Red Sky in the Morning

U.S.-Flag Merchant Marine: Take Warning

By ROBERT W. KESTELOOT

Capt. Robert W. Kesteloot, USN (Ret.), is founder and president of K Associates Ltd. of Reston, Va., a maritime firm that specializes in merchant marine and national-security affairs. He also is a partner in Management & Transportation Associates of New York City and a member of the Navy League's Merchant Marine Affairs Committee. His last active-duty assignment was as director of strategic sealift on the staff of the chief of naval operations.

"The price of safety is eternal vigilance." Long the mantra of seamen, this aphorism has taken on an extended meaning since the 9/11 terrorist attacks. U.S. Customs has warned that freight shipments may well be the next target for a terrorist attack against the United States. In defense of tighter cargo security measures that have made the conduct of daily business both more difficult and more expensive, U.S. Customs Deputy Commissioner Douglas M. Browning said last year that "The intelligence we ... [have] is that the next vehicle for attack is cargo."

That intelligence assumed greater visibility when end-of-year reports in The Washington Post and other publications revealed that al Qaeda has effective control of an estimated 15 merchant ships throughout the world that could be used for the transport of cargo, terrorists, and/or weapons of mass destruction (WMDs). The ships themselves could be used, of course--as the 9/11 passenger airlines were--as WMDs. The in-port destruction of any one of those ships, loaded with hundreds if not thousands of tons of high explosives, would cause much greater damage and much higher economic losses than the 9/11 attacks did. The number of deaths likely to result is impossible to estimate, but would probably be several thousand, at least, and perhaps many times that number.

In the period of uncertainty that followed the attacks on the World Trade Center and the Pentagon (and the crash of United Flight 93 in Shanksville, Pa.) there was a healthy, and long overdue, focus on the need to improve security at U.S. port facilities throughout the country. Prior to the attacks, some optimism existed within the shipbuilding industry that was generated by two new cruise ships under construction for the Hawaiian trade. That optimism quickly faded following the attacks because of the precipitous decline of the Hawaiian trade, which relies heavily on air travel by passengers flying in from CONUS (the continental United States) to reach their ports of embarkation. The loss to the Hawaiian cruise trade was so great, in fact, that the two ships then under construction were never completed. In addition, concern was voiced that the U.S. commercial maritime manpower pool was inadequate, both in numbers and in the specific billet skills needed for contingency operations, to fully activate government-owned strategic sealift ships.

A Double Decline--In Ships and Manpower

At a time when "Phase II"--i.e., post-Afghanistan--of the global war on terrorism may be about to begin, it seems appropriate to review the status of both the U.S.-flag Merchant Marine and the manpower pool that supports the nation's strategic sealift program, along with the most likely lift requirements for future contingencies. As of 1 July 2002 the number of privately owned oceangoing commercial U.S.-flag ships was down to 231 ships, a new low that represents not only a loss of 34 additional ships in just one year but also an acceleration of recent trends. For comparison purposes, there were 370 U.S.-flag ships available at the start of Desert Shield in 1990.

Exacerbating the problem is the fact that the 231 ships counted in the July 2002 fleet included 104 ships in domestic (Jones Act) trade and 30 other ships engaged exclusively in U.S. government work. This means that, as of the middle of last year, there were really only 97 U.S.-flag ships operating on a daily basis in international trade, in head-to-head commercial competition with foreign-flag ships and nations.

Not only has there been a loss of 139 ships since Desert Shield, but the manpower pool is now considerably older than it was in 1990--when, it should be noted, many mariners came out of retirement to permit the manning of the 81 government-owned ships that were activated and sailed to that conflict. However, the good news is that the logistics footprint--i.e., the shipping requirement--is now smaller than it was for Desert Shield/Storm.

The reduction is attributable to the transformation that is taking place in all of the nation's armed services. Transformation not only changes the way wars are fought, it also reduces the number of forward support personnel needed and the huge stockpiles of sustaining supplies and equipment that must be taken in-country. In addition, the use of precision-guided weapons of unprecedented accuracy has reduced the amount of ammunition required for a sustained conflict of any duration.

A greater degree of reliance on airlift from forward supply bases also is apparent. These bases can be supplied well in advance of an anticipated war, and that is exactly what has taken place. Starting last summer, large numbers of ships were chartered to transport war materiel to various points in and around the Middle East. A few surge-force ships, including a couple of large medium-speed roll-on/roll-off (LMSR) ships and a fast sealift ship (also a partial Ro/Ro ship), were activated to carry wheeled and tracked vehicles. As of late December, therefore, almost everything needed for a new war was already in place and, while there may be a requirement to activate a few more government-owned ships for resupply, there will be no massive activation of the entire Ready Reserve Force (RRF) as was needed for Desert Shield. It is clear that, like the rest of the armed forces, the role of strategic sealift has been transformed. This may permit disposal, or at least a lowering of the readiness status, of some of the older ships in the RRF.

Following the acts of terrorism on 9/11, then-Commandant of the U.S. Coast Guard Adm. James M. Loy immediately invoked the concept of Marine Domain Awareness, his plan for recognition of every potential threat approaching from the sea. His longer-term goal was to extend ship visibility overseas to ports of embarkation and, for the cargo, even further to the initial shipping sources. Following his retirement from the Coast Guard, Loy was appointed Acting Under Secretary of Transportation for Security and Administrator of the newly created Transportation Security Administration (TSA). It is not surprising that new programs emerging from TSA, U.S. Customs, and the U.S. Coast Guard are built around the precepts initiated by Loy when he was still on active duty.

An Array of Solutions

One of the original plans considered was the "Trusted Shipper Program," under which cargo from known, regular shippers would receive minimal attention. More recent plans incorporate this concept, but are much more sophisticated. Sea container planning includes the use of security seals on all containers. Maritime containers are fitted with two interlocking rear doors closed with a hasp that is capable of accepting a security seal, either mechanical or electronic.

But there is no international requirement to exploit the inherent security capabilities provided. That is about to change. The United States supports the mandatory use of active electronic seals capable of storing and transmitting large volumes of data relevant to the container and the cargo enclosed. Scanners can be used to read tags on the container that can readily identify both the shipper and the contents of the container. Several problems still have to be resolved, including the need for international agreement on a standardized system and deciding who pays for the tags and readout equipment.

Improving physical security at the load point will be essential to ensuring cargo security. Here, a major stumbling block is achieving both national and international acceptance of a standardized transport worker identification card. There is currently nothing standardized about the gate identification cards used by truck drivers and/or longshoremen. Today, truck drivers routinely possess a half-dozen or more cards to gain entry to as many port facilities. On the water side, the International Marine Organization (IMO) is attempting to obtain acceptance of a standardized Transportation Workers Identification Card for the crews of merchant ships, but is encountering strong resistance from workers, and their unions, who claim that the background investigations required to obtain a valid card would constitute an invasion of privacy.

These problems will not be easy to solve. The need for accountability and self-policing is both urgent and obvious, but it is necessary to find a balance that is acceptable to all parties--and preferably on an international level that will not stall the economy.

The task of preventing the entry into the United States (into any country, for that matter) of a container carrying a weapon of mass destruction is difficult at best. As one recent speaker on the subject put it, "It's like looking for a needle in a haystack, so we are trying to reduce the size of the haystack." To that end, there are two programs that are presently voluntary, but probably the forerunners of follow-on programs that will be mandatory--either under U.S. law or international regulation. The first is the Customs-Trade Partnership Against Terrorism, better known in the U.S. transportation industry as C-TPAT. This voluntary program is an attempt to improve security throughout the entire supply chain. Specific recommendations apply to a specific link in the import chain--e.g., a carrier, a broker, an importer, or a warehouse operator--and are meant to serve as a guide. As the situation and/or the perceived threat changes, though, the advice may be adjusted to further reflect input from the trade community. A related program, called FAST (Free And Secure Trade), is intended to align the customs commercial programs of Canada and the United States along their shared border.

The second major "haystack" program is the Container Security Initiative (CSI), which was started by U.S. Customs a year ago to prevent the use of cargo containers by terrorists. To put this program in context, it should be noted that approximately 200 million sea containers have been moving annually in recent years between the major seaports of the world--and the number is growing steadily. Moreover, nearly 50 percent (by value) of all U.S. imports now comes into the United States via sea containers--an estimated 26 million of them annually.

Forward-Deployed Inspections

At the core of the CSI program is the posting of U.S. Customs inspectors to major foreign seaports to prescreen CONUS-bound cargo containers before they are shipped to the United States. Working in close cooperation with their foreign counterparts, U.S. officials thus will be in good position--much better than at any time in the past, certainly--to detect a potential WMD in a container originating or passing through these ports and bound for America.

Customs is focusing initially on 20 foreign ports through which pass nearly 70 percent of all of the sea containers bound for the United States. Fourteen of these ports already have signed on to the CSI program, and several others are expected to do so in the near future.

On 30 October 2002, Customs issued the final regulation needed to fully implement the CSI by ordering that ship manifests must be submitted 24 hours before a container ship seeking entry into the United States is loaded at a foreign port. This sounds difficult, but all that has to be done is use the Customs' Automated Manifest System (AMS), which electronically files ship manifests that list, by container, the contents of the container, the value of the cargo inside, the identification of the shipper, the place of origin, and the consignee, along with other relevant information. In ordering this final rule, scheduled to go into effect on 30 December, Customs stated that "Al Qaeda and other terrorist organizations pose an immediate and substantial threat. And the threat is not just to harm and kill American citizens, it is a threat to damage and destroy the U.S. and the world economy."

The new 24-hour rule is one of the most substantive components of the CSI, and meets Loy's original intent to identify cargo at its point of origin. It also provides an ingenious way to almost immediately "reduce the size of the haystack." This was evident in the implementing rule, in which Customs also stated that, "Once a cargo container is prescreened in a foreign port, in the absence of additional information affecting Customs risk analysis, Customs will rarely need to again screen the container or inspect its contents for security purposes upon arrival in the United States."

New and more rigorous IMO security standards for cargo vessels, port facilities, and offshore terminals also have been developed, and are slated for implementation by July 2004. To permit earlier implementation not only within U.S. ports but also aboard U.S.-flag vessels and all foreign vessels calling at U.S. ports, the U.S. Coast Guard issued Navigation and Vessel Inspection Circular Number 10-02 (NVIC 10-02), titled "Security Guidelines for Vessels." These guidelines are intended to help vessel and port facility operators meet the enhanced security requirements being developed by the IMO and are considered "voluntary"--interpreted to mean that noncompliance will not result in legal action.

However, U.S. Coast Guard Captains of the Port have longstanding authority to deny entry to a port because of security concerns and/or to issue orders, under the Magnuson Act, that would remain in effect until the new IMO security standards are implemented and the U.S. Ports and Waterways Safety Act is updated to reflect the new IMO regulations.

The Difficult Part

Each port and cargo-handling facility is different and, therefore, the customized application of interoperative security procedures is required. Discussing the difficulties of requiring standardized security procedures at commercial airports, Secretary of Transportation Norman Y. Mineta commented that, "If you've seen one airport ... you've seen one airport." The same holds true for seaports and cargo-handling facilities. There are certain superficial similarities, but in general each is unique in its physical layout and handling procedures. Security equipment and rules must be specifically tailored, therefore, to fit the specific flow of cargo and people at each port and cargo-handling facility.

Speaking at the annual convention of the American Association of Port Authorities last September, Gary Gilbert, a well-known corporate advisor to a major port holdings corporation, issued an urgent warning: "If ports are shut down in the same way that airports were shut down [on 11 September 2001], it could be catastrophic to us all." A small sample of the consequences likely to result from the shutdown of U.S. ports was evident in the disruption of West Coast cargo movements last October when the International Longshore and Warehouse Union (ILWU) staged a work slowdown--to which management responded with a lockout. After ten days, President Bush invoked an injunction under the Taft-Hartley Act, which provides for an 80-day cooling-off period with federal mediators in charge of negotiations.

Those mere ten days of total port inactivity, on top of the nearly two previous weeks of lowered productivity, clogged the harbors and stretched every bit of any built-in elasticity available for time-definite deliveries. At Los Angeles-Long Beach, the nation's busiest container hub, 127 ships were waiting at anchor for dock space. Retailers across the country suddenly became concerned over their inability to stock their shelves with holiday merchandise.

Opportunists suggested waivers of the Jones Act (which restricts cargo movement between U.S. ports to U.S.-flagged -built, and -crewed ships) in order to shift cargo to other U.S. ports. The Maritime Administrator, Capt. William G. Schubert, USMM, responded by issuing a list of the available Jones Act-qualified U.S.-flag ships and barge units, complete with phone numbers and points of contact.

Despite the fact that so many programs aimed at improving cargo and port facility security are now in various stages of implementation, more action is urgently needed. The establishment of the new Department of Homeland Security (DHS) is a good start. DHS will facilitate the integration and coordination of the programs already started, and will undoubtedly develop a number of other initiatives to meet the still-emerging threats posed by international terrorism. There already is a great deal of concern, though, over the escalating cost of infrastructure security, and the economic impact of the various counterterrorism programs has yet to be determined--as does, of course, the initial "setting up" costs for the new Department. However, many experts agree that the use of electronic cargo tracking, in particular for implementation of the Customs' AMS, will permit identification of inbound cargo along with its origin, status, and destination. The end result, these same experts say, will be significantly increased productivity that might well offset many of the costs attributable to the increased security measures being mandated.

Coastwise Shipping

Until recently, the use of coastal shipping to reduce coastal highway congestion, protect the environment, and improve the quality of life for those who travel the coastal interstate highways was a common-sense idea that elicited considerable applause but received only scant attention from senior public officials. Last year, though, one such official did--both in official testimony and in various interviews and speeches--publicly endorse the possible use of coastal shipping as a solution to traffic congestion. More specifically: Maritime Administrator Schubert sponsored a two-day conference in New York City in November 2002 to raise public awareness about the anticipated massive growth in freight traffic and the concurrent increase in highway congestion that would be the inevitable result. He also urged the transportation industry to look to the sea as a ready-built highway waiting to be used, even referring to these water highways as "W-95s," and pointedly commented that the W-95 highways "[would] not require regular maintenance and periodic resurfacing."

Current transportation studies predict a doubling of freight traffic by 2010 and a tripling by 2030. It was in that context, Schubert noted, that the Highway Administration had advised him that, if a substantial portion of the heavy trailers now used to carry freight can be rerouted by water, the costs of highway and bridge maintenance would be greatly reduced. It now costs about $32 million to add a single mile of new four-lane highway to the interstate system, and about $100 million per interchange. Those costs do not include the cost of land acquisition. "So it's clear that we can't 'build out' of the [congestion] problem with additional highway construction," Schubert said.

He acknowledged, though, that the domestic Harbor Maintenance Tax (HMT) might be a serious deterrent to any efforts to generate a major increase in coastal shipping. By way of background, the HMT started out not as a tax, but as a user fee. The Water Resources Development Act of 1986 created the Harbor Maintenance Fee (HMF)--which was assessed on international exports and imports, domestic movements, and other types of port use such as foreign trade zones and passengers. The U.S. Customs collected the fees on behalf of the U.S. Army Corps of Engineers and transferred it to the Harbor Maintenance Trust Fund. The fund is used for the dredging and maintenance of water depths necessary to promote waterborne trade.

In 1994, international exporters filed complaints with the U.S. Court of International Trade (CIT) challenging the constitutionality of the HMF. The CIT ruled that the HMF is in fact a tax, not a user fee. The CIT decision was appealed by the U.S. government to the U.S. Supreme Court--which ruled that the Harbor Maintenance Tax (HMT) on exports was and is unconstitutional. The Court found that, because the HMT was an ad valorem tax--i.e., a tax based on the value of the cargo--it amounts to a tax on exports, and such taxes are prohibited by the Constitution.

The decision by the Supreme Court found the HMT on international exports to be in violation of Article I, Section 9, of the Constitution of the United States--which specifically states: "No Tax or Duty shall be laid on Articles exported from any State." However, the Constitution's very next statement says that: "No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over another; nor shall vessels bound to, or from, one State, be obliged to enter, clear, or pay Duties in another [Sic]."

The HMT is still charged on imports and on goods shipped between states by water--except for goods shipped to, from, or between the noncontiguous states of Alaska, Hawaii, and the Commonwealth of Puerto Rico. In fact, the HMT can be levied twice on the same cargo. For example, if a sea container coming from overseas arrives by ship in New York is offloaded, then reloaded aboard a ship or barge bound for Norfolk, Va., the tax is assessed: (1) upon the initial arrival of the cargo in New York; and (2) again in Norfolk. Similarly, a 53-foot domestic road trailer loaded with either domestic or imported foreign goods that is transported by sea from Boston to, say, Charleston, S.C., would be charged the HMT upon arrival in Charleston.

The HMT rate is presently 0.125 percent of the value of the cargo; a valuation of $100,000, therefore, which is fairly close to the average cargo value of a road trailer load, would result in a $125 charge to the shipper.

There is apparently no question that the Harbor Maintenance Tax is, in fact, a tax and not a user fee. The Court of International Trade caused even the name to be changed following its ruling. But the CIT ruling failed to answer a related question: What is the difference between an "export" carried from Boston to Charleston and an export carried from New York to a foreign port? In either instance the HMT raises the landed cost of goods produced by a citizen or U.S. corporate entity and would appear to violate the Constitution. In short, the domestic HMT might be vulnerable to legal challenge.

If the Maritime Administration and the Department of Transportation are truly interested in removing trucks from the coastal interstates and promoting an efficient coastwise shipping industry, one of their first priorities in this area, it would seem, should be to take the action or actions needed to remove this deterrent.

Red Sky at Night

As part of the new effort to improve U.S. maritime security there may well be heated discussions on Capitol Hill in the near future on how to continue to sustain a U.S.-flag Merchant Marine that is and will be, in the words of the 1936 Merchant Marine Act, "capable of serving as a naval and military auxiliary in time of war or national emergency." These discussions are inevitable, if only because the Maritime Security Program (MSP), which pays $2.1 million to each of the 47 ships currently enrolled in the MSP--will expire in 2005. Because only 97 U.S.-flag ships now operate in international trade, and only 47 currently receive MSP payments, it seems likely that there will be an effort to increase the number of ships in the program--and there is a valid argument for doing so. The 50 U.S.-flag ships that do not currently receive MSP payments are unlikely to be replaced as they near the end of their economic lives--except by foreign-built and foreign-flag ships--unless the MSP is expanded to cover all of the U.S.-flag ships now operating in international trade and payments are increased to perhaps $3 million or so per ship per year, a more economically realistic number. That would still be less than $300 million per year--in other words, considerably less than the acquisition cost for just one LMSR for the RRF--and an extremely modest price to pay to keep a cadre of militarily useful ships and, just as importantly, the seafarer manpower pool that accompanies these ships, available for military contingencies *