Y2K, El Nino, and Other Cyclical Phenomena

By ROBERT W. KESTELOOT

The Merchant Marine Act of 1920 has always been better known as the "Jones Act," so named for its sponsor from the state of Washington, Sen. Wesley L. Jones. The real intent of the Act was to better define the terms and conditions for the sale of government-owned vessels that had been built under the provisions of the 1916 Shipping Act--which was passed to subsidize the massive increase in U.S. shipbuilding needed to meet the anticipated shipping requirements that would result from the eventual and late (1917) entry of America into World War I.

Senator Jones had spent several years trying to capture the lucrative Alaskan trade for the ship owners and ship operators that were among his strongest constituents. The 1920 legislation, with its patriotic themes reflecting the earlier tenets of Capt. Alfred Thayer Mahan--the noted naval historian and strategist who had died only six years previously--regarding the absolute necessity for a maritime nation to have a merchant marine, was ideally suited for Jones's purposes. The original Merchant Marine Act of 1920 directed the Shipping Board to do "whatever may be necessary to develop and encourage the maintenance of a merchant marine ... sufficient to carry the greater portion of [America's] commerce and serve as a naval military auxiliary in time of war or national emergency ultimately to be owned and operated privately by citizens of the United States."

Section 27 of the Act, the work of Jones himself, reaffirmed the cabotage policy to restrict trade between any American ports to ships of American registry. The United States had banned foreign ships from coastwise trades since 1817, but the 1920 law made it a requirement that the ships participating in such trade be built, crewed, and owned by Americans. Passage of the 1920 Act was rushed through Congress with little debate, and no recorded vote. The concept of cabotage, however, has been debated and sustained many times since.

Starting in 1995, there has been a renewed and concerted effort to repeal the Jones Act; it was not surprising, therefore, when that effort continued into 1998. However, proponents of the status quo felt less threatened than in the previous year. This was due entirely to House Concurrent Resolution 65, a "sense of the Congress" resolution, originally introduced by co-sponsors Joe Moakley (D-Mass.) and Gerald Solomon (R-N.Y.) in 1997. The resolution, which states specifically that "the Jones Act and related statutes are critically important components of our Nation's economic and military security and should be fully and strongly supported," won overwhelming support from 245 other members of the House.

The Moakley/Solomon resolution has provided formidable armor against those who would change the status quo. It has, for example, caused the Jones Act Reform Coalition, led by a former federal maritime commissioner, to abandon the coalition's effort to repeal the Jones Act and to shift to a strategy of only modifying the Act (to allow foreign-built bulk ships to carry agricultural products in the U.S. domestic trades). That proposal also has met stiff opposition, mainly because the coalition already had revealed its ultimate goal, and the foreign-built, bulk-ship-only approach was recognized for what it is--the cold nose of the camel under the tent.

The defense of the Jones Act was further strengthened when then-Assistant Secretary of the Navy John Douglass, in one of his last acts before leaving office, urged Senate Merchant Marine Subcommittee Chairwoman Kay Bailey Hutchinson (R-Texas) to resist efforts to amend the Act. "The Jones Act is vital to our national security and to the future of the U.S. Navy," wrote Douglass. He said that his letter was in anticipation of a Senate Commerce, Science, and Transportation Committee hearing on proposals to amend or repeal the Jones Act. The hearing was announced last June by Sen. John McCain (R-Ariz.), chairman of the Senate Commerce Committee, who told Sen. Jesse Helms (R-N.C.) in a letter that "It appears that the Jones Act has a negative economic impact on American consumers." McCain said that he supports improving the efficiency of the domestic water transportation system.

The hearing was held in mid-September and discussion centered on S. 2390, the Freedom to Transport Act of 1998, introduced by Helms and Sen. Sam Brownback (R-Kan.). Their bill would allow U.S. documentation of bulk ships of 1,000 gross tons and larger, not built in the United States, for the transportation between U.S. ports of forest products, other bulk cargo (including agricultural products), and/or livestock. The bill also would allow the voluntary return of these ships to foreign registry without approval by the secretary of Transportation (as is required by the Shipping Act of 1916 for other U.S.-flag ships). A spokesperson for the pro-Jones Act Maritime Cabotage Task Force noted at the hearing that the bill was not the narrowly crafted compromise described by its sponsors, and would, moreover, "instantly kill any plans" for the revitalization of the U.S. shipbuilding industry. The Task Force position exposed, once again, the "nose of the camel" nature of the bill, which was never reported out of committee.

Why have there been so many attempts to repeal or modify the Jones Act, especially when so many members of Congress have joined in sponsoring a resolution to maintain the Jones Act in its present form? The answer is simple economics--undiluted, it seems, by common sense. The intent of the "reformers," according to those who want the Jones Act kept intact, is to force down railroad freight rates on grain moving to East Coast markets from the Midwest by raising the threat of a foreign source of water transport.

However, there is no sustained demand for water transport of grain within the United States. Given the protective nature of the Jones Act, it seems obvious that, if such demand existed, the ships and barges would have been in the business long ago. There are two routes possible. The first is the Mississippi River to the Gulf, then around Florida to North Carolina and other mid-Atlantic states, where much of the demand exists. This is a circuitous and inefficient route and therefore too expensive. The other possible route is through the Great Lakes to the St. Lawrence Seaway and then south. But that route would take much longer than shipping by rail, and is not available during the winter months--moreover, most modern bulk ships cannot pass through the narrow locks in the Seaway.

Complicating the viability of using either route is the absence of back-haul cargo. Ships follow the cargo, in other words. In short, if the cargo existed and it were attractive enough economically to carry it, the ships would already be sailing.

Foreign-built, and even foreign-crewed, ships would not provide a lower-cost alternative to the railroads. The real effect of all the anti-Jones Act legislation can be observed in the inaction of the nation's domestic ship operators, many of whom, like deer frozen in headlights, hesitate to make a move to replace their aging vessels and/or to acquire additional ships to open new domestic markets. The possibility of lower-cost foreign-built ships is too threatening to them--and, of perhaps greater importance, to their financial lending institutions.

Cynthia L. Brown, president of the American Shipbuilding Association, testified on this matter at the September hearing on S. 2390 when she suggested that the mere fact that hearings on the Jones Act were being held had jeopardized shipbuilding contracts for American shipyards: "No investor is going to place a contract with a U.S. shipyard if he or she believes that the U.S. Senate is going to change the law governing the rules of competition in the Jones Act trade."

It should be noted that McCain took strong exception to Brown's testimony and pointed out that the committee's charter requires it to review existing laws. However, Sen. John Breaux (D-La.), a strong supporter of the Jones Act, agreed with Brown's statements about the market realities. Hearings held by any committee almost always affect the industries involved.

Although it is 34 years older than the Jones Act, there exists a similar piece of cabotage legislation that applies to the transportation of passengers, the Passenger Vessel Act of 1886, which states that "no foreign vessel shall transport passengers between ports or places in the United States ... under a penalty of two hundred dollars for each passenger so transported and landed." It came as a total surprise to the maritime industry, therefore, when McCain, one week after the combative Jones Act hearing, announced his intention to introduce a bill to allow foreign-built U.S.-flag cruise ships into the U.S. domestic trades. Allowing foreign-built ships to enter the cruise trade under the U.S. flag is not an unprecedented proposal, but his bill set no limit to the length of time the ships would be permitted to operate under the U.S. flag, and included no requirement (as is customary) to replace them in the near future with ships built in U.S. shipyards.

However, the greatest difference in the McCain proposal is the almost casual inclusion in the bill of provisions to also allow up to 30 foreign-flagged ships--largely manned by Third-World citizens who would be paid substandard wages--to carry passengers in the domestic economy of the United States for two cruises each year, for a maximum duration of 30 days per year. This is the equivalent of granting AeroFlot permission to establish passenger air service between Washington, D.C., and Phoenix, Ariz. Ed Welch, legislative director of the Passenger Vessel Association, said that approval of the McCain proposal would create a precedent "that should send a shiver down the spine of every business operating in America today, especially other modes of transportation. It's the maritime industry today. Who's next tomorrow?" Welch also noted that the "twice-a-year" provision would allow foreign ships to earn revenue while seasonally repositioning from the Caribbean to the Alaskan market and back again. Perhaps the most disturbing aspect of the proposal--which very closely resembles the anti-Jones Act legislation in certain respects--is that it attracts a new constituency, including major ports and regional tourism organizations nationwide, that might join the Jones Act reformers.

McCain's bill failed to generate support and never made it out of committee, but he announced later that, "I want to put everyone on notice that we are going to come back to this issue early next year and keep working on it until it is resolved." Bills similar to the Helms and Brownback proposal also are certain to resurface. In short, the war on U.S. coastal shipping cabotage laws--which are similar to the cabotage laws adopted by the world's other major maritime nations--is beginning to resemble a guerrilla war of attrition.

At a time when America should be making better use of its coastal and inland waterways in order to relieve the stress on the land-transport infrastructure, and at a time when the shipbuilding and repair industries need more domestic business to survive, the mere introduction of such legislative proposals has resulted in the domestic maritime industry stagnating rather than expanding.

Other Maritime Legislation

Most political analysts seem to agree that the 105th Congress will not be remembered for its productivity. In some instances, this legislative "benign neglect" was beneficial to the maritime industry. But sometimes it delayed action on urgent maritime matters. A case in point: resolving how to pay for dredging in commercial ports after the Supreme Court declared, last March, that the harbor maintenance tax is unconstitutional.

Congress created the tax in 1986 by removing the cost of dredging from the general budget and shifting it to the private sector--namely, importers and exporters.

Ports like Oakland and New York, and most ports on the Mississippi River, cannot exist without dredging. Seattle, on the other hand, is a naturally deep port that requires no dredging. Port officials there contend that the imposition of the extra cost of the harbor maintenance tax makes Seattle less competitive with nearby Vancouver.

Congressional resistance to returning the cost of harbor dredging to the taxpayer is very strong. Complicating the issue are enormous reimbursement claims from importers and exporters who want refunds for taxes paid in the past that have been determined to be unconstitutional. The issue is extremely controversial and needs to be resolved this year.

One important piece of legislation that did make it through the process was maritime deregulation. On 4 August, after four years of debate and stalled bills, the House finally passed the Ocean Shipping Reform Act of 1998, which brought the deregulation of international container shipping closer to realization. Customs brokers and freight forwarders made a last-ditch effort throughout September to derail the bill, asserting that, despite laws and contracts to the contrary, freight middlemen and small shippers would be charged $300 to $1,000 more per container than big shippers to obtain assured cargo space on ships.

The view of the big shippers was that, if such violations were to occur, it would be the task of the Federal Maritime Commission (FMC) to impose fines on behalf of the small shippers who are victimized.

The FMC and others question whether the commission would be capable of handling what could amount to a large amount of "policing" activity. Congressional staff members agreed that an amendment to the bill to provide the FMC with the tools necessary to police such illegal behavior, and to take appropriate remedial action, might be desirable, but they were unwilling to reopen the bill so late in the legislative session. Because the new regulatory system created by the reform act will become effective on 1 May 1999, there was additional pressure to pass the bill without delaying amendment procedures, which would leave little time for carriers and shippers to prepare to contract intelligently in the new and freer environment.

Despite all the September turmoil, the bill was passed in the Senate by unanimous consent on 1 October. Within weeks of passage, several major carriers announced their intent to resign from their rate-setting conferences. At an October meeting in Amsterdam, members of TACA (the Trans-Atlantic Conference Agreement) expressed their concern that the new Ocean Shipping Reform Act of 1998 will allow confidential contracting between individual carriers and shippers. They also were unhappy about a recent adverse antitrust ruling by the European Commission. The ruling requires rate-setting conferences to give their members more freedom to reach private deals with shippers.

Also on the agenda for the 13-member meeting was issuance of the 1999 TACA business plan. Instead, TACA issued this statement: "Given changes in the regulatory environment, which at this time require clarification, publication of the 1999 business plan relating to TACA service contracts and tariffs must be postponed."

Olav Rakkenes, CEO of Atlantic Container Line (ACL) and chairman of the TACA conference, explained the delay in issuing the business plan: "We cannot do that [issue the plan] until we have greater clarity on how we can operate legally." Rakkenes also described the overall objective of the Amsterdam meeting: "We had legal people explain to us what we can do and what we cannot do under the new regimes in Europe and the United States."

ACL, along with Sea-Land Services, the largest U.S. ocean carrier and a major proponent of the maritime deregulation legislation, were co-sponsors of the Amsterdam TACA "meeting of interested parties." A total of 20 carriers were represented at the meeting. TACA itself is a 13-member conference.

Two days after the Amsterdam meeting, American President Lines Ltd. (APL), provided additional evidence that shipping deregulation will diminish the influence of rate-setting conferences. APL, a longtime conference supporter, as well as a major proponent of deregulation, announced the company's intent to withdraw from the Transpacific Westbound Rate Agreement (TWRA) effective at the beginning of 1999. P&O Nedlloyd and Hapag-Lloyd, traditional conference lines, already had withdrawn from the TWRA. An APL spokesperson said that other TWRA members probably will follow suit. To outside observers it now seems that the very future of rate-setting conferences is in jeopardy.

There was one other significant piece of pending maritime legislation that did not escape the turbulence of the 1998 political hoopla. For the fourth year, legislation implementing the OECD (Organization for Economic Cooperation and Development) shipbuilding agreement to end foreign government subsidies and dumping practices in shipbuilding industries throughout the world failed to pass the Congress. Many hope that the latest failure will preclude any further attempts at passage.

It was a close call, however, because the House attached the OECD shipbuilding agreement to the African Growth and Opportunity Act; the Senate version of the Africa Bill became part of an omnibus trade bill that included the OECD agreement, "fast track" authority for the president, the Caribbean Basin Initiative and other trade measures. Democrats feared that Republicans were trying to push through a bundle of free-trade issues, with the closeness of the November elections not permitting time for full debate.

Opponents of the OECD agreement included a group of senators led by Maine Republican Olympia Snowe and a coalition of shipbuilders and unions who were unsure of their ability to stop the omnibus bill, despite strong arguments that they believed would defeat the OECD shipbuilding agreement if it were allowed to stand alone. Eventually, though, the House decided to vote on a stand-alone fast-track trade authorization bill (which failed). The failure to pass fast-track caused the Senate omnibus trade package, with the OECD implementation bill attached, to fall apart.

In the last week of the second session of the 105th Congress, proponents of OECD implementation made several attempts to attach it to other legislation. In the end, the distraction of the impeachment inquiry and the need to consider the FY 1999 appropriation bills stopped all efforts to achieve passage.

The OECD shipbuilding agreement was flawed in several ways. It would not have ended foreign government subsidy and dumping practices. It would have allowed the governments of Germany, France, Spain, Portugal, South Korea, Greece, and Belgium to spend huge sums (more than $8 billion) to modernize their shipyards--and thereby lock in their commercial market shares for years to come. Moreover, these special transition sub-sidies, exemptions, and grandfathered programs--for nearly every signatory country except the United States--would follow a 14-year period of huge foreign subsidies. During that same period, U.S. shipbuilders received no subsidies because the United States had unilaterally ended its own construction differential subsidies in 1981. The agreement also would not have curtailed the "dumping" practices of Japan and South Korea (selling ships at prices below the cost of production), and would not have had any impact on China, whose shipbuilding industry ranks third in the world and enjoys strong government support.

The agreement would, though, have subjected the construction of oceangoing ships for the U.S. domestic market--i.e., the Jones Act--as well as auxiliary and reserve ships for the Department of Defense, to the terms of the agreement. This meant that, if American shipbuilders were to build ships for use in the U.S. domestic commerce, they would be barred from the international market through a series of bid restrictions, bid tariffs, and other countermeasures that could be imposed on them by the governments of the foreign signatories of the shipbuilding agreement. In addition, the Department of Defense would have been subject to a review by an international trade panel to determine whether the construction of military auxiliary or reserve ships to meet military logistics requirements were in conformity with the agreement. In short, the terms of the agreement made opponents question the political common sense of the officials of the U.S. Trade Representative (USTR) who had agreed in Paris (in 1994) to terms that would countenance the review by other nations of matters that are clearly essential to U.S. national security and to U.S. naval force-projection capabilities.

Charter and Build

Although the procurement accounts of all of the nation's armed services are woefully underfunded in the 1999­2004 future-years defense plan, SCN (ship construction, Navy), the Navy's shipbuilding account, appears to be so short that it has become difficult for Navy leaders to say with any degree of confidence that the Navy will achieve its long-term force-level goal of a 300-ship fleet. With an average of only 6.5 ships per year funded over the program years 2000 to 2005, and assuming similar funding levels in the outyears, the Navy will inevitably drop to a fleet of fewer than 200 ships. At such low building rates, the temptation--indeed, the need--is to build combatants only, and postpone replacement of the auxiliary ships that allow the battle groups to stay at sea indefinitely. Amphibious and mine-warfare shipbuilding programs typically suffer similar neglect during periods of low SCN funding, and even more shipyards are likely to be driven out of business, further eroding the U.S. defense industrial base.

One way to stretch SCN dollars and preserve the industrial base is to obtain Congressional approval for a "Charter and Build" (C&B) program for auxiliary-type ships that can be built to commercial standards in shipyards accustomed to building commercial ships. Not only would the acquisition cost be spread out over the duration of the charter, but the total capital cost would be much less than if the ships were built in yards that traditionally build Navy combatants. Authority to acquire up to 50 C&B auxiliary ships over a 10-year period, including the ADCX (a new class of auxiliary dry cargo ships), was included in the original 1999 House DOD authorization bill, but was deleted in the joint conference with the Senate. Although the Navy's immediate concern is how to acquire the ADCX in the absence of SCN dollars, the absence of C&B authority also inhibits planning for future Marine Corps prepositioning ships as well as replacement tonnage for the RRF (Ready Reserve Force) ships, which are even less affordable without C&B authority. A major readjustment in the division between services of DOD's total obligational authority (TOA) in order to provide a greater share of funding to the Navy is highly unlikely. Without C&B authority, therefore, the Navy will be unable to come even close to the 300-ship fleet of the future that possesses the requisite balance of combatant, amphibious, mine-warfare, and auxiliary support ships necessary for sustained operations at sea.

In the absence of either adequate SCN dollars or C&B authority, auxiliary ships almost certainly will be the first to go, which means that higher-risk logistic support options will be necessary. Moreover, without C&B, plans to replace the Marine Corps' Maritime Prepositioning Ships (MPSs), whose lease charters begin to expire in 2004, and to recapitalize the aging Ready Reserve Force ships, will never be implemented.

USMC, OMFTS, and MPF 2010

The Marine Corps' OMFTS (Operational Maneuver From the Sea) concept envisions the use of seabased logistics to replace vulnerable logistic sites ashore which can be easily targeted by truck or car bombs, even crude missiles, and are subject to other acts of terrorism or urban warfare--as was tragically demonstrated by the bombings of the Marine Barracks in Beirut and the Khobar Towers in Saudi Arabia. The availability of seabased logistics also would eliminate the requirement for access to secure ports and airfields. It also would: (a) facilitate rapid force closure; (b) eliminate the need for land-based reception and staging areas; and (c) free the maneuver forces ashore from static security duties, thereby making them truly mobile and able to strike specific targets to interrupt and disable enemy operations.

The resupply needed would come from equally mobile combat-service support units able to move necessary supplies, food, and ammunition from offshore supply "bases" directly to the maneuver units with speed and precision.

The offshore supply bases would constitute what is currently known as MPF 2010--the Marine Prepositioning Force for the year 2010 and beyond. The MPF 2010 ships would replace the ships of the three existing Marine Prepositioning Squadrons, which have been so very successful since their initial introduction in 1984.

The existing MPS ships are basically roll-on/roll-off (RO/RO) ships with some container capacity, and must be totally offloaded in order to reach much of their cargo. The MPF 2010 ships must be capable of a much more selective offload, and would be able, in addition, to accommodate helicopters and MV-22 Osprey tiltrotor aircraft, advanced amphibious assault vehicles (AAAVs), and landing craft, air cushion (LCACs).

Achieving that mix of capabilities requires not only a large flight deck, but also either a large wet well or some sort of deployable ramp and loading platform to load and discharge cargo. The latter is considered a more desirable option than the former, because a wet well takes up too much of the ship's internal volume, which is better devoted to cargo space.

The MPF 2010 ships also will need cranes adequate in capacity and number to conduct lift-off/lift-on (LO/LO) operations as well, and they will have to have the ability to conduct organizational and intermediate maintenance of all of the USMC combat equipment and systems they carry.

Afloat maintenance is not a new concept. The aviation maintenance and support (T-AVB) ships USNS Wright and USNS Curtiss both have the ability to embark an entire Marine aviation intermediate maintenance activity (IMA) and to conduct sea-based maintenance. Each IMA, which is housed in deployable vans, can perform aircraft maintenance in forward objective areas.

The original requirement that persuaded DOD and Congress to add these unique ships to the Navy's strategic sealift assets (in 1986) was the necessity to deploy aircraft maintenance facilities that could support MPS operations overseas.

The alternative was to add $1.7 billion in aviation spare parts to the loadout of the MPS ships. But that would have generated another logistics nightmare, because aviation spares are in such constant turnover undergoing field and factory changes. The T-AVB ships were accepted, therefore, as an affordable and practical solution to a major logistics problem.

The Center for Naval Analyses (CNA) is the lead organization in an ongoing study to determine the characteristics that should be required on the MPF 2010 ships. When he was vice chairman of the Joint Chiefs of Staff, Adm. William Owens (now retired), promoted the concept of a mobile offshore base (MOB), a behemoth floating air facility with runways 3,000 to 5,000 feet long, and complete with warehousing and repair facilities. Recent cost estimates for these enormous platforms range from $10 billion to $15 billion, numbers that exceed today's affordability limits.

It seems doubtful, also for cost reasons, that the MPF 2010 fleet would be made up of a single class of ship. It is more likely that it would be a mix of ships able to provide specialized support and sustainment. Still, the MPF 2010 ships probably will be "post-Panamax" in size--i.e., larger than the extreme limits of ships able to transit the Panama Canal, or more than 1,050 feet in length and/or 105 feet at the beam. These oversized ships, if and when built, will provide the sea-based conduit for the continuous logistic support required for the indefinite sustainment of forces ashore engaged in littoral operations.

Designing, building, and operating the MPF 2010 ships will be extremely difficult. But focusing on them in isolation raises two questions: (1) How will these sustainment ships be resupplied? (2) How will the supplies be transferred to the MPF ships? The cargo volumes anticipated are too great for traditional underway-replenishment (unrep) techniques, even if adequate numbers of shuttle ships capable of conducting unrep operations were available. As in the past, most resupply will necessarily come via commercial ships of the U.S.-flag fleet, including those in the RRF, or from foreign-flag ships on charter to the United States.

The actual transfer of supplies will have to take place in port or in well-sheltered harbors--unless the current sea state limit (about sea state 2.5) can be breached. However, to accommodate the high probability of having to offload commercial ships and load the MPF ships in developed and secure ports belonging to cooperative allies, extra MPF ships that can be loaded with homogeneous cargo loads will be necessary in order to keep a minimum number of MPF ships, loaded with adequate resupply materials, on station in the operations area--i.e., the most likely areas of future conflict.

Y2K and Other Maritime Bugs

It is almost impossible to read a recent newspaper or business magazine without finding another article on the "millennium bug," better known as "the Year 2000 Problem" or, in typical newsroom shorthand, simply "Y2K." This is a major computer problem that no business can safely ignore, but the shipboard side appears to be fairly straightforward. For example, Columbia Shipmanagement Ltd., a Cyprus-based company that manages close to 300 ships and is acknowledged by the international maritime industry to be one of the best, started early with a fleet survey to identify Y2K compliance problems. In a fleet that ranges in type from small container feeder ships, to large bulk tankers, to large container ships with capacities up to 4,000 TEU (20-foot equivalent units), to cruise ships, ensuring that the survey was both accurate and relevant was a daunting task. Columbia focused on four broad categories of systems and equipment: alarm and monitoring systems; navigation and ship-control systems; communications equipment; and computer hardware and software, and network installations. A list for each ship was compiled that identified every control system, every monitoring system, all alarm systems, all navigation and Global Positioning System (GPS) receivers, and all communications equipment. On the average ship, this amounts to over 100 pieces of equipment, containing upwards of 200 embedded chips, which must be identified by manufacturer and serial number in order to check on Y2K compliance. For Columbia, with its multitype and multinational fleet, this meant checking with thousands of manufacturers worldwide. Where doubt exists, or the manufacturer either cannot be located or is nonresponsive, replacement is the only sure solution.

Ignoring the Y2K problem is not an option. A number of port state authorities are threatening to keep ships in port that cannot produce evidence of Y2K compliance. Already, ship-charter parties increasingly require the inclusion in any charter agreement of a warranty of Y2K compliance. Responsible companies that are spending millions of dollars to identify and correct the problem are doing their best to reassure customers of their efforts. APL, for example, has included a "Year 2000 Compliance" page in its web site (www.apl.com) that describes the magnitude of the company's effort and provides estimated times of completion. (The direct URL to the APL compliance page is: www.apl.com/content/about/y2kletter.html.)

Interestingly, GPS itself is unfazed by the 21st-century bug. The GPS satellites use only four-digit year annotations. Nonetheless, at 2400 hours on 21 August 1999 the GPS almanac will reset its week count to zero. Some GPS receivers have not been designed to properly recognize this event and may reset their internal calendars to 6 January 1980 (the first "origin date" of the GPS week count). Clearly, those receivers need to be identified prior to August 1999, and either be upgraded or replaced.

Assuming that all ship monitoring, control, alarm, safety, communications, and navigation systems are compliant by the turn of the century, not much is expected to happen on the seagoing side of the maritime industry. The shore side, however, and the shipping electronic networks are still of major concern to the industry. Full Y2K compliance will require organizational discipline, diligence, and the expenditure of a lot of money. Many Third World countries with ports and connecting transportation systems are very poor in these three necessary categories. Jamaica, for example, recently announced that Y2K compliance would not be possible before the year 2004. A lesson could be taken from Britain, Australia, and New Zealand--all of which are providing tax incentives to small businesses to help them address the problem.

Most ship operators fear that, although private-sector firms will make certain that they are in compliance, the public sector will lag behind. This could result in delays at public ports caused by customs, immigration, and maritime agencies. Such delays would result in port congestion and reduced commerce.

During the past year there has been increased recognition of the merits of EDI (electronic data interchange), which permits different ship operating companies to use common electronic language to share cargo space and yet maintain accountability for: (a) booking cargo; (b) issuing shipping instructions, bills of lading, and ship manifests; (c) forwarding bank letters of credit and arrival notices, along with invoices; and (d) making electronic payments.

Unfortunately, EDI is the area most vulnerable to the Y2K bug. A basic truism in assuring Y2K compliance is that a company not only has to be confident about its own systems, but must be equally sure of compliance by every company with which it does business by electronic means.

It behooves all companies, therefore, to practice safe EDI until the health of all trading partners with whom data is exchanged is proven. For many organizations, Y2K compatibility will undergo a minitest several months before the end of 1999, when their fiscal years expire. For the U.S. government, "H-Hour" will be midnight on 30 September 1999, when the government's fiscal year 1999 expires.

The so-called Asian Bug (not to be confused with the Asian Flu) also will have an adverse effect on shipping costs, first on goods carried from China to the United States and possibly later on goods from other countries. This bug is real rather than symbolic: the Asian long-horned beetle, a one-inch bug that sneaks into the United States in raw hardwood pallets and packing crates currently originating from China. It has no known predators in the United States, and it possesses the appetite to kill off vast forests of America's favorite trees ranging from maples and walnuts to fruit trees and evergreens.

The Asian long-horned beetle already has been found in more than 30 warehouses, and actual forest infestation has been found near Chicago and New York. The only known solution to date is to cut down all of the possibly affected trees, shred them with chipping machines, and incinerate the wood chips.

The U.S. Department of Agriculture has now banned the importation of raw wooden pallets and crates from China. But the use of treated wood will increase the cost of products shipped from China. To substitute plastic or corrugated cardboard pallets would be only slightly more costly than the use of wooden pallets, but they do not have the carrying capacity of wooden pallets. This is a particularly troublesome problem for China, which has struggled not to devaluate its currency, while continuing to compete on price with other Asian nations that have devaluated their currencies. Any additional packing costs may make Chinese products noncompetitive. As it is, all Chinese pallets and packing crates must from now on be accompanied by official Chinese government documentation declaring not only that the wood meets U.S. standards, but also that it has been fumigated, heat-treated, and/or soaked in preservatives. (The only partially offsetting good news is that China is a primary producer of the chemicals that could be used to fumigate the wood.)

The cure for the other Far East bug, the Asian Flu that started in Thailand and rapidly infected other Asian countries and eventually the rest of the world, is much more costly and has proven to be extremely elusive. In the maritime world, the most noticeable effect has been on the balance of trade--as evidenced by the plethora of containers in U.S. ports, and the paucity of them in Asia. The Asian Flu has been, in effect, therefore a "money and banking bug" that has made imports to the United States more attractive, while reducing consumer demand in Asia. The lack of westbound cargo in the Pacific, combined with record imports from Asia, has necessitated the export of empty containers from the U.S. West Coast--where upwards of 50 percent of the westbound container cargo consists of empty containers. The absence of backhaul cargo to Asia is, of course, exacerbating the problems caused by cargo rates that are already too low.

Transitioning to the New Millennium

Jumping from the 20th century to the new millennium is not a matter of choice. It will happen, and those who prepared for it will have few problems. But, those who are not prepared may not survive without Herculean recovery efforts. Problems such as the millennium bug and even the Asian long-horn beetle eventually will pass. The more pressing maritime problems of the new millennium will have to do with how to safely move hundreds of millions more tons of cargo, for ever-increasing numbers of people, between more countries, at an affordable cost, while keeping the environmental damage to the minimum.

Domestically, an acceptable alternative to the harbor maintenance tax must be developed in order to preclude the loss of cargo from silted U.S. ports to Canadian deepwater ports. A concerted effort also must be made to remind both the general public and elected legislators that, for an equal amount of fuel, one ton of cargo can be moved longer distances by sea, more safely, and with less environmental impact, than is possible with any other form of transportation.

This, of course, is one of the best reasons for not dropping Jones Act requirements for coastal shipping. An intrusion into either the Jones Act or the closely related Passenger Vessel Act, for passenger, bulk, or dry cargo transportation service, threatens all other American cabotage laws. Jones Act shipping is now the primary source of U.S. maritime seagoing labor and is essential to the manning of government-owned ships during periods of international crises. Defense and maritime officials are adamant in their position that these advantages to the nation should not be forfeited by repealing the Jones Act and/or other maritime laws.

The ability to significantly increase the use of the broad ocean highways that run along America's coasts also should be examined. Much of the cargo carried by trucks on the coastal highways could be transferred to coastal sea-lanes before the trucks on the interstates create permanent gridlock. One solution that has been suggested is to have RO/RO fleets move trucks on regularly scheduled routes along the Atlantic and Pacific Coasts. This not only would remove large numbers of trucks from the coastal interstates, it also would provide the DOD with militarily useful ships that would always be within a day and a half of U.S. loading ports when military contingency operations require the use of such ships. As a fallout benefit to taxpayers, the requirement to recapitalize the aging and costly RRF fleet, which is maintained in lay-up by the Maritime Administration, could be postponed indefinitely, and perhaps eliminated entirely.

Archaic Penalty For QE2

The enforcement of cabotage laws falls under the purview of the U.S. Customs Service, which was obliged this past April to penalize Cunard Lines for a violation of the 1886 Passenger Vessel Services (PVS) Act by the Cunard flagship, Queen Elizabeth II, which operates under United Kingdom registry.

The line was fined $105,000 because the ship took on 525 passengers in San Diego in January 1998 and transported them to Hawaii in violation of the PVS Act. The passengers had been bused from San Diego to the shallow port of Ensenada in Baja California, Mexico. The intent was to use small ferries to transport the passengers to the QE2 at anchorage offshore, but an El Niño-generated storm made the seas too rough to safely transfer people to the ship. The passengers were driven back to San Diego, where they boarded the QE2 at a pier. The ship was on an around-the-world cruise that had originated in New York.

Critics of the PVS Act called the fine archaic and excessive, and argued that the decision to take the passengers aboard in San Diego was driven by safety concerns.

Proponents of the cabotage law point out that, although there were more than 1,000 Americans aboard the QE2 at the time, and much of the ship's operating profit is generated by U.S. citizens, the foreign corporate owner pays no U.S. corporate income taxes.

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CAPTAIN 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 member of the Navy League's Merchant Marine Affairs Committee. The author's last active-duty assignment with the Navy was as director of strategic sealift on the staff of the chief of naval operations. The views expressed here are his own and not necessarily those of the Navy League.