time to talk to all our member about. But it is a concept that is worthwhile to look at, because it addresses the issue that we need to build this market, we need to test it.
Mr. Calian himself told you that it would take at the minimum another 5 years to be able to fill market voids in other markets and to get the U.S. cruise lines in this market. We think American investors will receive this concept favorably, because now there is no risk.
In closing, Mr. Chairman, we are very open to any reasonable compromise that will allow us to enter, have our foreign-flag vessels enter the market right away. But we do not want to continue in this wait. Let us build the market and get us off the pause button.
Mr. GILCHREST. Thank you, Ms. Sanchez.
Mr. Spinelli and Ms. Brennan, Ms. Sanchez just commented on the proposal that Mr. Poimiroo made, opening up this waiver through the year 2005 to demonstrate the strength of the cruise industry. Mr. Spinelli, you've mentioned favorably S. 803 on the Senate side, which does not have a cut-off time frame that Mr. Poimiroo suggested. I'd just like both of you to comment on that possibility.
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Mr. SPINELLI. Well, number one, I would say the cut-off is great, if that's a compromise that they would want. But on the other hand, I wonder about the real need for it, because we have the bump clause. And I really feel after, I made a lot of notes on what Mr. Taylor said, and I feel I could sit with him for an hour. I personally feel that the Senate bill answers every one of his objections. I just wish he had stayed.
I really bleed for this. Because I happen to be a student of ships. And I have with me every statistic you may want. And I was looking around at the pictures here. I don't see a cruise vessel. But the point I'm trying to make is, I don't know if you know the depth of it. I've been on virtually every ship.
These ships now can't even get through the Panama Canal. That's how big they are. One of them holds 3,500 passengers, and it's filled all this year, 3,500 people. Can you picture Savannah with three of these ships docked, each one with 2,500 customers for all of the malls and stores, taking sightseeing tours, visiting adjoining cities?
Believe me, this is a win-win-win. And I'm saying this as an accountant, which I am. And I've also operated in the travel business for 40 years.
Mr. GILCHREST. So you feel that the bump clause precludes the necessity for a time cut-off?
Mr. SPINELLI. Right. Certainly if I take half a loaf rather than a full loaf. But the bump clause automatically protects every port. I'm from Boston, and I see the Port of Boston just crying and weeping. And if you may know Representative Blute, he is head of Massport. He spoke with me at the Senate hearings.
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And I would be happy to sit with, I really feel that this is so positive, if I were to sit with those objectors that were here this morning, I could come up with a bill in a couple of hours. Because what we have protects the whole thing, and it gives us the benefit of these millions of people.
Imagine, we have on schedule here 35 more ships being built through the year 2002, with an average cost of $300 million each. And you can imagine the revenue it's going to generate.
I think as Ms. Sanchez had mentioned a bit earlier, they keep stressing no taxes paid. Travel agent revenue on these sales is $5 billion. So that generates a lot of profit, which is a lot of taxes.
And these people, like I say, if there's a cruise, say, Boston, to circle Florida and come back, or New Orleans and circle Florida, if they're locked in U.S. ports, I ask you, where are they going to buy all of their stores. Just like the Royal Majesty had to buy Sam Adams beer, which I enjoy drinking, and it was right brewed in Boston.
Mr. GILCHREST. Thank you. I'll see if we can arrange a meeting between you and Mr. Taylor.
Mr. SPINELLI. I'll ask him.
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Mr. GILCHREST. I also think you made some positive suggestions. Today, whenever time we complete this hearing, doesn't mean a cut-off of communication between all sides on the issue.
Ms. Brennan, do you have a comment about that?
Ms. BRENNAN. Well, I do have a comment. I really feel that this is something that will be driven by market, that investment will be driven by market, and that what we need to do is we need to prove that market. At this point, we have all these strong indicators of the market out there. The cruises to nowhere that Mr. Taylor objected to so strenuously proves that cruising is a destination of its own, and that people will pay to go on a cruise resort vacation even if they don't get a chance to land anywhere.
They'd prefer to land places. The ship that's coming into Old Town, Alexandria this summer will be doing cruises to Bermuda and up to Canada. And it will also do some 3-day cruise to nowhere in August. What it's going to do is sail 11 hours down the Chesapeake, go out into the ocean for 2 days, turn around and come back up the Chesapeake and land back in Old Town, Alexandria.
The ship's almost sold out, and they're not going anywhere. Just imagine what the market will be when they get to actually see something. It's incredible.
But I do think that nobody is going to be interested in plunking down half a billion or a billion dollars to build a new, big cruise ship from scratch until they have seen the size of the market. No reasonable investor is going to do that. We have to prove it. And I think that we can easily prove it by 2005.
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And if it isn't proven, the issue dies, it's a non-issue. So yes, I think we should give the foreign-flags who already have the ships, already know what they're doing, let them come in. They can do a short turnaround on their itineraries, they could start servicing the markets that are not covered now by American vessels. They could do this starting next year, next fall, next spring, perhaps.
And they could show that the market exists. They might even be willing to create their own U.S. corporation flagged cruise lines. They certainly have the money and the investment capability. It's out there.
But the first thing, the chicken and egg, we have to show the market exists.
Mr. GILCHREST. Thank you very much.
Ms. Sanchez, I have a follow-up question, and you can just answer yes or no on this. The Senate Bill, S. 803, do you look upon that favorably or unfavorably?
Ms. SANCHEZ. Mr. Chairman, Senate Bill 803 is legislation that is supported by the Cruising America Coalition. We think it certainly has the framework of what we support, yes.
Mr. GILCHREST. How do you feel about the threshold of 4,000 gross tons being the cut-off?
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Ms. SANCHEZ. Mr. Chairman, I've heard the comments of the earlier panel, I understand there's concerns. We put that 4,000 GRT tonnage to protect ferry operations, for example. My port has very close contacts with the IBU unions that man those ferries, and we do not provide a risk. That is not a business that we want to get into. We understand the small boat excursions find that to be threatening.
Certainly, I think that we would be prepared to reevaluate that and see if there is a way that we could expand that tonnage a little bit to give them more comfort level. Maybe keeping it at 9,000 GRT would be certainly an option that we could consider, given the information presented this day.
Mr. GILCHREST. Thank you very much.
Mr. SPINELLI. Yes, I just want to mention one thing, because when I heard a lot of them testify this morning. There seems to be an impression that these cruise lines could not do coastal cruising.
When I was with the owner of one of the huge cruise lines a few weeks ago on a ship, he said, Mike, we don't need the bill. He said, we can do those coastal cruises. He said, it's just that there's a stumbling block. We have to go to Veracruz if we want to circle Florida.
Page 81 PREV PAGE TOP OF DOC Segment 2 Of 2 In other words, they can't do it.
Mr. GILCHREST. What's the draft of one of those large cruise ships?
Mr. SPINELLI. Oh, it's huge. But I think they've come right up the Potomac here, some of the smaller ones. So they could cruise most anywhere. And the thing about them is, you know, water seeks its own level. So if we can facilitate it to let them go to our ports, they could originate, like in New Orleans, circle Florida, they could originate Boston, do the coast.
One other point we're missing, too, is this would, you know when you see a shooting in Florida or somewhere, a lot of these foreigners are afraid to come there. Same as we are afraid to go to certain countries when we see things. Well, they feel safe on a cruise ship. So as our American people are going to Europe, to coastal cruise Europe, all of the Europeans would come here with those foreign bucks to give us a better balance of payments that they would take these cruises.
So we would be creating a whole new market. You know, the advantages are endless.
Mr. GILCHREST. Just one last quick question, Mr. Poimiroo. In your statement you said there would be an increase of 477 port calls in California. How did you arrive at that figure? Are there companies out there willing, that you know of, to stop in the ports of California?
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Mr. POIMIROO. I have the report with me and I will leave a copy for the record, if that's acceptable to you. It documents how we concluded that 477 additional port calls would be created in California.
[The information follows:]
Mr. POIMIROO. But basically, the report addressses the fact that one of the fastest-growing aspects of the cruise industry is the 2- to 5-day cruise.
Mr. GILCHREST. What would the gross tonnage be of those 2- to 5-day cruises?
Mr. POIMIROO. Oh, they're big. They vary from 30,000 to 46,000 tons. We're talking large cruise ships, not coastal vessels which are 200 to 300 passengers. These carry 2,000 to 3,000 passengers.
Right now, there is a 2- to 3-day cruise industry in Southern California. It's the Love Boat. It runs to Mexico.
Mr. GILCHREST. So that really comes on Monday night? I thought that was a canceled program.
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Mr. POIMIROO. Unfortunately, this love boat and similar ones in Florida, have to go to a foreign port. In Florida's case they sail to Bermuda or the Bahamas, or another country very close by. But as soon as you get north past Los Angeles, there's none. In fact, between LA and Seattle, all the way down the coast, short cruises are unable to sail because foreign port calls are too far away.
What would happen initially if the law is changed is that those 2- to 5-day cruises would suddenly have an opening to stop at such ports as Santa Barbara, Channel Islands National Park, Monterey, Carmel, San Francisco, and Eureka. These are great port cities. When you look at the potential along the east coast, the Great Lakes, the Gulf Coast, and Florida, its apparent that changing the law opens America to short cruises. All of those wonderful port cities are not visited today because they're not near a foreign port.
That's the biggest part of why our study forecast such exciting growth for California. But I will leave it for you. It details all of the benefits.
Mr. GILCHREST. Thank you very much.
Mr. BORSKI. Thank you, Mr. Chairman.
Let me ask this way, and this might be better asked to a later panel for the port people, but with your energy and enthusiasm for this group, I thought I might ask you as well. Do you know of any foreign carriers who have directly expressed an interest to go between two U.S. cities? Or to ask it another way, do you know of any who have applied for a waiver and have been turned down?
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Ms. SANCHEZ. Mr. Borski, if I may answer. Our port has been approached by foreign carriers with interest in this market. I am not about to put on the public record which cruise lines those are, because my competitors are sitting here. And this testimony will go up on the internet.
But when we began this effort 3 years ago, we began it because we had a real, live cruise exec who was sitting in our office saying, I want to do this route, I can't do it, I think I can sell it. Just yesterday, I spoke with a cruise marketing official at a cruise line who indicated to me that for example, in the charter business, he had a group of clients that wanted to charter a vessel to go from Tampa to Key West. Couldn't do it because of the PSA. He said, I've got to take you to Mexico.
The group said, we don't want our corporate people going to Mexico. That's too long of a cruise. Can't do it. Can't help you.
These opportunities are before us every day, but they have to go to foreign ports.
Mr. BORSKI. Okay, let me ask you the second part of that. Do you know if that interested company applied for a waiver? My understanding is these waivers are pretty easy to get. Does anybody know of anyone who's asked for and been turned down for a waiver?
Ms. SANCHEZ. Mr. Borski, it's my understanding that to apply for a waiver, you have to go through Congressional process to do that. In fact, I think Cunard tried to get a waiver a few years ago and there are a lot of horror stories floating around in the maritime community about that deal. So I believe you have to go through the Congressional process.
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Mr. POIMIROO. There are cruise ship companies that have had high interest in coming to California ports. A clear example of how this helps American ports is what happened in Eureka. Eureka's along the very northern coast of California. It used to be a very productive timber area, exporting redwood products. But as the cutting of the redwood forests has declined, they've lost that primary industry. So they're looking for other industries.
In search of new revenue, Eureka's Mayor Nancy Flemming went to Florida to attend the big cruise ship convention. She set up a little booth and promoted Eureka by herself and talked to all those big cruise ship companies. They said, ''Hey, we can't go there. We'd like to take our passengers to Redwood National Park there, but we can't go, because you're not close enough to another country.''
Mayor Fleming was able to convince one repositioning cruise to visit her city. It was a huge success, creating a tremendous financial surge for that community and the north coast. If we're to see communities like Eureka along the Oregon and California coast, that are dependent on timber, change to tourism, cruising is one of the ways to do it. We believe there is a market for it, clearly.
If you believe in America, as a travel destination, and as I believe in my State as a travel destination, then you must believe that as soon as we open up America, there will be cruise ships fighting to get into our ports.
Mr. SPINELLI. Just a couple of words or two. I'm from Boston, and I speak for Boston. We've had the same situation, where there's a huge desire to cruise our coast. And we don't have a close foreign port. Bermuda's the only thing.
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But what's made me cry over the years is I see the United States being the leader in aircraft, electronics, silicon. And I could never, my heart has bled for the shipping industry. Because I have visited, I Just came back, well, in February, I was in Trieste at the Fincantieri Shipyards, and I saw them building the biggest ship in the world, the new Grand Princess.
And I look at it, and I just cry, because I say, I think Americans can do anything. And I think if we get into that market with the skills we have, we could build a lot of these ships. Because a lot of the ships on the list I see here now, they're not committed yet as far as shipyards. So we could even go into that market.
And I think the way it might be is, if the cruise ships are being seen all over San Francisco and all over Seattle and all over San Diego, it will spark some entrepreneurs to get going. Maybe we'll have a Howard Hughes of the shipbuilding industry.
Mr. BORSKI. Mr. Spinelli, let me ask you about this bumping rights, because this intrigues me as well. Has any foreign company told you that that's a good idea, they'd love to come in and service a port, develop the business, and then have an American company come in and knock them right out?
Mr. SPINELLI. Number one, well, I don't really get your question. You mean, have they said they don't mind the bumping clause?
Mr. BORSKI. Yes, it's hard for me to imagine a foreign company would say, geez, that sounds like a great idea. Let me go in and develop this business, so an American company can come in and just take over and I'm gone, I have no rights.
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Mr. SPINELLI. No, that hasn't bothered them any more than when they mentioned they would cruise it. I think what we're seeing now is, Puerto Rico, with one more ship, will have as many ships going from there to the Caribbean as Miami will, and Miami is already saturated. I'm going to a cruisefest, I'm running a 4-day cruise meeting for the rest of the week, starting tomorrow. I'm speaking tomorrow morning in Miami to 1,000 travel agents. There will be at least eight cruise lines represented there. And I'll be with them for 4 days.
And what's happening with them is, they're running out of places to place the ships. The Caribbean's full, people are getting almost tired of going there. And they're looking at the U.S. If it was easy, they would definitely come up here.
Mr. BORSKI. One last question, if I can, Mr. Chairman. The International Council of Cruise Lines has submitted a statement for the record stating that, while the reformed PSA might add some new U.S. ports to cruise itineraries, most of our members believe that this would not be significant. Why would that do that?
Mr. SPINELLI. I could tell yougo ahead.
Ms. BRENNAN. I'd just like to say that the International Council of Cruise Lines is looking to see what happens. And that I can tell you that if they perceive that there is a revenue opportunity, they'll be here.
Mr. BORSKI. Thank you. No further questions, Mr. Chairman.
Page 88 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Thank you, Mr. Borski.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. Spinelli, you said, and I take you at your word you believe in America, and if you do, should America, and can we find ways to have America use American labor to build ships and American workers to staff ships, to bring all the customers to the American ports that we would all like to see?
Mr. SPINELLI. Do I go along with that?
Mr. JOHNSON. Do you go along with that, and can we find a way to do it, and do you have ways to do it?
Mr. SPINELLI. If it's possible. We've been dreaming about that for 50 years. I just don't know how realistic it is.
Mr. JOHNSON. I guess I'm asking for you, if you have any ways. Obviously, it's a great concern. And I think we've expressed great concern that we love America as much as you do. All the tourists coming from foreign ports, couldn't we show them great U.S. ships, great U.S., American-made ships and great American-made staffed ships?
Have you thought about ways in which this might be possible?
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Mr. SPINELLI. I've walked, also, I've walked the Fincantieri Shipyards and I've been to the St. Nazaire Shipyards in France. I think the way to do this is, if someone could point to me who the key shipbuilders of the past were and to take them over there. They actually build the whole ship right on the pier, that's how huge they are. They move a part of it and carry it on a crane and drop it in.
I saw them building a couple of ships 2 years ago. I was standing on the port, and I said to the owner of the ship line, I said, those are too small, they'll never make money. Because they were. And I said, you should have made them longer.
He said, oh, we want comfort. I said, no, you want money. And what happened is, the two ships at this very moment are being stretched. They're cutting them in the middle and adding sections to them. And I think that could easily be done here. We have the facilities.
Ms. SANCHEZ. Mr. Johnson, if I may, I would like to add to that.
Mr. JOHNSON. Sure.
Ms. SANCHEZ. I think it's important to note that we do have Americans aboard the foreign-flag cruise fleet right now. Americans are employed in very good positions as cruise directors, hotel managers, coming out of our hospitality industry, which is one of the strongholds of America. Our entertainment industry, obviously. Our computer industry. The computer technology aboard a cruise ship today is phenomenal, and we need Americans to staff it, and they are.
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So the foreign cruise line is a reflection of the global economy. Americans are being hired into positions where they are skilled, where they excel.
However, in reference to your comment about, can we bring in more Americans, I would assume you're talking about the navigation jobs or other shipboard jobs. Can't even get to that point until we deal with building the hull issue and get over that hurdle.
So we've got to get over that hurdle and test the market, create an investment capital to build more U.S. cruise ships, build confidence in investors to do that. If you allow us to have that 5-year pass, then perhaps that would work, and the foreign fleet can leave, and we use the foreign fleet to build an American industry. There are other models of that in other industries where we have seen that.
But most importantly, remember that these cruise lines will continue to operate in international voyages. Why? Because of seasons. As weather changes, they will have to go to foreign countries. So they will still be international players, as opposed to just American only or U.S. only domestic operators.
Mr. JOHNSON. I was thinking of the line from the Field of Dreams movie, if you build a market they will come. And that's what you're saying, that if the U.S. shipbuilders will come, and the foreign operators will happily make way?
Ms. SANCHEZ. Mr. Johnson, it's an investment opportunity. To build a U.S. cruise ship, just like Mr. Calian is going through the process right now, you have to go to the bank. You've got to go talk to Citicorp. And that's why he's hired Goldman Sachs to put that packet together.
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The packet is much stronger, of course, if you have much more solid market information and data. That's what we are saying, is that we will stimulate that U.S. investment.
Mr. SPINELLI. You know, just one thing, Mr. Johnson, which may interest you, last weekend I was the keynote speaker with the President of Mexico and all of his tourism people in Acapulco. And after dinner, sitting to the left was President Zedillo and to my right was the head of the Port of Acapulco. And he was thrilled that new ships are being placed in L.A. to go to Ensanada and Acapulco.
And I'm just bleeding inside, you know, I'm saying, gee whiz, you know, I'm chomping at the gut, why couldn't we be going to offshore islands and so on. We're not asking, you know, we are here together, we're not asking for carte blanche, forget the American ships, bring in the foreign ships. We don't, I'm an American, I love America. What I'm saying is, give us a little waiver so that the trillions of dollars that are being spent in the foreign Caribbean and so on can use our ports.
We are the most beautiful country in the world. Someone made the statement, I think you did, about us being number one in tourism. I've spoken on tourism, I know all the statistics. We are number one, but would you believe that France beats us many times? Here's a country you could drop into Texas. And this great country we've got, with the plains of the northwest and the Mississippi area, you know, this great, great country, we should be leap years ahead of all of them.
I'm also on a committee for USNTO, which is trying to bring back the United States tourism administration.
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Mr. JOHNSON. Well, as I said, I would go back to that, last weekend I was at a dedication of a ship, Coast Guard ship, built by 650 American workers in my district, in the Port of Green Bay in my district. Would I love to see tourists come in there by ship? Yes, I would. And I'd like to ask you to just join with us to find a way, if we can, let's find a way we can have American workers build that ship.
If they can build ships for our Coast Guard and our Navy, can they find ways to build American ships to bring foreign tourists and American tourists to the Great Lakes ports? Got to be a little smaller draft, I don't know if we can get the giant ships you're about into it. I don't think we can get them through, not worrying about the Panama Canal, get them through the Great Lakes.
We'd love to have those there, too. And I'm just asking if we can together find ways to do this.
Mr. POIMIROO. Mr. Johnson, there is no one within the Cruising America Coalition that is against American shipyards or American ships. We want American ships, and we want them built in American shipyards. We don't think the Passenger Services Act today has helped in that way, because there's only one at-sea American cruise ship today.
What we're saying is, open up America's ports to demonstrate to the financial markets, to the shipyards, that in fact the U.S. is a viable travel destination. Don't penalize American cities and American tourism through this, and end up killing more jobs. We have not created the jobs through the Passenger Services Act as it exists today. And we would be very much for any way we can get ships built in America, we think our proposal will in fact stimulate that growth.
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Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Johnson.
I have one more quick question, and all you need to do is say yes or no. This is fascinating. The question is, the bump clause, or the cut-off of the waiver in the year 2005, Mr. Spinelli, you alluded to it earlier, and I just want to make sure I understand what you said. Do you all believe that including the bump clause, if we do anything, I mean, it's not like we're, I mean, if we do something and we included a bump clause, if there is enough business out there that yes, you would get an increased, active cruise industry from foreign ports to enter that business arena, and then yes, once they got bumped out, they would have some place else to go?
Ms. BRENNAN. Yes.
Mr. GILCHREST. Mr. Poimiroo?
Mr. POIMIROO. Absolutely.
Mr. GILCHREST. Mr. Spinelli?
Mr. SPINELLI. Positively.
Mr. GILCHREST. Ms. Sanchez?
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Ms. SANCHEZ. Yes.
Mr. GILCHREST. Thank you very much. I'm not sure if I expected any other answer.
Mr. GILCHREST. I think what we're going to do, if it's okay with Mr. Borski, and we'll be somewhat humane here in Washington, D.C., we'll break for about 45 minutes for lunch. Is that okay with everybody? I'm not sure if we're going to have a vote on it.
Let's recess here at 5 after 1:00.
Mr. GILCHREST. The subcommittee will come to order.
I trust everyone had a pleasant, quiet, tranquil lunch hour.
The next panel, we have Mr. Terry Turner, National Director of Political Action and Governmental Relations, Seafarers International Union; Mr. Charles Crangle, Executive Director of the Congressional and Legislative Affairs, American Maritime Officers, and Mr. C. James Patti, President, Maritime Institute, representing International Longshore and Warehouse Union, International Longshoremen's Association, International Organization of Masters, Mates and Pilots, the Marine Engineers' Beneficial Association, National Maritime Union and the Sailor's Union of the Pacific.
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Welcome, gentlemen. We appreciate your accepting our invitation to this forum, and we'll start with you, Mr. Turner.
TESTIMONY OF TERRY TURNER, NATIONAL DIRECTOR, POLITICAL ACTION AND GOVERNMENTAL RELATIONS, SEAFARERS INTERNATIONAL UNION; CHARLES CRANGLE, EXECUTIVE DIRECTOR, CONGRESSIONAL AND LEGISLATIVE AFFAIRS, AMERICAN MARITIME OFFICERS; AND C. JAMES PATTI, PRESIDENT, MARITIME INSTITUTE, REPRESENTING THE INTERNATIONAL LONGSHORE AND WAREHOUSE UNION, INTERNATIONAL LONGSHOREMEN'S ASSOCIATION, THE INTERNATIONAL ORGANIZATION OF MASTERS, MATES AND PILOTS, THE MARINE ENGINEERS' BENEFICIAL ASSOCIATION, NATIONAL MARITIME UNION, AND THE SAILOR'S UNION OF THE PACIFIC
Mr. TURNER. Thank you, Mr. Chairman.
Mr. Chairman and members of the subcommittee, the Seafarers International Union of North America represents thousands of merchant seamen working on U.S.-flag ships operating in both the domestic and international trades. The SIU members crew the only large U.S.-flag ocean-going passenger ship, the Independence, which cruises among the Hawaiian Islands, and the three paddle-wheel river boats operated by Delta Queen Steamboat Company.
As the subcommittee considers the matter of the Passenger Vessel Services Act, it should be kept in mind that there are many important national policy interests to be considered. National security, jobs and tax revenues, just to name a few. There is certainly more at issue here than just the matter of transporting passengers between U.S. ports.
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We believe that the one goal of increasing the U.S. coastwise passenger trade, with the laudable aim of bringing more economic benefit to American port cities, can be accomplished without wholly sacrificing other worthwhile goals and interests. We trust the subcommittee will devise an equitable solution that recognizes the essential need to maintain a U.S. maritime policy. While it is not our purpose here to comment on any legislation specifically, our belief is that H.R. 2420 and S. 803 fails to meet that standard. We see nothing in either bill that would benefit the U.S. maritime industry.
They would produce few, if any, shipyards, shipboard or industrial jobs for the U.S. citizens, and by allowing foreign-flag cruise ships to operate in the U.S. coastwise trade for an indefinite length of time would severely undermine the efforts to expand the U.S.-flag cruise fleet.
Congress passed legislation last year authorizing a pilot project to facilitate the transfer of commercial cruise shipbuilding technology and expertise to U.S. shipyards. The project was established under the Maritech program, which is administered through the U.S. Department of Defense Advanced Research and Projects Agency in coordination with the U.S. Maritime Administration.
The legislation permits American Hawaii cruises to operate a foreign-built cruise ship in the Hawaiian trade under the U.S. flag with American crew. In return, American Hawaii must commit to building two new cruise ships at American shipyards, at a capital cost of $400 million apiece. Both ships must be over 10,000 gross tons.
Page 97 PREV PAGE TOP OF DOC Segment 2 Of 2 The law requires the company to divest itself of the foreign-built ship within 2 years after taking possession of the second of its two new ships. As Mr. Calian noted, the American Hawaii cruises in the U.S. stated they own a subsidiary of the Chicago-based American Classic Voyages. It operates the Independence, which as mentioned earlier is the only large U.S.-flag ocean-going passenger ship.
Earlier this month, American Classic Voyages announced plans to have as many as five coastal ships built for its other subsidiary, the Delta Queen Steamboat Company, which currently operates three paddle-wheel river boats on the Mississippi and its tributaries. Each of the new 300 foot diesel-driven vessels will accommodate 200 to 225 passengers, and cost about $25 million to build.
Itineraries for the vessels are being developed for the Pacific Northwest, northern California and the eastern seaboard. Numerous U.S. shipyards have expressed interest in building the coastal ships, and construction of the first of them is expected to begin in early 1999.
Currently, American Hawaii is proceeding with its acquisition and construction plans of the larger cruise vessels. It will acquire a foreign-built ship to begin sailing among the Hawaiian Islands in July 1999, and build two new vessels to enter the Hawaiian Island cruise market in 2003 and 2005. Each of the new builds will accommodate 1,800 to 2,000 passengers, be at least 800 feet long, and feature state of the art cruise amenities.
Use of the foreign-built interim ship will create 700 shipboard jobs for U.S. workers, according to American Hawaii. The two U.S. built ships will create 2,000 shipboard and land support jobs, adding to the pool of highly trained American operating personnel that will be needed to man support vessels during future military operations.
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Recognizing the tremendous opportunity presented by the U.S.-flag cruise ship pilot project, at least three U.S. shipyards are interested in building the new ships. The project's U.S. build requirement will give the U.S. shipbuilding industry invaluable experience in the construction of state of the art cruise ships.
While the specific approach taken with the Hawaii project may not have wider application, considering the specific circumstances involved in the Hawaiian cruise market, we do think that it serves as an example of how each of the various competing public interests, national defense, jobs, U.S. taxes, consumer choices and so forth, can be accommodated as a way is found to achieve a desired end. For example, expanding the Hawaii cruise market while generating commercial work for U.S. shipyards and creating shipboard jobs for American workers.
In conclusion, Mr. Chairman, the SIU respectfully urges Congress to devise a solution that promotes legitimate U.S.-flag interests while meeting the need of U.S. port cities. We appreciate this opportunity to present our views on this important subject. Thank you.
Mr. GILCHREST. Thank you, Mr. Turner.
Mr. CRANGLE. Mr. Chairman, we request our full statements are to be admitted into the record.
Mr. GILCHREST. Without objection, so ordered.
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Mr. CRANGLE. It is the position of the American Maritime Officers, we represent licensed officers and merchant marine, and we do of course share the vessels of the American Classic Voyages with the Seafarers International Union. We supply and provide the licensed officers and the deck engineering and electronics department of those vessels.
It is our considered opinion that there is no need to change the Passenger Vessel Act at this time. We have reviewed the arguments which were made before the Senate Committee last year, and I have reviewed the study that was prepared by the State of California, their tourism bureau. And we have been unable to find any factual basis for any change in the law whatsoever.
Third, and it has been stated by many courts, that American merchant seamen are direct or indirect beneficiaries of the operation of the cabotage laws of the United States. We can see no reason for that purpose for which there should be a change in the law.
I think some of the confusion that surrounds this hearing and some of the things that we've heard here are based upon the fact, on a factual basis, that there are people willing to take these vessels from a variety of ports in the United States, and that somehow, the Passenger Vessel Act passed in 1886 is responsible for the decline of the coastwise passenger vessel industry.
As you know, many and most of the vessels built in this country for the transport of water-borne passengers were built after the Act in 1886. The Great Lakes fleet at one time numbered almost 75 vessels, many of which barely survived the Second World War because of the need for scrap steel.
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In our opinion, we do not have coastwise transportation of passengers on a large scale, on the enormous scale that we used to have, because of the interstate highway system, the changing patterns of transportation, and of course, since 1886, the invention of the airplane. There is no doubt in my mind, and there shouldn't be any doubt in yours, that in many cases, we are not just talking about inner city transportation.
We have seen the decline of a number of industries and a change in the patterns of transportation. There is no longer a trans-Atlantic passenger trade. Inner urban railroads are gone. The Great Lakes passenger fleet is gone. And none of these events were caused by the operation of the coastwise laws or the Passenger Vessel Act, but rather by the different way people travel.
We would bring to your attention that the people that are proposing a change in the law have not made their case. I point out in the middle of the projections that are made by the State of California are based upon, and I'll read them, if I might, in order to analyze the potential impacts on the proposed Passenger Service Act waiver, a set of new trip itineraries were developed in ''consultation with the local port authorities.''
We think that the local port authorities certainly are capable of the types of surveys that are necessary. But we don't think that that is the foundation for which this Congress should be asked to change a law that has been in existence in this country since 1789 in one form or another. We don't think they've borne their burden.
However, we do believe that the attempt to do away with the Passenger Vessel Act is a direct threat to the economic well-being of the members of the American Maritime Officers. I don't think we have to go much further than that. If they haven't made their case, then this has turned into a media event rather than an Oversight hearing.
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We're willing to testify at any time as to the competence of our members and their role, not only in the domestic economy, but also in the national defense economy. And to jeopardize their jobs on the basis of a projection based upon projections and consultations with local port authorities who have a vested interest in changing the law I think is a slender reed, indeed.
Secondarily, a direct question was asked here today, if any of the foreign-flag cruise companies had applied or worked with any of the people in California for a waiver, a specific waiver, to meet a particular need, which this Congress has granted on a number of occasions. Most recently last winter, on February 3rd, Mr. Lobiondo and Mr. Clement testified on behalf of the single waiver for a vessel that runs from Long Island, New York to Connecticut to meet a particular need.
The answer to Mr. Borski's question was, no, nobody had applied for a waiver to run on the coast of California.
Mr. GILCHREST. What is this boat, Mr. Crangle?
Mr. CRANGLE. This was in the Congressional Record, February 3, 1998. It's for the vessel Prince Nova. It's not an unusual occurrence, as you all know.
Mr. GILCHREST. Is it a passenger vessel?
Mr. CRANGLE. Yes, it is.
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Mr. GILCHREST. It carries passengers?
Mr. CRANGLE. It's a passenger ferry.
Mr. GILCHREST. How many passengers does it hold?
Mr. CRANGLE. I have no idea, sir. I have nothing other than the Congressional Record before me.
Mr. GILCHREST. I mean, there are a lot of Jones Act waivers that come through here on a regular basis.
Mr. CRANGLE. Well, we have Jones Act waivers and we have passenger vessels. They are waivers of the coastwise laws, in fact. I mean, that's what it involved here.
Mr. GILCHREST. But you don't know what kind of boat it is?
Mr. CRANGLE. It is a passenger ferry. It is a foreign-built passenger ferry.
Mr. GILCHREST. And it goes from where to where?
Mr. CRANGLE. From Long Island to Connecticut, I believe. I don't know which city in Connecticut, however.
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But I'm illustrating the point. This very well may have been the kind of waiver that this Congress has always dealt with. What I am saying is, the direct question was asked if the people from California have any of the foreign-flag passenger vessel companies with whom they are in consultation asked for a waiver of the Passenger Vessel Act so that they could run between one port and another to take advantage of those business opportunities of which we have heard so much. And the answer was, ''No!''
Mr. GILCHREST. I'm going to interrupt just for a second. Do you favor that waiver? Or would you be against that waiver that you just described?
Mr. CRANGLE. I do not have an opinion on it, sir. I don't have the facts before me. But we have supported and worked with this committee, as you remember, when we all worked together on the Merchant Marine Committee, that there were large numbers of waivers for particular needs, change of title, a particular type of vessel. It was not an unusual occurrence.
What I'm saying is, I'm pointing out that no waiver has been asked for. I'm talking about the strength of the argument being made to you to change the Passenger Vessel Act. I'm not necessarily talking about this waiver.
But if there is a demand for passengers to take these trips, if there are companies ready and willing to do so, and it becomes increasingly apparent that changing the whole law is difficult because of the huge number of economic interests involved, the specific waivers can be asked for and have been granted by this subcommittee and this Congress. That's my point.
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Thank you. I think my time is up.
Mr. GILCHREST. Yes, sir.
Mr. PATTI. Thank you very much, Mr. Chairman, members of the subcommittee.
The Longshore and Seafaring Unions I have the privilege of representing today strongly support our Nation's cabotage laws, including the Passenger Vessel Services Act, and the principles they embody. Consistent with these principles, these unions are equally committed to working for those changes in statutory and regulatory framework in the Passenger Vessel Services Act, the result in the growth of an ocean-going United States-flag cruise vessel fleet, crewed by American citizens, and built in United States shipyards.
These unions oppose the Senate legislation that has been referred to previously during this hearing, as well as other similar measures. These proposals would allow the entry of foreign-flag vessels into the United States domestic cruise market, and would do so without requiring full compliance with the wide range of United States laws, regulations and tax obligations, including those relating to immigration, labor standards, occupational safety and health, equal employment and anti-discrimination, crew drug and alcohol testing and the payment of taxes, compliance that only comes with the United States flag.
Page 105 PREV PAGE TOP OF DOC Segment 2 Of 2 Equally significant, there is nothing in these proposals to provide incentives to encourage the entry into the domestic cruise trade of the United States flag vessels, which, because they must comply with these same United States Government-imposed laws, regulations and tax obligations, begin at a severe competitive disadvantage as compared to foreign-flag and foreign-crewed vessels. It is for this reason that we believe the so-called bumping provision contained in foreign-flag shipping legislation is unworkable.
It is in our opinion highly improbable if not impossible that a United States built and United States flag vessel can enter a domestic trade, operate under a different, more onerous and more expensive legal regime for 3 years against a foreign-flag vessel that is free from these economic and operational burdens can survive for 3 years under these non-competitive terms and conditions in order to trigger a bumping provision and to exclude the foreign-flag vessel from the trade.
Instead, we suggest that there are ways, including those mentioned previously by Mr. Clement, to spur the development of the United States cruise vessel fleet of the size and type not presently available outside Hawaii and to enable other companies in port regions to make the goals and objectives of last year's Hawaii pilot project legislation a reality.
Specifically, we again suggest, as we have in the past, that Congress allow an American company to operate a foreign-built cruise vessel under the United States flag in a domestic trade in a market presently unserved by an American vessel, provided the company has first entered into a contract to build a comparable vessel or vessels in a United States shipyard.
Page 106 PREV PAGE TOP OF DOC Segment 2 Of 2 This approach, in our opinion, in addition to preserving the important principles and policies embodied in our Nation's cabotage laws, will give an operator the opportunity to establish a presence in a trade and test the market while his replacement vessel is under construction in the United States, and will give American ports a quicker opportunity to participate in the economic benefits that derive from cruise vessel operation.
In addition, we would ask that Congress consider other ways to enhance American-flag cruise vessel operation, those operating between American ports and those operating between a United States port and a foreign port. We would recommend, for example, that Congress consider extending the so-called convention tax deduction to passengers that attend a business meeting or a convention on a United States-flag cruise vessel that operates between an American and a foreign port.
And we would also suggest, in order to better attract capital and to encourage people to bring vessels in under the United States flag, that Congress allow such re-flag cruise vessels the opportunity to leave the United States flag if economic conditions do not warrant, without the need for further Government approval and action as is presently required for other types of vessels.
And in conclusion, Mr. Chairman, we look forward to working with you and the members of your subcommittee to help develop those programs which result in the operation of United States-flag cruise vessels built in the United States and crewed by United States citizens.
Thank you very much.
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Mr. GILCHREST. Thank you, Mr. Patti.
Mr. Turner, your opinion on why you don't think, and I'm not supporting any particular bill, the bump provision, in the bill that's been discussed here today, or Mr. Poimiroo's earlier comment about a waiver until the year 2005, to show the investment community that there is a growing cruise ship market out there, can you tell me what's wrong with those two possibilities, and how that is different from what's going on with the Hawaii experiment?
Mr. TURNER. Thank you, Mr. Chairman.
In our opinion, the bump provision is a red herring. The way that provision in S. 803 would work is, you have to compete head-on with a foreign-flag ship for 3 years, for 3 years head-on, with higher capital costs, under the regime of building a ship in this country, living under environmental laws. These other ships would not have to do that. You'd have to compete for 3 years. That's a loser to begin with.
But for example, in Alaska, the way that bill would read is, you would have to compete for 3 years with 20, 20 foreign-flag ships. And if by chance you survived, then you would bump one ship. And then you would be in the process of trying to compete with 19 other ships.
No wonder the foreign-flag cruise operators have no problem with this. They would eat us up. It's just not doable. It's the biggest red herring in the bill.
Page 108 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Mr. Crangle, what about the waiver, 2005?
Mr. CRANGLE. It founders upon the fundamental objection we have to the whole point of view, is that there is not a demand for the services that are being proposed that are available here. We have seen no body of verifiable facts that there are large numbers of people who are willing to get on a ship in the United States and travel from one city to another.
Mr. GILCHREST. So you're saying that the suggestion from others today that there is a bulging market ready to explode as far as intercostal cruises from Florida to Savannah, Georgia, to Baltimore, New York, that doesn't exist?
Mr. CRANGLE. In my opinion, based upon the evidence that we have seen from the study in California and the testimony we've heard today, it does not exist. What is being met, however, with the smaller companies that Mr. Welch has spoken for, they are meeting it on a modest level. But we cannot see that there is a large market.
But more important, I am not an expert in marketing. I am saying, on the basis of the people that have come here and asked you to change the law, they have not made their case. They have not shown that there are large numbers of people ready
Mr. GILCHREST. Well, I would like you to make your case that there aren't large numbers of people
Mr. CRANGLE. I am not a statistician.
Page 109 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. Excuse me, sir, just a second.
Mr. CRANGLE. I'm sorry.
Mr. GILCHREST. Previous people testifying today have made, to my judgment, a fascinating case for a market for people to move from city to city for recreational purposes on the coastal areas of the United States. And my question is, and they brought with them information. If you can bring to me information to counter that, that's what I would like to hear.
I do have another question, though. Did the American Maritime Officers support Ms. Unsoeld's legislation in the 103rd Congress?
Mr. CRANGLE. Our officers were part of the coalition that worked very closely with Ms. Unsoeld. And before that, with the Congressman who represented that district. I was trying to think of his name, and I'm sorry, I forgot it. We worked with both the Congressmen who were from the same district, if you recall.
Mr. GILCHREST. Ms. Unsoeld was a very fine, fine woman and a good Congresswoman.
You mentioned that any reform, especially that suggested S. 803 would have would be a direct threat to the Maritime Officers. Can you elaborate on that?
Mr. CRANGLE. The coastwise laws of the United States at the present time require that the ship have an American crew. Our officers are all United States citizens, United States Coast Guard licensed officers. To change the law to permit foreigners into the trade would be a direct threat to their livelihood.
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Mr. GILCHREST. Yes.
Mr. CRANGLE. I don't want it to sound so bald, although it is that bald. In no other mode of transportation do we allow foreigners to participate in the domestic transportation of passengers, either. Neither in airlines, trucking or railroads. What I'm proposing is nothing that is new. What I'm proposing is that the law that you have enforced, this committee is dealing with right now in many ways, is consistent through maritime, airplane, railroad, trucking and bus transportation, and whatever transportation mode there might be. There is no difference between them.
It boils down to the people directly involved in it are all citizens of the United States of America or lawfully admitted to the United States before they can go to work transporting passengers or merchandise within the United States. We are not unique.
Mr. GILCHREST. We do have, though, many world airlines bringing people into the United States.
Mr. CRANGLE. That is absolutely correct. You can catch a plane in Chicago, Lufthansa, we'll use them as an example, and they will load passengers and go to Boston and pick up more passengers and then fly to Germany. But in no way can you buy a ticket on Lufthansa in Chicago for a trip from Chicago to Boston. You're only part of the international stream of commerce. You cannot transport passengers within the United States on a foreign airplane.
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I'm just saying, we are not different than anyone else. That's what I'm getting at.
Mr. GILCHREST. Right.
Mr. Patti, are you aware of any cruise operators besides American Classic Voyages who have shown an interest in operating a foreign-built U.S.-flag vessel, if it is also required to replace that foreign vessel with a U.S.-built one?
Mr. PATTI. I couldn't hear the last part of your question.
Mr. GILCHREST. Are you aware of any cruise operators besides the American Classic Voyages which have shown an interest in operating a foreign-built U.S.-flag vessel, if it also is required to replace this foreign vessel with a U.S.-built one? Are there any other cruise operators that would be interested in engaging in that kind of activity?
Mr. PATTI. We've talked to a number of people, mostly those, Mr. Chairman, that are interested in entering the business, not necessarily companies that presently operate cruise vessels, either in the United States, foreign trade or overseas. Most of the people we've spoken to are concerned about one thing more than anything else, and that's, we set a level and a fair and a consistent playing field that we once and for all determine what are we going to do with the Passenger Vessel Services Act.
The confusion, the constant attacks, the attempts to eliminate the build U.S. requirement or the flag requirement or the crewing requirement or make certain laws non-applicable have a chilling effect, because people don't know how they should proceed. Or they proceed under Plan A, and 2 weeks later or 3 months later, Congress changes such and such or Congress revises a different provision.
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Then they have a competitor that comes in, also an American, with a legislatively granted advantage over them.
So first and foremost, I think the people that we've spoken to, and as I said, they're mostly entrepreneurs, people who are looking to get into the trade, people who do tell us that they believe there is a growing, growing market for cruise vessels, small vessels, large vessels, operating between American ports, and are very desirous of getting into the business.
But they do in fact need some help to spur this industry along, which is why we on behalf of the unions that I'm representing today, did in fact make a suggestion that we revisit the framework that was embodied in Congresswoman Unsoeld's legislation.
Most of the markets we're talking about that either we're talking about or others have spoken about are untested. There are not many cruise ships operating between most of the ports that were mentioned earlier in the day. We can all do economic analyses, we can all have studies, we can all have people telling us, this is a great market, or this is an even better market.
But no one's going to really know until they actually get into the business. So to require, to give them the ability to go out and acquire a vessel, put it under the American flag like all other Americans in a trade that is presently not being serviced by a cruise ship, work out a contract with an American shipyard, size, type, amenities, and such, and everybody's playing by the same set of rules, I think until we do something along those lines, we're probably all going to have our opinions, but we're not going to know for certain what really is the demand, where do American tourists really want to go, what's the attractiveness
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Mr. GILCHREST. So you're saying there's no marketing studies to show
Mr. PATTI. What I'm saying is, there are an awful lot of marketing studies. But until those marketing studies are actually translated into real business, they're marketing studies. And I think anybody can have a study that shows just about anything. I'm not disproving by any stretch what the previous witnesses have said or what subsequent witnesses may say about the growing cruise industry. We happen to believe it is a growing, growing cruise industry, and we think the Americans should play a big role in that industry.
Mr. GILCHREST. Do you think the genesis for this, the genesis for improving American commercial shipbuilding activity is this experiment in Hawaii?
Mr. PATTI. We think that offers a tremendous potential. We will have an opportunity now to see large ocean-going, ultra-modern cruise vessels built in the United States. It would be very, very advantageous, I think, to other companies, to other shipyards and the like, to other ports, if we can take that example, if we can take that pilot project.
Previous witnesses have said, we've been waiting for years and waiting for years. Well, Congress in effect acted last year. Congress said, let's do something that enables a company that presently has the wherewithal, that presently has a defined trade, that presently knows what they need, the size of the vessels, the amenities, they have experience operating in a trade, there's no better company to start this pilot project than someone that's basically been in the business and really does know what he has to have.
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Let's take the next step, instead of just saying, we're going to build these two ships and that's going to be the end of it, let's take the next step. Let's let other companies have in effect the same opportunity that the company in Hawaii has been given. Let's let them bring in a foreign ship, put it under the American flag, enter into the contract with the shipyard, and let's build on this Hawaii pilot project. That's essentially what we're saying.
Mr. GILCHREST. Thank you very much, Mr. Patti.
Mr. CLEMENT. Thank you, Mr. Chairman.
From what you all said previously, would your organization support a bill using the approach in the Unsoeld bill as passed by the House in 1994?
Mr. PATTI. Yes.
Mr. CRANGLE. The Unsoeld bill, we worked on that for quite some period of time, until it became apparent to us that no matter what we did, there was no magic in the changing of the law, that if there were not people willing to invest in these vessels, if there were no willing people to travel on them, no matter what this Congress did, we would not be able to rejuvenate the domestic coastwise industry.
As an example, Mr. Clement, I can't think of any law that we could pass right now which would rejuvenate the trans-Atlantic fleet, either. Because I think the demand for the service will run the show. Whatever it is that this Congress did with the Unsoeld bill, I don't think it was a direct reflection of or had a direct connection with reality.
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If we have an individual shipbuilder, however, who's willing to come in and say, I'll do this, I'll put my money up, that's one thing. But a wholesale change in the intent of the coastwise laws, I think we would answer no, we are not in favor of it.
Mr. CLEMENT. Mr. Turner?
Mr. TURNER. Mr. Clement, as stated before, the SIU supported the Unsoeld bill back 4 years ago. We would support anything that brings shipboard labor and shipyard labor into this country. That's our bottom line. We want to make sure that we preserve this industry, both sectors of the industry, both the shipboard labor and the shipbuilding labor.
We can come to an agreement on legislation like that. We would fully support it and think it's needed.
Mr. CLEMENT. It appears that the only difference between labor positions is over possible modifications to the U.S.-built requirement to help provide incentives to build additional cruise ships in U.S. shipyards. Is that accurate, and do you believe that you can resolve your differences?
Mr. PATTI. No, I don't really believe that there is really a difference between the unions that are represented here. I think we all have as a matter of basic principle American-flag cruise vessels should be built in the United States. What we're proposing, the unions that I'm representing today, are proposing, very comparable to the Unsoeld legislation, very comparable to the Hawaiian legislation, that you allow a vessel to come in and operate after the operator has entered into an agreement with an American shipyard.
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So from day one, this operator is going to know that that vessel that he's bringing in is going to be replaced by a United States-built cruise vessel. I think we all, I don't want to speak for anybody else, but I think we do all continue to support fully the concept that these vessels must be built in the United States.
Mr. CLEMENT. Mr. Crangle?
Mr. CRANGLE. That is correct. It is the precondition for our support of any passenger industry in this country that the vessels be built in the United States. We feel that the three legs of the cabotage laws, U.S. build, U.S. ownership and U.S. crewing, are so interrelated that weakening of any one is a direct threat to the other two.
So that if we weaken the build requirement, we take a chance on jeopardizing the economic well-being of our members, and vice versa. The crewing or the building: we think they're all part of the whole. That's what the purpose of Congress acting in this area is, and we are not in favor of changing any one of the legs of the cabotage laws whatsoever.
Mr. CLEMENT. Mr. Turner?
Mr. TURNER. Mr. Clement, I think you're accurate. The shipbuilding provision has been probably the toughest to work out in our negotiations. Do I think it can be worked out? I think it can. I think we worked it out in the American Hawaii situation, where we're going to build two U.S. cruise ships. And I think there's a potential that we can work it out in other legislation.
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But you know, we've got two sectors of the labor community here that both needs have to be served. We have to crew the ships and they have to be built here if you're going to get broad support among U.S. maritime labor.
Mr. CLEMENT. Thank you.
Mr. GILCHREST. Thank you, Mr. Clement.
Mr. BORSKI. Thank you, Mr. Chairman.
Gentlemen, it's been mentioned, if you haven't, somebody else has today, that foreign-crewed vessels paid lower wages. What is the average wage disparity between U.S. crews and foreign crews? Mr. Turner? Or if anybody knows.
Mr. CRANGLE. I don't think we really have that. The International Transport Federation, we could ask. I think the committee could ask them for that type of information. I don't have it.
I know what their minimum statement is. But I am not going to quote a number if I don't know.
[Information received from Mr. Crangle accompanies his prepared statement.]
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Mr. TURNER. My guess, Mr. Borski, is it varies widely from company to company. There are some fly-by-night cruise ship operators out there that pay slave labor out there. You've heard some of the testimony earlier. And in those situations, the discrepancy is larger.
But I think U.S. labor costs are coming down. They're coming down in the commercial sector, and they would surprise you in terms of what we can produce in terms of the cost of U.S. labor on the cruise ship end, also.
Mr. PATTI. I would agree. I think it varies not only from company to company, but from the nationality of the foreign crew to the nationality. There are some where various sectors of the maritime community, you have crew members working for essentially subsistence, for room and board. Clearly, American maritime workers are paid and compensated the prevailing American rate, as are other American workers in the transportation industries and others.
But there is a large discrepancy. There is absolutely no question.
Mr. BORSKI. Mr. Patti, you talked about the laws and regulations that American companies need to comply with. What if we allowed foreign vessels to operate in domestic trade, on the condition that they abide by all U.S. laws. Would they be interested?
Mr. PATTI. I don't believe they would be interested. I think it's very telling that there are no representatives of foreign lines that have either indicated themselves, I mean, one of the ongoing questions during the hearing, and rightfully so, is if anyone knows of any foreign lines that are interested in doing this. And no one has expressed an opinion if they have.
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No, I don't think they do. I think that's one of the reasons why they're not here today, that they're not testifying. One of the things they seek to avoid is compliance with the whole range of U.S. laws, regulations and tax obligations.
I guess what we're saying is that most if not all of those are not things that the maritime industry has foisted upon itself. No one in the maritime industry is seeking to get out from under these rules and regulations. We also don't want to be penalized, because these are the rules and regulations we must comply with in order to operate in the United States.
Mr. BORSKI. I know, Mr. Crangle, you've mentioned, I think you feel pretty strongly that you don't know of any pure data that says there's any foreign cruise line wanting to operate between ports.
Mr. CRANGLE. My answer to that would be based upon an actual attempt of that company through some port or State agency, to seek a waiver of one of the existing parts of the cabotage laws, so they can operate within the United States of America. And I have not seen that.
Mr. BORSKI. The chairman asked you that directly, and I thought that was the answer. The answer is, has anybody applied for one. We would know. Not that we know of, anyway.
Mr. CRANGLE. No, I certainly do not.
Page 120 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. BORSKI. I've seen some advertisements that some foreign vessels are working in the United States. What's the difference, here? The cruise ship people or the travel agencies want to bring more business. You folks want more business.
Are there foreign vessels operating in the United States, and how do they operate?
Mr. PATTI. There are a variety of, I think it was referred to earlier by one of the witnesses on the earlier panels
Mr. BORSKI. I think this return to the Alexandria one is one that brings this to mind. Are they operating here?
Mr. PATTI. There are a variety of loopholes in the existing law and the way the laws are implemented. Someone made reference earlier to the cruise to nowhere statute which allows foreign vessels to go back and forth to the same port. There's something called the 24-hour rule, you have to touch at a nearby foreign port.
Most of these vessels are not picking up and discharging passengers, you're not booking passage to go from one American port to another American port. But are they able to stop and spend a specified amount of time in another, in consecutive American cities? Yes, they can. It's the way the law is implemented.
And it is one of the problems. There are loopholes in the law. Hopefully those will, as we develop an American fleet, those loopholes will become less and less important and maybe disappear.
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Mr. BORSKI. No further questions, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Borski.
Mr. JOHNSON. Thanks, Mr. Chairman.
And I apologize, I had to leave. Two things going at the same time.
The U.S. House passed the U.S. Cruise Vessel Development Act in 1994, by Representative Unsoeld, to help promote U.S.-flag cruise ships. Any of the organizations, what was your approach to this in 1994? Did you oppose this?
Mr. PATTI. No, we supported Congresswoman Unsoeld's legislation.
Mr. JOHNSON. And would you support a bill using this approach today?
Mr. PATTI. Yes, we would.
Mr. JOHNSON. I guess I have a question for Mr. Crangle about wages and working conditions. How do they compare between U.S.-flag cruise ships and foreign-flag cruise ships? Can you give us a picture of that?
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Mr. CRANGLE. We can supply or get it from the International Transport Federation, on the wages. And also I think another source that we could attempt to get it for you are the various ministers of the United States Merchant Marine Ministry Association, which has direct knowledge of the wages and living conditions on vessels visiting the United States and calling in the United States.
Perhaps by derivation, I think that earlier in the day, a witness from one of the ports in California was asked, do you have Americans on those ships, those foreign-flag ships that come into the United States. And we have American musicians, American hotel directors, and American computer operators.
But we don't have American first and second mates and lifeboat operators and engineering crews, and the people that really work on vessels. They are not merchant seamen. People who run hotels are not merchant seamen. The first mate is a merchant seaman. The captain and the engineer and the oilers and the ABs that run the lifeboats. What I'm getting at is this, it would seem to me that the foreign-flag cruise lines do not want to hire Americans because our wages are comparable to what other Americans earn, and they are hiring third world nationals on a lot of those vessels.
Mr. JOHNSON. So the picture I'm seeing on Love Boat isn't really true?
Page 123 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. CRANGLE. I'm sorry, sir, I didn't hear you.
Mr. JOHNSON. The picture that I see on Love Boat, the TV series, it's that new one that nobody watches on UPN.
Mr. JOHNSON. It isn't true?
Mr. CRANGLE. The stories of which we are aware, of which all three unions are members of the International Transport, is objective rather than anecdotal, if you will. The wages are not comparable to Americans. That's why those vessels are not operating in the United States, that and the fact that they don't pay taxes.
Mr. JOHNSON. Okay. I only asked the question about Love Boat because I went to school with the guy, Bob Urich, who plays the captain on the Love Boat.
Final question. We only have the one U.S.-flag cruise ship today, the possibility of two replacement vessels being built. Some of us would like to see more, obviously, the large U.S. flagships promoting tourism, promoting maritime jobs. Do you think consensus can be reached that labor organizations would join with others to promote more U.S.-flag cruise ships?
Mr. PATTI. We would very much hope so. What you described, Congressman, is exactly what our goals and objectives are. We don't gain unless there are more American ships. This is not an exercise for us. The only way to increase the number of American jobs, whether it be in shipbuilding or whether it be on board these vessels, is to actually have a program in place that's going to work.
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And we would very, very much hope, and are willing to talk to and work with anybody, to put such a framework in place. Absolutely.
Mr. JOHNSON. To boost American jobs and the America economy.
Mr. PATTI. Yes, sir.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Johnson.
If I could just ask unanimous consent for me to ask one quick question,.
It's my understanding that the Unsoeld bill was a pretty good compromise. Seagoing labor proposal has something that's very similar to that in the works. Would each of you continue to work with the diverse groups to move a compromise along? Mr. Patti?
Mr. PATTI. Yes.
Mr. GILCHREST. Mr. Crangle?
Mr. CRANGLE. American Maritime Officers is standing by its previous statement, that if there is a demand for the service, the individual asks for a waiver of the Passenger Vessel Act to come in, we see no reason to go through an intellectual exercise like Unsoeld again, when there is no principal involved.
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Mr. GILCHREST. Not even for the sheer ecstacy of an intellectual exercise?
Mr. CRANGLE. For the ecstacy, yes, sir. But my boss wants me to be a little bit more practical. So maybe that would be the big cut-off.
Mr. GILCHREST. I think the idea of the human having the capacity for an intellectual exercise is what has driven civilization.
Mr. TURNER. We would be willing to sit down and discuss anything that brings U.S. jobs, both shipboard and shipbuilding jobs, to this country.
Mr. GILCHREST. Thank you. Thank you very much.
Mrs. Bentley gave me that last quote, by the way, Helen Bentley, former member of Congress.
Thank you very much, gentlemen. We appreciate it.
Mr. CRANGLE. I have two statements to submit.
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Mr. GILCHREST. We will submit them to the record.
Mr. CRANGLE. One from the Boilermakers and one from a car ferry company in Michigan that we represent.
Mr. GILCHREST. Without objection, so ordered.
[The information follows:]
Mr. GILCHREST. We thank the panel.
The next panel, Mr. Paul D. DeMariano, President and CEO, Port of Philadelphia and Camden; Mr. Tay Yoshitani, Executive Director, Port of Baltimore; Mr. Ralph Cox, Maritime Director, Massachusetts Port Authority; and Ms. Rita Vandergaw, Director, Marketing Services, San Diego Unified Port District.
Welcome. Is Mr. Demariano here?
Mr. YOSHITANI. Mr. Chairman, I have a message from Mr. Paul DeMariano. He had a family emergency this morning and could not make it. But he asked us to submit for him on his behalf and the Port his testimony, which in essence supports the notion of what has been expressed in S. 803.
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Mr. GILCHREST. Thank you very much. We'll submit that to the record without objection.
We'll start with Mr. Tay Yoshitani. Welcome, Tay. It's good to see you.
TESTIMONY OF TAY YOSHITANI, EXECUTIVE DIRECTOR, MARYLAND PORT ADMINISTRATION; RALPH COX, MARITIME DIRECTOR, MASSACHUSETTS PORT AUTHORITY; AND RITA VANDERGAW, DIRECTOR, MARKETING AND PUBLIC RELATIONS, SAN DIEGO UNIFIED PORT DISTRICT
Mr. YOSHITANI. Mr. Chairman, thank you. I think you've been abandoned by your fellow committee members. So I'll just address you, sir.
My name is Tay Yoshitani, the Executive Director of the Maryland Port Administration in Baltimore. And on behalf of Governor Paris Glendenning and Secretary David Winstead, and of course, at your invitation, I am here to present today our position on the Passenger Services Act of 1886, and its effect on trade and tourism in the United States, and more specifically, to the Port of Baltimore.
It's been stated many times before, but I think it bears repeating, that the cruises aboard ocean-going vessels are one of the fastest growing segments of the tourism industry. But due to the restrictions implemented over 100 years ago, the efforts to promote the capabilities of the Port of Baltimore, as well as other ports, to create a vibrant cruise port of call, have been limited.
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Then, we suggest that Congress explore alternatives to the Passenger Services Act. Modifying this Act would create, in our opinion, many new jobs, new opportunities and stimulate growth.
The Port of Baltimore, as you know, is a significant international port, and the third largest employer in our State. Further, we estimate that the number of passengers that would be generated by this change would more than triple for the Port of Baltimore.
An increase in cruise services will also, as others have mentioned, would produce new tax revenues, new tourism spending throughout the region, etc. All the other benefits that others have talked about.
The Port Administration believes that opening up the domestic market and improving the development of this intercostal cruise industry, the Port will generate new opportunities for Maryland's cruise market. We understand, of course, that various groups that we've just heard have raised concerns regarding changes to the PSA as a prelude to possible changes or repeal of the Jones Act.
And our position, the Port of Baltimore's position is that nothing could be further from the truth. We endorse, and fully, our position, strongly, to keep the Jones Act as it is, in place, with no modification. So there would be no tie-in with the PSA.
We would, however, obviously encourage dialogue, and obviously you're encouraging that as well, your comments that I've heard this morning and this afternoon. However, we do believe that a number of provisions have been introduced in S. 803 which provide ample safeguards for job security and for the groups that have vested interest in the PSA.
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Foreign-flag operators could not operate in any market where there is already a U.S.-flag operator. There would be existing protections for American ferries, excursion vessels and inland waterway cruise operators from foreign competition. And we've already talked about the threshold of the 4,000 gross registered tons.
And obviously, we think that this would enhance increases in ship repair work. Foreign vessels and domestic itineraries would have to have their repair, maintenance, upgrade and alternations performed in U.S. shipyards. Obviously, this presents opportunities for our newly opened shipyard in Baltimore.
More work, more jobs, more opportunities. We should encourage the necessary actions to warrant modifying the Passenger Services Act. The Port of Baltimore, as you well know, has numerous attractions for visitors which have helped tourism become a $1 billion industry in our State. Our Port, we feel, must be given the tools, the opportunities, the challenge, to be competitive in the cruise business.
The MPA believes that there is real potential for the Port of Baltimore to be a very important part of a vibrant, intercostal cruise industry. Simply put, we can cruise our Nation's highways from State to State. Then why can't we cruise our Nation's ports from State to State?
In closing, I'd like to emphasize that the Port of Baltimore must find ways to improve the cruise industry in Maryland where our port could become, again, a major contributor to our State and to our Nation. The State believes, the State of Maryland believes that the Passenger Services Act of 1886, when written over 100 years ago, definitely served its purpose at that time. We also believe that there are changes that are needed today that will serve the purposes now.
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The Maryland Port Administration encourages this distinguished committee and the House in any future action to seek modifying the Passenger Services Act. Mr. Chairman, that concludes my statement. I have already submitted formal statements.
Mr. GILCHREST. Tay and I have visited the Port of Baltimore on numerous occasions. Tay has come over to the eastern shore on numerous occasions to discuss port issues. I think both of us know that a continuing dialogue on a whole range of issues is important to work out the kinks and to reach some type of consensus. So I appreciate your coming here today, Tay.
Mr. COX. Good afternoon. My name is Ralph Cox, I'm the Port Director for the Port of Boston.
Mr. Chairman and members of the subcommittee, I want to thank you for the opportunity to testify before you today to discuss the reform of the Passenger Services Act.
The key mission of any port is to provide economic development and create jobs. These include jobs for maritime workers involved in longshore, tugboats, pilots, bunkering and stevedoring services. However, keeping these jobs is becoming increasingly difficult. The cost of building marine terminals, developing intermodal rail connections and dredging is astronomical.
Page 131 PREV PAGE TOP OF DOC Segment 2 Of 2 Furthermore, the value of waterfront property in Boston has and continues to skyrocket. Pressure to sell some of this land for development purposes mounts with each passing day.
However, Massport is committed to its mission at the port and dedicated to sustaining and improving its operations and services. In Boston, we have found the cruise ship industry is one such industry that can assist us in revitalizing the port. The cruising industry offers us a unique opportunity to preserve our maritime jobs and promote economic development without enormous infrastructure investments.
Massport has pursued this opportunity aggressively, and it comes at a time when cruising is the fastest growing segment of the travel industry.
Our success in growing the cruise industry in Boston and the increased number of tourists it brings has meant an infusion of new money into Boston's economy. Massport has increased the number of cruise ship calls at our Black Falcon Cruise Ship Terminal in South Boston from 13 in 1985 to 60 calls in 1997. Passengers on those cruises have increased from 12,000 in 1985 to 106,000 in 1997.
Mr. Chairman, the impact of these cruise ship calls have on our local economy cannot be understated. In Boston, virtually an entire local grocery store fills a ship every Sunday. This is all new business generated by the cruise ship industry.
Despite this phenomenal growth, or maybe because of it, Massport is constantly asked why there aren't more cruise ship calls in our harbor. The reason is simple, and in my opinion, very unfortunate. The Passenger Services Act of 1886, a 112 year old law, severely penalizes foreign-flag cruise lines for carrying U.S. citizens from one U.S. port to another. Despite the fact that there is no U.S. fleet to accommodate consumer demand to sail between U.S. ports, the penalty on foreign-flag cruise lines still exists.
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The law prevents ports and local communities from capitalizing on an enormous opportunity, and it prohibits Americans on cruises from spending their vacation dollars in America. Imagine that if a U.S. citizen chooses to spend his or her vacation on a cruise, that person is forced to take the cruise to another country.
While our business has increased significantly, it could be much greater if domestic cruise itineraries were introduced. One idea being discussed is the idea of an historic ports cruise that would run from Boston to Charleston and back.
Mr. Chairman, I know there are strong feelings on the PSA reform on both sides of this issue. I'd like to address briefly some of the concerns you are likely to hear and have heard from other panels. One issue you'll certainly hear about is supposed safety and environmental inadequacies of foreign-flag cruise ships relative to U.S. standards. You will hear these ships aren't safe and will be bad for the environment.
Mr. Chairman, these ships are in our ports now. Last year, these same cruise ships carried 106,000 people from Boston to foreign ports. Why is it then that these ships are all of a sudden unsafe and bad for the environment the moment they begin carrying passengers from Boston to Charleston, South Carolina?
I can assure you that I would not allow an unsafe cruise ship or a cruise ship that neglected the environment to pick up passengers from Boston. That is not how we do business.
Page 133 PREV PAGE TOP OF DOC Segment 2 Of 2 In closing, I strongly urge you to review the merits of passing a waiver to the PSA to allow ports, maritime workers, communities, business and tourist to tap into a new and exciting market. This initiative is about tourism, and should not be confused with the Jones Act governing cargo industry. The Jones Act is a separate statute with separate track record.
You will hear undoubtedly today that a waiver to the PSA is the first step in an effort to dismantle the Jones Act. As I've stated, the two have completely different track records. Furthermore, the Jones Act actually still protects an American fleet, unlike the PSA. Allow me to state unequivocally that Massport is committed to the precepts of the Jones Act and the protection of the American merchant fleet.
Thank you, Mr. Chairman, for holding this hearing. I urge you your support of our efforts, and ask you to move swiftly in changing a law whose purpose has come and gone. Thank you.
Mr. GILCHREST. Thank you, Mr. Cox.
Ms. VANDERGAW. Good afternoon, Mr. Chairman and members of the subcommittee. Thank you for this opportunity.
My name is Rita Vandergaw. I'm the Director of Marketing and Public Relations for the San Diego Unified Port District. I also serve as a commissioner for the State of California travel and tourism industry, and am one of the founding members of the Cruising America Coalition.
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First of all, I'd like to if I may just briefly respond to the bumping right that Mr. Turner brought up. The way that we had proposed that in S. 803 is not that they would be competing for 3 years, but that the U.S. operator would give notice to the foreign operator and that the foreign operator must exit the market within 3 years, freeing it up for the U.S. operator.
So there would not be a head-to-head competition with the foreign operator. I hope that clarifies that, and I hope that Mr. Turner is still here, so that we can discuss it if he'd like to.
Plain and simple, I'd like to give you two examples of why this 112 year old Passenger Services Act is not working. Last Friday in San Diego, we had the privilege of having Royal Caribbean's Legend of the Seas in our port. It arrived at 3:00 a.m. on a trans-canal voyage with 1,800 passengers aboard. The 3:00 a.m. arrival is slightly unusual. The reason it came in so early is because the ship was then departing to go to Ensanada to pick up passengers on their Hawaiian voyage.
So the ship came in at 3:00 a.m. in the morning, it was greeted by 55 longshore workers, 20 semi trucks, 100 taxicabs, 50 47-passenger buses, limousines, tour operators, and the stevedoring services, as well as about 60 people who were there to check in the passengers. The operation was quite phenomenal.
As the one group of passengers cleared Customs and checked out of the cruise terminal to end their voyage, the next group arrived. They were checking into the cruise terminal, watching the ship being provisioned, bunkered, and getting ready to sail to Hawaii. The passengers stayed in the cruise terminal and watched as the ship sailed away to Ensanada. They waited for another 2 1/2 hours while they were checked in at the cruise terminal where they boarded 55 buses that took them down to Ensanada where the ship was waiting for them to board.
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This is an example of the Passenger Services Act working today. The cruise line was handing out a flyer to each and every passenger explaining why they couldn't get on the ship in San Diego. Needless to say, the consumers didn't understand this. They simply did not understand why they were prohibited from boarding, when in their mind, a vessel that comports with every aspect of safety and U.S. law could not transport them from San Diego to Hawaii.
Another example occurred in January, when we had the QE II come into the Port of San Diego. Again, the ship was on a Hawaii voyage, was not scheduled to call in San Diego. As you know, we've had some severe weather in California, El Nino conditions. The QE II is the largest ship in terms of draft that exists in the cruise fleet today. They're getting bigger and transporting more passengers, but they have a shallower draft than they've had in the past.
The ship's draft is so large that it could not go into the harbor of Ensanada. The conditions were unsafe to tender the passengers at sea.
So the captain and the Coast Guard jointly made the call that the QE II should come to San Diego and pick up the passengers for the voyage to Hawaii. They did so, and upon their arrival in Hawaii, U.S. Customs, as they were obligated to do under the Passenger Services Act, imposed a $105,000 fine on the transportation of the passengers under the Passenger Services Act.
Cunard, of course, is appealing the fine, and it may be mitigated because the conditions were unsafe for the passengers. But this is the Passenger Services Act in work. And I wanted to give you those two examples, because we see that. We have approximately 12 other cruises coming this year, where our passengers will watch the ship sail out, and they will take buses down to the Port of Ensanada.
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I am here today to also represent the other ports of California. The cities of Los Angeles, San Francisco and San Diego have all benefitted from being part of today's cruise industry. Others want in: Eureka, San Luis Obispo, Santa Barbara, Monterey. Each of these port communities has seen one or two cruise ships call on their cities.
The impact of these calls has been tremendous. The ships have brought what we call new explorers into our great State. They have come back, after they purchased the goods, and discovered the local attractions. They not only have come back, they've come back and bought homes, they've invested in businesses, and they've become contributors to the local economy.
This would not have happened if the opportunity to visit by sea had not occurred. California ports want more of this economic development, more jobs, and more explorers and more spending to occur in our State.
For every shipboard job that is created, onboard shipboard job, there are 12 shoreside jobs. You heard some of them as outlined by my colleague, Mr. Cox. We would like to see more of these jobs retained. We also are struggling with keeping our maritime jobs in San Diego. The longshore workers, we have gone from being classified as a low opportunity work port for the first time in 28 years, and have added approximately 20 new jobs. Part of that is a result of the growing cruise industry. So it does create jobs.
And on the subject of the longshore issue, while I respectfully listened to the gentleman representing the unions today, I would like to offer for your consideration a letter from our local, who is in support of changing the Passenger Services Act. I think that the national may have one opinion, and I would like to encourage them to talk to the local guys who work the ships and see what they think about expanding and growing the cruise industry.
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If I may read this, this is to Senator Feinstein from the President of San Diego's Local 29.
Mr. GILCHREST. I'm going to ask, we're going to have to run for a vote, if you'll submit that for the record.
[The information follows:]
Mr. GILCHREST. I would like to ask some of you some questions. But I don't have time right now. So we're going to recess. We have two votes. I'll try to be back within 15 or 20 minutes. So we'll take a break.
Mr. GILCHREST. The subcommittee will come to order. We appreciate your patience with our schedule.
Mr. Yoshitani, in your statement, you said that if there was reform, the number of calls at the Port of Baltimore from the cruise industry could triple. Now, can you elaborate on that? Is that based on S. 803? Where do you come up with a figure that calls would triple?
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Mr. YOSHITANI. Mr. Chairman, our base is very, very small at this time. We only have six to eight vessel calls per year. And that's why we can triple it. Because my estimate is that during the cruise season, I would assume that if a coastal cruise could be brought into Baltimore that it would be probably on a weekly basis.
So estimating from April to probably the end of September or October, there would be some 20, 25 vessel calls, that would be on a weekly basis. And that would in essence triple the number of vessel calls, passenger vessel calls. That's where my estimate comes from.
Mr. GILCHREST. Do you have any idea where they would originate and where they would be going, these extra calls? Would they originate in Baltimore? Boston? Savannah?
Mr. YOSHITANI. I don't have a good feel for that, Mr. Chairman. However, you look at the map, we're very centrally located, very strategically located for a cruise business, for a coastal cruise business. I would think that we could very well be the anchor for this business on the east coast.
Mr. GILCHREST. It's been said earlier, Mr. Cox, that the, for lack of a better term, the experimental, policy now in Hawaii, where a foreign-built vessel would come in with the requirement that a U.S. vessel would be built, manned, flagged and so on, is a stimulus for the U.S. commercial cruise industry to build more ships for that purpose. And I don't think we can argue with that fact.
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Do you think that is all it would take to stimulate the cruise industry in the United States? How long, if in fact that's all we do, might that take be, and is there some kind of a recommendation for something else to occur?
Mr. COX. First of all, I don't really think that's going to stimulate shipbuilding, cruise building in this country. They're small vessels. They're not these vessels that call on Boston today that are 40,000 or 50,000 tons.
I think of the ones that would be more applicable on some of these coastal cruises and repositioning. Ships could, I believe, be repositioned from the Caribbean up along the coast, then be deployed in the northeast and then reposition itself back down to the Caribbean, calling on Philadelphia or Baltimore. And again, 1,000 to 2,000 to 3,000 passengers.
So I don't see, short of continuing subsidies, that the experiment in Hawaii is going to be an explosion for building cruise ships in America.
Mr. GILCHREST. Do you have a comment on the, one of the earlier witnesses testified that the bump-out clause wouldn't work, because U.S. industry couldn't compete in the beginning with a foreign-flag vessel. Could you comment on the bump-out clause?
Mr. COX. I can comment on the bump-out clause, and also what else was proposed here, by having it, the S. 803 just go away in the year 2005. The bump-out clause would state, an example would be if an American-flag company was building a cruise ship, knew it was going to be in, say, the east coast waters in the year 2005, could notify, and if there was a foreign-flag carrier in that cruising lane now that could notify them in the year 2003 that they intended to be in that market in the year 2005, and that foreign-flag cruise ship vessel would then have to vacate that market, once the American-flag vessel was deployed.
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It just seems logical, and I think there are other things that you've heard here today in opposition of this proposed waiver, that from our side of the table, we're absolutely willing to sit down and discuss and tweak any of them. None of us here are against labor or building these vessels in the United States. The fact of the matter is, to some extent, Boston's been a tremendous beneficiary of the PSA. Ships come to our port out of New York, and they originate out of Boston and they head up to a foreign, up to Canada or in Halifax. We've enjoyed enormous success, as much as anybody in the country, from this.
This is a tourism bill. I think the ports south of New York and north of Florida quite frankly just don't know what you're missing in your local tourism, in your ports and the vicinities of one of these vessels coming and these passengers coming off and just going into the local market, as well as taking tours and buses into other places. It's been a fabulous boon to our economy in Boston.
So from our standpoint of view, from my personal standpoint of view, allowing a foreign-flag vessel to start these itineraries, to one, see if some of these studies are correct, build up the market over the next 5 years, and then if there's an American-flag vessel that could be deployed in that market, they would have to vacate it.
To me, that just makes common sense. I don't see how anybody loses in either the bump-out or having the largest
Mr. GILCHREST. What would be the incentive? I think I know, but what would be the incentive for someone to make a huge investment in a 30,000, 40,000 gross ton cruise ship if it was already being served by foreign-flag cruise vessels?
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Mr. COX. One, it would prove the market's there. They could immediately walk in and take over the market, and the foreign-flag vessel would have to leave. I think it's actually, if I were in this investment side of building an American-flag vessel, I'd rather have proof that the market exists, that it's there, that people are spending dollars and on these cruises than just having a study that says, you know, let's spend $300 million because I think there's an opportunity here.
I see it as a way of building the market, quite frankly. And again, some of the cruise ships that are being contemplated being built in American shipyards are very, very small. They're just overnight vessels, to some extent, that are cruise ship gambling vessels. They're not major cruise ships.
Mr. GILCHREST. Now, Ms. Vandergaw, has anybody from the local hotel industry come to you and said they fear a large cruise ship coming in and taking their business?
Ms. VANDERGAW. Actually quite the opposite. We have the support of the California Hotel/Motel Association. In fact, when we had our most recent Republican National Convention, I'm sorry, Superbowl, we actually had a cruise ship in port, providing extra hotel space. We didn't have enough hotel space.
So it supplied additional need there. We enjoy an average of about a 70 percent occupancy rate. And many times our hotels are full. So we have the support of our hotel-motel association, also the California Restaurant Association.
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If I might, sir, I just have one other thing to add. San Diego is probably the only port city on this panel that has not only a cruise business but we also have a local shipbuilder, and that's National Steel and Shipbuilding. And NASSCO is our largest tenant for the Port of San Diego.
And we wrestled quite a while with the decision of supporting the Passenger Services Act, with NASSCO being our tenant. We had quite a numb of conversations with them and we still have a good mutual respect and admiration for each other. We intend to support wholeheartedly their efforts to capture the American Hawaii new build. And we're going to work very hard to help them to do that.
What I'd like to reiterate is that that effort goes forward. If Congress has recognized they want to take that step, they're supporting American Hawaii, they've set aside this test program, and that goes forward regardless of whether or not we find some way to make some amendments to the Passenger Services Act.
Mr. GILCHREST. Thank you very much.
Mr. CLEMENT. Thank you, Mr. Chairman.
The International Council of Cruise Lines has submitted a statement for the record, stating that while a reformed PSA might add some new U.S. ports to cruise itineraries, most of our member believe that this would not be significant. Do you agree with this assessment by the cruise lines?
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Mr. COX. Well, I'll have to say yes, I mean, I'm not going to disagree with them, they're all very intelligent people. I think from my standpoint of view, I've never stated that I think this is going to an incredible boom and dollars are going to fall from the sky by changing this, by putting the waiver into the Passenger Services Act, as we have proposed with S. 803.
However, there's going to be an impact. There's going to be a great impact to ports that don't have these vessels calling on them now. Again, some people said earlier, the beer they put, the flowers they put, the groceries they buy, the linens they have washed, it all adds to the local economy, not just on the purchasing of stores. And the jobs it creates, really, with tug boats, with longshoremen. The longshoremen in Boston would just die for more business to keep them going, as other businesses die out in Boston.
Then the passengers coming off the vessel that walk downtown into Boston are buying just everything, food, tee shirts, clothes, Nathaniel Hall. They talk about the, I don't want to belabor, that answers your question. So I agree with it and disagree with it. Because I do think there's going to be a tremendous benefit to ports that have these vessels coming on them.
Mr. YOSHITANI. I'd like to just add one perspective to that, Mr. Clement. That is that most businesses, including the tourist industry, are constantly looking for new products. And this would represent a new product. There are a number of players that are already visiting the Caribbean and Japan, Alaska, what have you. This would represent a new product. And I think that's what gets at least the tourist industry that we have talked to around Baltimore and others excited about it, because they've got something new to sell.
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Mr. COX. Can I just add one other thing? Because I do deal quite a bit with itinerary directors, who plan out 2 and 3 years where they're going to deploy these vessels. And they are desperately looking for new markets and new ports that can economically fit into their schedules. So again, from their standpoint of view, the itinerary directors, they see a tremendous benefit of having this option, of being able to call on ports up and down the east coast.
Mr. CLEMENT. Ms. Vandergaw, do you have anything to add?
Ms. VANDERGAW. I would add to that as well, and I think that while you don't have the CEOs committing that they're going to bring the new ships in, that each and everyone of us deals with the itinerary planners. They're eager to offer new products. We are itinerary challenged on the west coast. We have Mexico, we have Canada. And there's great distances between.
They really salivate at the idea of opening up the west coast.
Mr. CLEMENT. Well, let me ask you this, then. The United States does not allow foreign carriers or foreign buses to pick up passengers at one point in the United States and transport them to another point. Why should cruise ships be different?
Ms. VANDERGAW. May I respond, sir? While we don't allow them to transport passengers within the continental United States, we have code sharing agreements, Lufthansa-United is a really good example. I can book a ticket in San Diego, go to Chicago, it's seamless travel. It's all booked on United Airlines ticket stock, and end up in Frankfurt, Germany.
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And it appears as if it's one product. That's exactly how the airline wants it to appear.
So obviously you go though the Customs and Immigration when you are going into or out of the United States. But from the perspective of purchasing your trip ticket and making your travel plans, it is seamless, it is one ticket, it is one product.
Mr. CLEMENT. Let me ask you this, then, or you may want to respond to that question.
Mr. YOSHITANI. Well, I'd like to, if I may, on your question. I think if you step back, you can see that there's actually a very clear difference between the examples that you stated. One is really transportation. People don't get on a plane to cruise or to enjoy. They're just there to get from point A to point B. Whereas, what we're talking about is a cruising experience. And I think there is a big difference.
Mr. CLEMENT. Only U.S. citizens and permanent resident aliens are allowed to be employed in the United States. Why should shipping be treated any differently by allowing foreign citizens to work on cruise ships engaged in our domestic transportation system?
Mr. COX. I don't know if I have a good answer for that, other than to answer that on these domestic itineraries that might come about should the waiver be granted, the carriers would end up generating tax revenues on the earnings, would be subject to U.S. corporate tax laws. I don't know that that exactly addresses the question.
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Ms. VANDERGAW. Well, I think that we're looking at again, we're trying to compare apples and apples. We're talking about international cruise ships who are traveling, even though they may be for a period of time serving the U.S. market, they have entered a global cruise. Many of these cruise lines do have officer positions that are U.S. The captain may not be a U.S. citizen. But we have in San Diego, for instance, the first officer is a woman, and she is a United States citizen.
So they do have officers positions that are U.S. crew member. Even on our own Sealand and our own carriers, we have up to 25 percent foreign crew. So we have international representation. I think we have to recognize these are global. The ships are international voyages, and they do have labor from everywhere.
Mr. CLEMENT. Okay. I notice Congresswoman Helen Bentley, a former colleague, is here with us today. Helen, good to have you here.
Thank you, Mr. Chairman.
Mr. GILCHREST. Thank you, Mr. Clement.
Mr. JOHNSON. Thank you, Mr. Chairman.
Mr. Cox, you said this is a tourism bill, and Mr. Yoshitani, you also said tourism is looking for new product. I guess we might ask if our U.S. shipbuilders, in that same way, is tourism looking for new product to sell? Is there that market out there for this new product? Aren't American workers looking for these well-paying jobs on ships?
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Mr. YOSHITANI. Well, from our port perspective, we think that there is. And in fact, we've felt that way for a number of years, the entire port industry. I think that's really the genesis of why this whole has come on the table. Because we see opportunities, and those opportunities have not been fulfilled by U.S.-flag carriers.
So we're saying, we would prefer, I think I can speak for the port industry, we would prefer American-flag carriers to bring American passengers to our respective ports. That would be the best of all worlds. But it's not happening. And there's nothing to prohibit that today.
So what we're saying is, if that's not happening, then if there are other options, if there are foreign-flag carriers that are willing to get into that business to bring passengers to our respective ports, to bring the economic benefits in, then we would obviously consider that.
Mr. JOHNSON. Ms. Vandergaw, you looked like you were about to answer. I was also particularly interested, because you said you have a shipbuilder there in San Diego. By the way, I enjoyed getting to San Diego for the Superbowl. I didn't enjoy the outcome, but had a great time while I was there, and almost ended up staying on one of the ships docked on the harbor, or a boat or anyplace. I finally found a place to stay.
But with a shipbuilder there, have they talked to you about trying or wanting to build American-made ships?
Page 148 PREV PAGE TOP OF DOC Segment 2 Of 2 Ms. VANDERGAW. Absolutely.
Mr. JOHNSON. What's the potential customer base out there? Obviously they want to share, I think, as much in the American dream as all the tourists who come to San Diego, and all the people who provide services once they arrive there.
Ms. VANDERGAW. You bet they do. And it is at the top of their wish list to be the first American-based company to build the first U.S. ship in over 40 years. And we want to see them do that. We're going to work side by side with them to do everything we can to help them secure the shipbuilding contract for American Hawaii.
What we believe, the port, as I said, this is a difficult issue for us in terms of coming forward to support the Passenger Services Act with NASSCO being our number one tenant. What we looked at is, NASSCO is doing a wonderful job. They have 4,000 jobs in San Diego. We want them to keep those 4,000 jobs. We'd like to add another 2,000 to build an American cruise ship.
We also looked at what the economic impact would be to bring us back to where we were in 1992, when we had 531 cruise ship calls, and we went down to 16. We lost 2,400 jobs, direct jobs. And we did an indirect study, and it amounted to over 4,700 jobs.
So that also is a very important component for us. We want both. We want the cruise business, we want NASSCO to build American ships. And our hope is that by spurring the competition and opening up the coast, that it will ultimately result in more U.S.-built cruise ships.
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Mr. JOHNSON. I don't know, maybe you have to walk into the bank with them to the investors and tell them the market is there, because that's what we've been hearing, and the market is there, obviously. And that's what, if they're saying that to potential buyers, have they told you what their problem is?
Ms. VANDERGAW. NASSCO, in terms of financing?
Mr. JOHNSON. Right. Or in terms of financing or finding buyers for product of American made ships. They have to operate under American crews.
Ms. VANDERGAW. Right. There have been no, they have gone, actually, they did bid on building the Disney ship. I think there was another U.S. shipbuilder that also bid on building Disney ships. They were competitive, frankly, with the ship build, with building the ship.
But there was, what the cruise line operator said is it was unknown to them as to what the product might be. Because they hadn't built a ship in 40 years, and they felt they had to go with where they knew they could get the work done.
And as I think you heard earlier today, each of the three companies that are competing for the American Hawaii business is partnering with one of the overseas operators that is today building ships in the design-development phase. That is so that they can get up to speed and get us to where we are.
Page 150 PREV PAGE TOP OF DOC Segment 2 Of 2 So I think this is a very positive step for us, for all of us. I believe that if we're successful with the American Hawaii ship, that will lead to more shipbuilding. What I would add to that, though, that's 5 to 7 years away. And during that 5- to 7-year period, it seems to me that we should be able to find a way to make this compromise work, where maybe to 2005, we could test the market and offer the opportunity for the foreign cruise markets to come in and sample the U.S. ports.
I don't think NASSCO has anything to lose from this. They're going to, somebody's going to get this contract, one way or the other. Who does lose is the ports, and the jobs. The maritime jobs that are there now, we are losing today. We won't know until we open up the coastline whether the business is there or it isn't.
Mr. JOHNSON. I'm curious about the loss of jobs, because of possibly other factors. We've got a little port, the Port of Green Bay, and they're talking about if they could get a cruise ship in there, and we've got Native American gaming facilities there, and maybe put them on the cruise ships. But didn't they pass a law in California prohibiting gambling on cruise ships? Did that have an effect on them?
Ms. VANDERGAW. It had a dramatic effect. It was a State law, actually, Congress passed a law that gave States the right to regulate gaming, not only in State waters, but international waters. And our attorney general interpreted the law such that he was concerned about the proliferation of Indian gaming. So he said that gaming on all cruise ships was prohibited, regardless of whether they were in international waters or not.
So we, each of us in California, had a dramatic loss of business. We actually lost two ships that pulled out of the State of California. The Port of San Diego and Catalina Island really suffered. We went from 531 cruise calls to 16. And we last year were able to bring it back up to 68. For 1998, we're looking at around 80.
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So it's coming back. But it's a long way to go. We were able to overturn the law in Congress. It took us 3 years. We came in, had to ask for an exemption and asked for the Federal Government to overturn California's law and take the provision, say that they could travel from one to another State or another country. It left intact California's right to regulate gaming.
Mr. JOHNSON. So Congress did help one time?
Ms. VANDERGAW. They certainly did.
Mr. JOHNSON. All right. With that good testimony, I'll wrap it up.
Mr. GILCHREST. Thank you, Mr. Johnson.
Ms. Vandergaw, Mr. Cox, Mr. Yoshitani, thank you all very much for taking the trip to the Nation's Capitol. We hope to see you all soon.
Unfortunately, this is our last panel coming up. Ms. Cynthia Brown, President, American Shipbuilding Association; and Mr. Allen Walker, Executive Director, National Shipyard Association.
We also invited the Shipbuilders Council of America, but they were not able to appear today.
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Ms. Brown, Mr. Walker, thank you so much for coming. We look forward to your testimony. Ms. Brown, you may go first.
TESTIMONY OF CYNTHIA L. BROWN, PRESIDENT, AMERICAN SHIPBUILDING ASSOCIATION; AND ALLEN WALKER, EXECUTIVE DIRECTOR, NATIONAL SHIPYARD ASSOCIATION
Ms. BROWN. Thank you, Mr. Chairman.
Thank you for the opportunity to testify today in strong support of the Passenger Services Act. The American Shipbuilding Association represents America's largest shipbuilders. We employ over 90 percent of all workers engaged in new construction in the United States and contract with thousands of companies throughout 46 States for equipment and services.
Our member companies are Avondale Industries of Louisiana, Bath Iron Works of Maine, Newport News Shipbuilding of Newport News, Virginia, Electric Boat Corporation of Connecticut, and National Steel and Shipbuilding of San Diego, California. ASA also represents 18 partner companies engaged in the design and manufacture of ships and their systems.
I would like to take a moment to also comment before I continue on some of the previous statements made today. First of all, ASA shipbuilders hold contracts today for 40 commercial vessels. This is a good story. It has not been that way for some years. But we are bringing shipbuilding back, and we are working very hard to bring shipbuilding back in this country.
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Secondly, as the gentlelady from the Port of San Diego said, National Steel and Shipbuilding Company did bid on the two Disney cruise ships, and wanted very much to build those ships. And it came down to a situationso did Ingalls Shipbuilding of Mississippi. And Ingalls worked very closely with Disney.
What happened was that Disney made a decision that they wanted the ships at a quicker schedule, a schedule that no longer fit with the Ingalls Shipbuilding workload that it had in the yard at the time. Therefore, Ingalls did not submit an official bid, but was very much interested in bidding. And NASSCO did bid. They were competitive. Fincantieri of Italy said they would deliver the ship sooner. They did not meet that delivery schedule. And two U.S. shipbuilders lost the opportunity to build those ships for Disney.
The other point that has been made, I think, consistently today, is confidence in the marketplace, confidence in the financial institutions. Ships, whether they're built anywhere in the world, are expensive commodities. If we have a market here in the United States, let's develop it for Americans.
But to do that, it's going to take investment, investment by the financial institutions. As long as there is uncertainty whether the law will remain as it is today or be changed from 1 day to the next, that only generates uncertainty in the financial markets, and risks the opportunity to bring back the construction of large commercial ships in this country once again.
To move on, ASA shipbuilders, we have a long and rich history of building both large ocean-going commercial ships and naval ships. To date, ASA companies have delivered 975 commercial and 1,142 naval ships. This combination of commercial and naval orders has and will continue to sustain the shipbuilding base upon which our Nation depends for its defense.
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During the 1980s, commercial shipbuilding in the United States collapsed. It collapsed because the U.S. Government's unilateral decision to terminate commercial shipbuilding subsidies, even though foreign governments continue to heavily subsidize their own industries.
The collapse in commercial shipbuilding, however, came at the same time that the U.S. Government was building up our naval force to a fleet of 600 ships. This increase in demand for naval shipbuilding sustained the shipyards that survived the 1980s. In 1989, however, orders for Navy ships began to decline. And since 1994, the Navy has been procuring the lowest number of ships since the 1930s, during the Great Depression.
As a result, our industry has reduced its capacity further, by 30 percent in terms of employment in just the past 7 years. Today, the U.S. Navy's fleet of 356 ships is insufficient to maintain the level of forward presence required by regional commanders in chief. The current average procurement rate of only six ships per year is well below the necessary build rate of 10 to 12 ships which is required to sustain a naval fleet of even 300 ships, and also insufficient to sustain the essential core shipbuilding industrial base of this country.
As Defense Secretary William Cohen recently stated, ''Military preparedness depends on a robust industrial base for U.S. Navy shipbuilding. With the decline in the number of new construction Navy ships, Assistant Secretary Douglass and others have been actively encouraging the producers of our large warships and support ships to explore commercial opportunities.''
Page 155 PREV PAGE TOP OF DOC Segment 2 Of 2 Our Nation, if it is to sustain an adequate defense shipbuilding capacity, it is imperative that our industry recapture commercial orders during this low rate of naval production. To this end, our industry has been investing in its facilities and technology and in our people, to enhance our efficiency and competitiveness in the construction of commercial ships.
The market we are targeting first is the U.S. domestic coastwise trade for both passenger and cargo ships. ASA shipbuilders have designed state of the art passenger ships under the Maritime Technology program of the Defense Department. And three ASA shipbuilders are aggressively competing today to build two large ocean-going cruise ships with the option for one more for the American Classic Voyages.
These 2,000 passenger capable vessels will operate between the Hawaiian Islands. This exciting program will create over 10,000 highly skilled jobs in our shipyards and in our supplier base throughout the United States and provide a tremendous stimulus to our national economy. This project will create a true American cruise industry.
To quote Assistant Secretary of the Navy John Douglass, ''The construction of large, ocean-going cruise ships in United States shipyards is vital to sustain this country's shipbuilding industrial base.''
American ownership, construction and operation of cruise ships for the U.S. domestic trade will benefit all Americans. American ship operating and shipbuilding companies pay taxes to Federal and State treasuries. The employees of these companies on land and at sea will also contribute to America's tax base.
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Sustaining and creating thousands of highly skilled shipbuilding and seagoing jobs will also ensure that America is able to project sea power around the globe today and well into the 21st century.
Ladies and gentlemen, the same cannot be said for the companies that register and build their ships in foreign countries to avoid U.S. taxes. Although some U.S. ports and local service companies benefit from these foreign-flag companies operating from our shores, America as a whole does not. Yet American tourists finance these operations.
A confluence of events is underway today, to make the dream of a true American cruise industry a reality. A good economy is providing more and more Americans with the financial means to take vacations. And more and more are selecting to vacation on cruise ships.
This demand is creating a market opportunity for the Passenger Vessel Services Act tarde that in recent times has not existed.
The U.S. Congress holds the power to determine whether this market will be developed by Americans for Americans, or whether this market will be forfeited to foreign industries. Companies interested in serving the U.S. cruise market should contract with U.S. shipyards for the construction of their ships in compliance with the law.
Any other message from the U.S. Congress will shatter the willingness of financial institutions to invest in this market and destroy the ability of American business to develop the passenger market in a manner which will benefit all Americans.
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I urge Congress, you, to not relinquish this market to foreign industries, but rather declare your unwavering support of a true American cruise industry.
Mr. GILCHREST. Thank you very much, Ms. Brown.
I wish I, as a member of Congress, had the power over my children's study habits. That would be really extraordinary.
Mr. WALKER. Mr. Chairman, thank you for this opportunity to testify on behalf of the small and mid-size commercial shipyard industry on the need for and the benefits of the Passenger Services Act.
My name is Allen Walker, and I'm the Executive Director of the National Shipyard Association. NSA is the national association of the commercial shipyard industry. We represent 46 shipyard member companies that own and operate over 90 facilities in 17 States. Our members employ over 25,000 workers, that's more than 50 percent of the total U.S. shipyard workers, primarily engaged in non-Navy shipyard work.
NSA member companies build, repair and service passenger vessels, work boats, barges, as well as Coast Guard and small Government craft. The owners and operators of these companies are true entrepreneurs. They operate in an extremely competitive environment without Government subsidies.
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Certainly, we all share the same goal here today. That's to promote a healthy domestic passenger vessel trade. NSA is willing and eager to work with Congress to look for ways to accomplish this goal. We are, however, committed to preserving America's historic support for our domestic cabotage laws. The future of the U.S. shipyard industry and our national security depends on it.
Mr. Chairman, we urge you to consider the following facts before taking any action with respect to the PSA. First, a vibrant and competitive U.S. passenger trade currently exists. It includes over 5,700 U.S.-flag vessels. All of these vessels are U.S. Coast Guard inspected, U.S.-built and U.S.-crewed. The fleet includes overnight cruise ships operating in many areas of the country. If the market is there in other areas, then U.S. operators, supplied by U.S. shipyards, can and will meet those needs.
Second, the domestic shipbuilding industry is capable and ready to supply overnight cruise ships for the U.S. coastwise trades at prices that are competitive on the world market. Over the past dozen years, U.S. shipyards have built more than 85 passenger vessels greater than 100 feet long, including overnight cruise ships capable of transporting 100 or more passengers.
There are currently 53 passenger vessels valued at over $1.75 billion under construction in U.S. shipyards or pending contract award. More than a dozen of these new-build projects are overnight cruise ships.
However, questions in Congress concerning the future of the PSA have created enough concern among U.S.-flag operators for them to reevaluate decisions to expand their fleets. Among the projects that could be jeopardized are American Classic Voyages plans to build the 5 new 220 passenger overnight cruise ships that we've heard so much about today. These vessels represent almost $150 million in new ship construction and would sustain approximately 1,250 U.S. shipyard jobs.
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American West Steamboat Company plans to build a 250 passenger overnight cruise ship for use in the Pacific Northwest and a Maryland shipyard's contract to build a 200 foot overnight cruise boat, which will add $10 million to the eastern shore's economy.
On the other hand, a strong show of support from Congress for the U.S.-flag industry would solidify these new-build projects and many more under consideration, thereby expanding consumers' vacation choices and adding tourist dollars to port city economies.
Third, the U.S. commercial shipyard industry provides employment to tens of thousands of Americans. The sector of the industry that builds and repairs small and mid-size commercial vessels is now competitive in the international marketplace. It employs over 50,000 shipyard workers, who pay hundreds of millions in State and Federal taxes.
Furthermore, shipyard purchases of steel and other marine supplies contribute directly to the continued employment of some 30,000 additional workers in related industries.
What U.S. shipyards cannot do, however, is compete against foreign shipyards that receive huge government subsidies. Our shipyards receive no Federal subsidies. We strongly urge Congress not to impose further hardship on U.S. shipyards by allowing foreign-built vessels to operate in U.S. waters.
And finally, and perhaps most importantly, U.S. shipyards primarily engaged in non-Navy shipyard work also contribute directly to our national security by maintaining and modernizing our shipyard industrial base at no cost to the Federal Government. These shipyards train and employ thousands of qualified welders and pipefitters. Without the work performed in these shipyards, the Government would be forced to train and employ these skilled craftsmen to sustain our defense readiness capability.
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My written testimony addresses the reasons why NSA opposes legislation to allow foreign-flag vessels to operate in the U.S. coastwise trade. We believe that an approach designed to preserve the integrity of the PSA and encourage U.S.-flag operations, rather than punish current operators and their suppliers, must be found.
In closing, we urge you to weigh the detrimental economic and national security consequences of opening our domestic trades to foreign-flag ships against the fact that no hard evidence exists suggesting that making the proposed changes to the PSA will result in a single ship entering U.S. trades. We believe that risk far outweighs any uncertain benefits.
Mr. GILCHREST. Very interesting. On the one hand, we had a number of people here saying that the market for the domestic cruise industry to go from port to port to port is potentially dramatic, that's a word that has been used, explosive, that's another word that has been used. Building up the economies of those local ports that would be the recipients of tens of thousands of people coming in, showing that there was a market for it, and then boom, there would be domestic shipbuilding.
Then I also hear that on the one hand, there isn't a market. So don't change what we have, because we'll send more of our money overseas. There is a market, but we can capture it ourselves.
So this has all been very stimulating for me.
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I just have four or five questions that I would like each of you to answer. And then I think we really do need a crab feast on the eastern shore, with all the participants participating, 1 long day of frivolity and we could all probably solve this thing.
Ms. BROWN. That would be wonderful.
Mr. WALKER. I'm sure Chesapeake Shipbuilding would be happy to provide the place.
Mr. GILCHREST. We have some small shipbuilders, in their back yard, they build those
Mr. WALKER. Yes, sir, and they have a pending contract for a 100 passenger cruise vessel awaiting Congress' decision right now on what they're going to do.
Mr. GILCHREST. Well, tell them to build it, they'll need it.
How do you find out about a potential market to increase the port calls in the cruise industry? Where is that? In your judgment, is there a market for increased port calls from the overnight large cruise industry? Is there a market for that? Are you banking on that? Where do you find that information, unless you actually see it happening?
Ms. BROWN. Mr. Chairman, I believe that actually, that is the owners or potential investors are the ones who go out to do market surveys or do studies, like American Classic Voyages, who testified earlier today. They certainly have done plenty of market surveys in order to determine that their investment was a sound investment to build the two large ocean-going ships, with option for another in Hawaii, as well as the coastal passenger ships that they are going to invest in.
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So it is really from a potential investor who does those surveys where precisely they do do that. The cruise industry is a relatively new phenomenon in our country. It is built up, I'm from Florida, so it started in the Florida ports.
Mr. GILCHREST. If I can interrupt just for a second, I guess my question is, you two represent a certain segment of the shipbuilding industry. And it's your perspective from the shipbuilding industry that you don't want any reforms, especially S. 803, to the PSA.
Ms. BROWN. That's correct.
Mr. GILCHREST. And you don't want those reforms based on work taken away from the domestic shipbuilding industry.
Ms. BROWN. Mr. Chairman, I would modify that a little. We would like to see that the Passenger Vessel Services Act remain as is, not because to take away potential business from us today, but because we are on the precipice of reviving large, ocean-going commercial ship construction in this country. So we are on the precipice right now with these contracts that are underway, a contract that will be awarded by April of next year to one of my member companies.
And this is going to propel cruise ship construction in this country. We do not want to see this market taken away from us at the very moment that it's being revived.
Page 163 PREV PAGE TOP OF DOC Segment 2 Of 2 Mr. GILCHREST. How fast is it going to propel the shipbuilding market for cruise ships?
Ms. BROWN. I do not know the answer to that, because I have not been privy to the commercial, the market surveys, etc. But I do know that there is interest of not only with Hawaii, the two with an option for one more. We've also been talking to potential cruise companies as far as building for the California, the west coast trade. We continue to have discussions, our industry, with Disney, to hope to expand their cruise ship business here.
So there are discussions, and very positive signs taking place.
Mr. GILCHREST. Mr. Walker.
Mr. WALKER. The shipyards that I represent come at it from a slightly different perspective. Ms. Brown gave a very good reason for the very large U.S. shipyards that build the mega cruise ships their perspective. Ours situation is more that we are competitive now, for the mid-size commercial vessels.
For 10,000 ton cruise ships, we are competitive now. U.S. shipyards are even exporting some vessels of that size now. And the bill, S. 803 would allow used foreign-built vessels to come into the U.S. market when U.S. shipyards are competitive on the world market building those vessels.
When you allow used foreign-built vessels to come in and operate under a foreign flag, there's no way an American company is going to have the wherewithal to invest in a new vessel and crew it with U.S. seamen and be able to compete against
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Mr. GILCHREST. The bump-out provision wouldn't help, or the waiver until the year 2005?
Mr. WALKER. No, sir. I'm glad you mentioned the bump-out provision, as it's called. It's kind of evolved, today, as I've heard it. But I would suggest to you that the example that was given earlier, let's say in 2002, a U.S. operator decided to build a vessel that would come on-line in 2005. He would then inform the powers that be that the U.S.-flag vessel would come on-line in 2005, and the foreign-flag vessel would have to leave the tarde.
In theory, that is possible, I guess. But there is no way a U.S.-flag could keep that market, or even find the investors to finance it, because ticket prices that a U.S.-flag operator who has just built a new vessel in a non-subsidized shipyard and employing Americans at decent wages would be able to compete price-wise with the vessel that just left the market.
I would suggest that there might even be a doubling of ticket prices from 1 day to the next, when the new U.S.-flag ship came in, versus the foreign-flag that had been operating there. I don't believe a foreign-flag operator will ever bring in a state of the art vessel for any length of time and operate it
Mr. GILCHREST. So you're saying that if you keep it the way it is, keep PSA the way it is, foreign-flag vessels cannot go from port to port, when a new cruise ship comes on-line, the people will accept the fact that the ticket prices are higher because they can't compare it with anything else?
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Mr. WALKER. That's certainly for the marketing people to decide. What I'm suggesting is that if on December 31st, 2004, you're paying $200 per night on a vessel, and on January 1, 2005, the U.S.-flag vessel comes in that's brand new, crewed with U.S. seamen and following all U.S. tax and regulatory law and has to charge you $400, the market is going to drop off almost immediately.
Mr. GILCHREST. Are you saying the market for cruise ship industry in the United States is hopeless?
Mr. WALKER. No. I'm not saying that at all. I think that for the size vessel that my shipyards are building, the industry is able to compete. I think the fact that American Classic Voyages has just announced building five new coastal vessels is clear evidence that they believe they can compete.
However, I don't think American Classic Voyages would tell you that they could compete in similar markets, where foreign-flag vessels were competing in the U.S. between U.S. ports, though. Because as I've said, again, the foreign-flag operators are going to bring in depreciated vessels, they're going to be operating with foreign crews and not paying U.S. taxes. The prices they're going to be able to charge are so much less than the prices that a U.S.-flag operator would have to charge to comply with all of the laws and regulations and taxes that they would have to comply with. There's just no equity there.
Mr. GILCHREST. It's my understanding that if a foreign-flag vessel went from U.S. port to U.S. port to U.S. port, it would then have to pay U.S. taxes on the profits made.
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Mr. WALKER. They would have to pay profits on that sector.
Mr. GILCHREST. In each port.
Mr. WALKER. Yes. But if they operated 9 months not in the U.S., then they would not pay U.S. taxes on those 9 months. They would only pay taxes on the 3 months that they operate here. Whereas a U.S.-flag vessel would be operating here year-round, paying year-round taxes, and foreign-flag operators can spread their non-tax profits out and can afford to make a less profit margin.
Mr. GILCHREST. I think Ms. Brown hit the nail on the head earlier, when she said that Congress has the power. So we could probably have the power to require them to pay the tax, even if they're only here for 3 months.
Mr. WALKER. The tax for year-round?
Mr. GILCHREST. If they docked at two U.S. ports, they would pay tax. On the income from those two U.S. ports.
Mr. WALKER. I certainly wouldn't oppose that. I'm not sure how much luck you would have bringing in a foreign-flag operator who's used to operating tax-free and tell them, because they operate in the U.S. ports
Mr. GILCHREST. We would have the wherewithal to do that.
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Mr. WALKER. Sure.
Mr. GILCHREST. Ms. Brown, can you tell me what the status of the Disney cruise ship is right now? Is that being built by somebody else?
Ms. BROWN. Fincantieri of Italy was awarded the contract for the two Disney ships. I do know that they were behind in schedule. I believe that they anticipated the first ship to be delivered now, I guess, in the May time frame. So we're getting close to that.
I don't know, Mr. Chairman, the details of the latest.
Mr. GILCHREST. Was that done because of the price to build it, or the length of time to build it? What was the deciding factor?
Ms. BROWN. According to, my understanding is no, it was due, that National Steel and Shipbuilding Company, who actually submitted a bid, was competitive. But they did try, and it was not, I guess, lack of, when Fincantieri said that they could deliver it at a quicker time, that they had a slot open to where they could build those ships sooner than they had earlier advertised, there are some foreign subsidies involved in their prices, as well, from their government.
But primarily with Ingalls Shipbuilding, with Ingalls, the original Disney schedule fit nicely with what their workload was in the yard at the time. And when Disney changed the schedule of delivery of when they needed the ships, then Ingalls could no longer accommodate Disney. That's why they did not submit an official bid.
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But National Steel and Shipbuilding Company did. So Mr. Chairman, I can only say, you need to direct that question to Disney.
Mr. GILCHREST. Sure. Okay.
Ms. Brown, you said there's 40 commercial contracts right now?
Ms. BROWN. Yes.
Mr. GILCHREST. Could you give us some idea of what those contracts are, what kind of ships?
Ms. BROWN. There are today five double-hulled tankers under construction at Newport News Shipbuilding. There are also two 125,000 deadweight ton double-hulled tankers for ARCO, with options for three more ships. There are also 30 ships, offshore supply vessels. These are smaller vessels that Ingalls Shipbuilding is currently building.
Mr. WALKER. Mr. Chairman, I would hasten to add that those 40 contracts are limited to Ms. Brown's shipyards. The shipyards that I represent have in excess of, I would suggest, 50 to 60, in excess of that, for offshore supply vessels. In addition, the Halter Marine Group is now building the largest car and passenger carrying ferry that's been built in the U.S. since the 1950s for operation. There are also reefer ships being built.
Mr. GILCHREST. Where is that ferry going to be operating?
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Mr. WALKER. It's for the State of Alaska, but it's being built in Pascagoula, Mississippi.
Mr. GILCHREST. So would you say that both your shipbuilding, the shipbuilders that you represent have a fair amount of work right now?
Mr. WALKER. Yes, sir.
Mr. GILCHREST. Are they close to capacity?
Ms. BROWN. Mr. Chairman, there is a big difference between our two segments of the industry. The shipbuilders that are members of the American Shipbuilding Association, we have, as I stated earlier, have lost or are on the verge of working to bring back commercial shipbuilding at the same time that our Navy shipbuilding has fallen off dramatically.
To ask if there is sufficient work for our capacity, the answer is no. Today, there is not. That is, we are building and delivering only five to six capital warships for the Navy every year. It will not sustain our six core shipbuilders that the Navy and the Department of Defense recognize they need for their future requirements.
That is one of the reasons why the major shipbuilders in this country are so aggressively working to restructure and investments in their facilities to capitalize on commercial shipbuilding. Because there is a difference between a commercial and a naval ship.
Page 170 PREV PAGE TOP OF DOC Segment 2 Of 2 So that is why we are very aggressively pursuing commercial shipbuilding opportunities and are committed to that.
Mr. GILCHREST. I just have one more. Did you want to comment, Mr. Walker?
Mr. WALKER. I would just say that right now it depends really on the area of the country you're looking at as to how busy the shipyards are that I represent. The shipyards on the Gulf Coast right now are doing quite well. But that's after a decade of severe downturn in their business. They've spent that time aggressively looking for new manufacturing techniques. They're now competitive in the international marketplace.
But in the shipbuilding market, it is, I'm learning quickly here, feast or famine. You may be full today, but tomorrow, the orders can dry up very quickly. Shipyards are never too full.
Mr. GILCHREST. Can a shipyard, if they don't have business, take in a ship to scrap it?
Ms. BROWN. Ohare you asking me about scrapping now?
Mr. GILCHREST. Yes. You're building oil tankers, you're building aircraft carriers, you're building ferries. Could you take in, I mean just
Ms. BROWN. Mr. Chairman, I'd like to say that shipbuilding and the shipbuilders that I represent are very advanced. I mean, the high technology that we use, we are advanced engineering, we are advanced design houses. We use the most advanced computer-aided equipment in the design and manufacture of ships. It is a very high technology industry. A revolution is underway in our shipyards today.
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Scrapping, for example, is not something that, quite frankly, is a line of business that my members are interested in pursuing. There are also quite a few environmental problems associated with that. And also, from the worker standpoint, if you look at the environmental laws, the liability of the stream, of taking out any hazardous material.
Unless someone wants to indemnify us for eternity, I don't believe, I wouldn't recommend that as one of the best courses of business for American shipbuilding.
Mr. GILCHREST. I was just curious.
This will be the last question. And I would ask if you'd both respond. Would you urge this committee to leave PSA the way it is, or would you say, a compromise, if possible. Mr. Walker?
Mr. WALKER. Mr. Chairman, we are always willing to talk to anyone who would like to talk about furthering the shipyard industry. However, we would urge you to leave it alone. But we're always willing to talk.
Mr. GILCHREST. Ms. Brown?
Ms. BROWN. Mr. Chairman, I would urge you very much to leave it alone. Let's create a true American cruise ship industry.
But we're also very reasonable people, too, Mr. Chairman.
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Mr. GILCHREST. Ms. Brown, Mr. Walker, thank you very much. Any witnesses that are left in the audience, and anybody that's left in the audience, thank you so much for coming today.
The hearing is adjourned.
[Whereupon, at 3:50 p.m., the subcommittee was adjourned, to reconvene at the call of the Chair.]