Environmental Protection Air, Water (& Fish Too)
Making the Connection Broadband & VSAT
THE MARITIME EXECUTIVE
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Inland Waterways A Critical Time
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Volume 13, Edition 7, January/February 2009
CROWLEY MARITIME This 117-year-old ﬁrm has survived wars, the Great Depression, booms and busts, and the ups and downs of a cyclical industry and emerged stronger than ever.
ContEnts BY TONY MUNOZ
TOM CROWLEY, JR.
Chairman, President and CEO BY TONY MUNOZ
32 Inline by Design
GE’s New Inline Six- and EightCylinder Engines Have Many Applications BY LARRY PEARSON
35 Invasive Species Update: End Game in Sight? BY JOSEPH KEEFE
39 Making the Connection with Broadband and VSAT Leisure Liners Hit the ROI Trifecta by Slashing Connectivity Costs, Building New Revenue Streams and Boosting Crew Morale BY PATRICIA KEEFE
44 Requests for “Ports of Refuge” by Vessels in Distress – Considerations for U.S. Ports BY NEIL KLEIN
48 Night-Vision Systems Shift Threat Detection to Threat Assessment
MarEx Departments Executive Achievement
BY RANDALL FOSTER AND
hornblower Marine services
BY MAREX STAFF
52 Major U.S. Insurance Provider Ready As IMO Bunker Convention Enters Into Force BY MAREX STAFF
54 “Plan B”: Crew Comfort Takes Center Stage Slowing Economy Finds Owners Retroﬁtting and Repowering; Interior Renovation May Be Just As Important BY MAREX STAFF
56 Legal Directory
10 Captain Sergey Ponyatovsky President, inFlot world wide inc. BY MAREX STAFF
12 Economic Stimulus and EPA Regulation Provide Opportunities and Challenges BY LARRY KIERN
16 Inland Waterways Investment Is Critical to Economic Recovery and Future Growth BY CORNEL MARTIN
Upgrades & Downgrades
18 Enough Already! BY JACK O’CONNELL
January/February 2009 | 3
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PublISHer tony Munoz :: firstname.lastname@example.org edItor In CHIeF Joseph a. Keefe :: email@example.com SenIor CoPy edItor John J. o’Connell, Jr. :: firstname.lastname@example.org art dIreCtor Evan naylor :: email@example.com aSSIStant art dIreCtor daniel Bastien :: firstname.lastname@example.org SenIor VICe PreSIdent SaleS & MarKetIng Brett Keil :: email@example.com adVertISIng SaleS Manager Elizabeth Johnson :: firstname.lastname@example.org SaleS aSSoCIate irena ortlani :: email@example.com SaleS aSSoCIate tom darr :: firstname.lastname@example.org SaleS aSSoCIate - gerManIC euroPe hansjorg Brans :: email@example.com Internet SerVICeS Manager Matthew Miller :: firstname.lastname@example.org aCCountIng Manager Marci ryan :: email@example.com CIrCulatIon danielle Phillips :: firstname.lastname@example.org the Maritime Executive, llC (issn 1096-2751) 3200 s. andrews avenue, ste. 100 Fort lauderdale, Fl 33316 telephone: (866) 884-9034 Fax: (954) 848-9948 www.maritime-executive.com For subscriptions please visit www.maritime-executive.com the Maritime Executive (issn 1096-2751) is published bimonthly by the Maritime Executive, llC, 3200 s. andrews avenue, suite 100, Fort lauderdale, Fl 33306, tel. (866) 884-9034. sUBsCriPtions: domestic subscription rates are $36, per year. international subscription rates are $86, per year. application to mail at periodicals postage rates is pending at Fort lauderdale, Fl and additional mailing ofﬁces. For single copies of the magazine or reprints of articles appearing in this magazine, contact the Maritime Executive at (866) 884-9034. CoPYright: © Copyright 1996 by the Maritime Executive. all rights reserved. the Maritime Executive is fully protected by copyright law, and nothing that appears in it may be reproduced, wholly or in part, without written permission. we cannot be responsible for the claims of manufacturers in any of the items. Editorial manuscripts and photos will be handled with care but no liability is assumed for them. PostMastEr: Please send address changes to the Maritime Executive, 3200 s. andrews avenue, suite 100, Fort lauderdale, Fl 33316. Change of address notices should be sent promptly with old as well as new address and with ZiP code or postal zone. allow 30 days for change of address. 4 | January/February 2009
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Cautious,Yes. Risk Averse? No.
Joseph Keefe Editor in Chief
Joseph Keefe can be contacted at jkeefe@ maritime-executive.com with comments, input and questions on this editorial or any other piece in this magazine. The Maritime Executive welcomes your participation in our editorial content.
This new year commences in a much different fashion than, say, 2008. And having begun this editorial with a colossal understatement that probably dwarfs even the breadth of the current economic downturn, I also feel compelled to continue on with this train of thought. That also means, of course, that I will need to either provide some profoundly deep advice or make some grand prognostication about the coming 12 months and beyond. But it’s a lot simpler than that, actually. Here’s why: I get to speak to a wide range of industry players on a daily basis: the Coast Guard, ship operators, maritime attorneys, shipyard executives, service providers, and the very people who manufacture the parts and gizmos that make up each and every vessel that sails the seven seas, inland rivers and Great Lakes. They can individually tell me the day or week that they started to feel the current financial crunch. As I keep my ear to the ground, it is also becoming more than obvious that the guiding principle of the new year can be summed up in one word: caution. To be sure, veterans of the last bit of “rough seas” in this business are determined not to make the same mistakes twice. That’s a good thing. On the other hand, caution that translates into a bury-your-head-in-the-sand approach is the wrong way to go. The process of owning – and effectively running – a successful business enterprise necessarily involves risk. Being able to manage that risk, while at the same time advancing your business plan, will be the key to surviving these unquestionably perilous times. And yes, this editor has owned and run a marine-related service business in the past. Even during those periods when we had to stop and pause to ponder how we were going to make payroll during a particular month, I also knew that we had to keep on doing what we were paid to do, or perish. That metric translates very well to your own business model, even today. There are plenty of opportunities out there right now. Sorting them out is a job for someone a lot smarter than me. I have a friend whose primary occupation is to invest in the market – I guess they call these people “day traders.” He hasn’t had a paying job since 1986, and he does quite well for himself. He called me the other day to ask about this shipping company or that steamship line, digging into the nuances of the charter markets and other esoteric stuff. I had to disappoint him. I told him that if I knew when the charter markets were going to turn around or when we could expect to see a robust rebound in East-West container traffic, I would have fielded his call from my private island on an “809” area code phone. And I wouldn’t be passing out the answers to just anyone. I do know this: It will turn around, and when it does, the individuals and firms that positioned themselves to take advantage of emerging conditions will profit handsomely. As we gather steam in 2009, the end of January also finds our first edition of the new year hitting the streets. Chock-full of wide-ranging articles on the environment, high-tech communications at sea, and ideas on how to make your crews more comfortable (and more likely to return to your boats), there is literally something for everyone in this edition of MarEx. On the cover, Tom Crowley returns to explain how his privately held firm was able to have a terrific year despite everything else that was going on around them. In the eight years since we last profiled him, Crowley has stayed aggressive, played it smart and, in the process, defied the odds. The results speak for themselves. You might say the same thing about THE MARITIME EXECUTIVE. As you deploy the proverbial sea anchor to dampen those choppy financial waters, stay with us as we deliver – online and in print – the valuable news and business intel that will carry all us into the next boom market. And that’s something that you can count on. Mar Ex
6 | January/February 2009
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John w. waggoner, Hornblower Marine Services
By MarEx staff
the recognized leader in american Casino and Ferry operations Has His eye on Perfecting the Shortsea Shipping Concept Here at Home JOHN WAGGONER’S SELF-DESCRIBED “circuitous path” to his current role as President and Chief Executive Officer of Hornblower Marine Services (HMS) has been a personally satisfying one. Active in the passenger vessel industry for over 30 years, he began his career in the sport fishing business but has been involved in many and varied maritime segments including commercial fishing, offshore oil support vessels, dinner cruise and excursion vessels, casino boats, and car and passenger ferry operations. His role in the next phase of the American maritime industry, however, will likely define his career – and just perhaps jumpstart the foundering concept of domestic shortsea shipping.
getting Started: a different route
Waggoner’s marine career started ordinarily enough when, in the sixth grade, he took a half-day fishing trip out of San Diego. Now hooked for life on the water, he leveraged his substantial Midwest work ethic into a position as deckhand in the very same fleet of boats. Eventually, and after serving as Director of Marine Operations for Hornblower Dining Yachts’ fleet of 29 dinner cruise vessels, John and his partner founded HMS. Waggoner calls Jerry Aspland, the former President of ARCO Marine, Inc., an early mentor. Along the way, though, Waggoner has himself mentored countless numbers of employees. Active in many civic organizations, he is also a member of the California Maritime Academy Foundation’s Board. Waggoner told MarEx this month that, “Knowing what I know now, I probably would have gone to a maritime academy.” Instead, and true to his passion for the oceans, he earned a Bachelor of Science degree in Marine Biology in 1979 from California Polytechnic State University in San Luis Obispo. Later, he would receive his MBA from the same institution. Concurrent with all of that, he managed to earn his ocean operating license and spent time working
in the offshore oil supply business. While getting his MBA, he worked for Exxon. He even sold securities for a summer but knew his heart wasn’t in it. That “circuitous path” would lead him back to the water, where John still lives his childhood dream of “being able to play with boats the rest of his life so he will never have to grow up and get a real job.”
growing up – and branching out
From a startup company of just two employees, Waggoner has fostered the firm’s growth – which he calls his greatest accomplishment – into one which employs almost 300. Since the firm’s inception in 1995, HMS has grown at an average rate of 58 percent annually in terms of gross revenues. These days, HMS is recognized as a leader in providing consulting, management, and construction oversight for a wide range of marine operators – startup and existing businesses alike. Even today, Waggoner still shares knowledge and resources with his former employer, whose six-state operation is the largest dinner cruise operation in the nation. From the outset, Waggoner’s fledgling HMS enterprise was a success. After landing a contract to convert a dinner boat to a casino boat in Missouri, he soon got another – this time involving a 3,000 passenger casino boat. It was here that his now familiar expertise in marine logistics was first tested. Challenged by the Coast Guard to prove, among other things, that the casino boat could be operated in a safe fashion under a variety of scenarios, Waggoner’s team formulated an Emergency Disaster Plan for the operation. The drill that followed was, at the time, the largest emergency disaster drill ever attempted in the Midwest and involved 21 state, local and federal agencies. John’s continuing dedication to safety eventually earned a Commendation from the Commandant of the U.S. Coast Guard for his substantial and lasting contribution to promoting passenger vessel safety.
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Johnwaggoner John Waggoner IS Shortsea Shipping
Along the way, HMS launched the largest casino boat in the world, right here at home in Indiana. Well-paying casino work would ultimately allow HMS to enter the high-speed ferry game, where Waggoner’s crew has distinguished itself in management and logistics savvy for such high-visibility projects as the Westpac Express and Hawaii Superferry. Both projects were notable for their many challenges, and Waggoner says, “No two projects are the same.” Today, Waggoner frequently finds himself in Trinidad where he is actively engaged in a new ferry project and perfecting an enviable shortsea model. There, he has helped local workers reduce their roundtrip commute by as much as two hours, while also reducing the carbon footprint of the island’s rapidly growing automobile fleet. At a time when many marine businesses are experiencing real pain in a contracting economy, HMS reports a very different picture. The Trinidad project does not necessarily fit within the HMS business model of “staying in the domestic markets,” but Waggoner has also not been afraid to look to emerging markets to generate new business as the U.S. economy experiences its cooling-off period. Beyond this, many of Waggoner’s clients tend to be state, local or federally funded enterprises. These transportation projects, often critical “moving roads,” can be the lifeblood of local com-
munities. HMS, he says, is therefore weathering the current economic storm very well.
Planning and Preparation: Based on Experience
Eventually, Waggoner knows, his expertise may be critical in developing a national shortsea shipping model. And it is no accident that he was recently appointed to the National Academy of Sciences’ Marine Board. Waggoner characterizes ferries as “moving roads,” but also understands the need for a demonstration project to jumpstart the process. With the credibility that would come from a successful startup project, Waggoner says, “We’ll hopefully find funds for a moving highway.” Tomorrow, the guy who has organized high-speed ferries, casinos, dinner boats, and scores of other marinerelated projects might just be our best bet to take the concept of “America’s Marine Highway” and turn it into a reality. The “circuitous path” traveled by Hornblower Marine’s CEO is poised to become the roadmap for efficient, clean and green, shortsea transportation. Harnessing his proven history of success in executing new ventures and re-engineering existing businesses in the passenger vessel industry is arguably the perfect recipe for producing shortsea efficiencies on a much wider scale. And if he tends to make it look easy, that’s because he’s still having fun. Let’s hope he never stops. Mar Ex
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PonyatoVSKy, President,InFlot world wide Inc.
By MarEx staff CAPTAIN SERGEY PONYATOVSKY, President of INFLOT World Wide, one of the most prestigious cruise line agencies in the world, is among the more interesting people we have interviewed here at MarEx. INFLOT operates in Russia, the Baltic, Black Sea ports, Asia, and the Caribbean, and Sergey is now working with cruise line executives to reestablish St. Croix as a port of call in the Caribbean. Ponyatovsky was working at the INFLOT cruise department in St. Petersburg during the 1991 Russian coup, which ultimately triggered the collapse of the Soviet Union. As 146 million of his fellow countrymen looked on in awe as Mikhail Gorbachev was placed under house arrest, Ponyatovsky had only one thing on his mind: How to get 700 Americans on the Vistafjord, a Cunard cruise ship, out of the port of St. Petersburg and the country safely? Ponyatovsky, an experienced ship’s captain and graduate of the State Marine Academy in Leningrad, was having problems getting a pilot to board the ship and take it out of port. He began frantically calling phone numbers on the agency list, but to no avail. Eventually, he found someone willing to listen and reminded him that, no matter what the outcome of the coup, Russia was still a sovereign nation, and business and the lives of its citizens would continue henceforth. He spoke of the professionalism of mariners and the responsibility of the agency to get the Americans and the ship out of the country. Finally, he was successful and the ship and its American passengers left, but it came at a price. He was brought into the government offices and questioned by officials about his over-zealous diligence. While this may sound strangely humorous to many of us today, Ponyatovsky relates how the INFLOT ship agency started up in 1934, and how in 1939 Stalin had 80 percent of the company’s employees executed as spies because of their dealings with foreign-flag ships. One can only imagine, as the Soviet Union collapsed, what government officials thought about the good captain’s efforts to save a group of Americans. During the transitional period of 1993-1994, Ponyatovsky began working with private yachts and cruise ships, and also managed to have a new pier built so the local citizens would have a place to watch the vessels come and go. But he had to
deal with the bureaucrats who were looking for payoffs and bribes, and he says it was a very difficult time because there was no system and everyone was looking for what they could get for themselves. During this same period, the cruise ship Silver Cloud came to St. Petersburg with Arnaud de Borchgrave, the chief editor of the Washington Times and the chairman of United States Global Strategy Council. His friend was the mayor of St. Petersburg, and the vice mayor of the city was Vladimir Putin. Over time, because Putin was in charge of the city’s foreign affairs, Ponyatovsky and Putin became acquaintances. During the early 1990s, Ponyatovsky spent a lot of time traveling to the United States and became close with many of its cruise executives. Eventually and partly as a result, he bought the INFLOT agency because it always had an excellent reputation for managing port operations, conducting tours and working with the various cruise lines. While Ponyatovsky had a good life in the new Russia with his family, including a new house, a driver, and a vibrant business, moving to the United States to be near the core of the cruise line industry was, as he terms it, “the next logical step in the process.” In the late 1990s he finally moved to Fort Lauderdale, primarily to keep the revenues safe from the uncertainty of the new and developing Russian infrastructure. Recently, Ponyatovsky was appointed to the Board of Governors of the Maritime Security Council, which deals with policies and programs to protect against terrorism and piracy. The council is made up of members of the industry, government officials, and port and shipping executives. One of his first and foremost activities as governor was to bring the U.S and Russia together to work toward a better business alliance. Since 2000, Ponyatovsky, realizing the cruise industry will continue to grow, has been investing in port infrastructures. He is currently investing in St. Croix and is keeping a close eye on the potential of Cuba. He particularly likes St. Croix because it has great piers, a lively city, excellent beaches, and one of the largest refineries in the world, which could provide ships with low-cost bunkers. MarEx plans to stay in touch with Ponyatovsky to see how his business expands and how Mar Ex the St. Croix investment works out.
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washingtoninsider Written by Larry Kiern, Winston & Strawn LLP
Economic Stimulus and Epa Regulation Provide Opportunities and Challenges for the Maritime Industry A Consensus for Bold National Economic Stimulus Emerges With the November elections behind us, the nationâ€™s attention is firmly fixed on action to stimulate Americaâ€™s economy. The loss of over two million American jobs in the last year means that domestic unemployment could reach double digits without swift and effective action. Conservative and progressive economists alike urged the new Obama Administration and 111th Congress to move swiftly to enact an enormous stimulus package. Unlike the years 1930 and 1931, when Americaâ€™s economy cratered amidst uncertainty about what to do and stubborn ideological opposition to government intervention, there was unanimous agreement this time around that strong government action is necessary. As President Obamaâ€™s new chief economist, Lawrence Summers, wrote recently, â€œIn this crisis, doing too little poses a greater risk than doing too much.â€? While there will no doubt be disagreement about the precise parameters of the stimulus, a remarkable consensus has emerged about its basic contours. Its principal purpose, at least initially, is job creation. Lacking that, it will be impossible to turn around the housing market and consumer demand, two areas essential to a lasting recovery. Bold action is necessary to return people to work and restore public confidence so that consumers
will resume spending. Additionally, the new Administrationâ€™s proposal, the American Recovery and Reinvestment Plan, promises to address Americaâ€™s backlog of neglected infrastructure projects. Despite several years of economic growth from 2002 â€“ 2007 and massive deficit spending, critically important investments in Americaâ€™s future remain unfunded. Consequently, the Obama Administration and Congress promise to invest in public projects that will work for the American people. These include repairing and building our nationâ€™s schools, investing in information technology systems to improve the efficiency of our notoriously inefficient health care system, and rebuilding our roads, bridges, and public transit systems. The sad state of the nationâ€™s essential transportation systems is but the most obvious example of neglect. While what first comes to mind may be the congested state of our nationâ€™s crumbling highways and bridges, those are but symptoms of the underlying problem, which is a neglected national transportation system. Presidential advisor David Axelrod emphasized the need for broader based action when he explained that â€œWe want to do it in a way that leaves a lasting footprint, by investingâ€Ś and rebuilding our crumbling roads, bridges and waterways.â€?
Maritime Infrastructure Investment Opportunities While the lionâ€™s share of transportation infrastructure investment will undoubtedly flow to highways and bridges, important maritime projects merit funding. These include investments in U.S. Coast Guard initiatives and our maritime transportation system. The Coast Guard has particularly worthy infrastructure projects that are already approved and underway and can quickly use increased funding to employ many more workers. The badly needed modernization of its fleet has contracts in place across the nation that could easily be accelerated with additional funding. For example, the service is currently building new national security cutters and patrol boats. These programs should be accelerated immediately, putting more American shipyard workers back to work. Additionally, the service must accelerate repair and modernization of its critically important icebreaker fleet. Congress and the Bush Administration recently acknowledged the need and provided an initial $30 million for long-overdue work on the icebreaker Polar Star. But this funding was plainly insufficient and should immediately be increased and the program accelerated and expanded to modernize the icebreaker fleet and build new icebreakers so that America has the capability to
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protect its national interests in the Arctic. The nationâ€™s ports and waterways need increased investment as well. Sadly, many of these projects have long been in the works but have languished because of a lack of political will to apply the surplus funds available in the Harbor Maintenance Trust Fund. These funds should be released immediately and used to restore Americaâ€™s public resources rather than withheld to reduce the deficit. Current circumstances make it difficult to justify withholding a dredging surplus of over $4 billion while waterway projects go unfunded and Americaâ€™s marine highways needlessly fill with silt. Combining the new Administrationâ€™s aim to invest in environmental protection with the need to spur the domestic automobile industry, Congress should provide funding to ports to promote the purchase of a new generation of environmentally efficient trucks for draying. Such a program, like that developed in Californiaâ€™s ports of Los Angeles and Long Beach, would both stimulate the economy and improve air quality.
New EPA Regulation Challenges Vessel Operators On December 19, 2008, the U.S. Environmental
washingtoninsider Protection Agency (EPA) issued the controversial Vessel General Permit for Discharges Incidental to the Normal Operation of Vessels (VGP), regulating vessel discharges under the Clean Water Act. The EPA regulation follows legislation enacted by Congress last summer exempting recreational and small commercial vessels from the impending regulation. The practical result is that the new regulation applies only to larger commercial vessels. As a general matter, the Clean Water Act bars the discharge of pollutants into the waters of the United States unless authorized by a permit or expressly exempted. The new EPA regulation resulted from protracted litigation by environmental groups, who challenged a longstanding EPA exemption carved out for discharges incidental to the operation of vessels. In March 2005 a federal district court struck down the EPA exemption, and EPAâ€™s appeal of the decision to the U.S. Court of Appeals for the Ninth Circuit failed. Ultimately, EPA did not appeal the decision to the Supreme Court, and the district court ordered vacatur of vessel exemption by December 19, 2008. While EPA met the deadline, the court also agreed to extend the exemption until February 6, 2009 at the request of representatives of the maritime industry and the EPA to facilitate
compliance with the new rule. The VGP includes new diverse regulatory requirements added by many states as â€œconditionsâ€? to their certification under the Clean Water Act. The resulting patchwork represents the balkanization of vessel discharge regulations long feared by the maritime industry. Oddly, while European nations have recently moved toward unification and harmonization of their maritime environmental regime, the United States drifts in the opposite direction. The net result is that vessel operations in the United States have become more complicated, burdensome, and expensive, and vessel operators and their crews face the threat of greater sanctions, including criminal prosecution. This result is particularly ironic considering the failure of federal and state governments to tackle the most serious sources of water pollution in the United States, agricultural runoff and municipal waste. Recent reports by the Washington Post detailing the complete failure of the EPA and the states to protect the Chesapeake Bay over more than two decades highlights the misplaced regulatory emphasis directed at vessels. States and other jurisdictions that figure prominently in maritime commerce were deemed to have waived certification and therefore are
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washingtonInSIder covered by the new ePA rule by default. these include texas, louisiana, Washington, oregon, maryland, virginia, delaware, North carolina, south carolina, Alabama, Puerto rico, the u.s. virgin islands, and American samoa. half the states, two tribes, and one territory, Guam, certified the ePA rule. curiously, Alaska and hawaii, both significant maritime states, failed to certify, but have indicated they will. For those 28 states that certified the vGP, the additional conditions they promulgated in their certifications became part of the regulation applicable to discharges in their respective waters. the result is a patchwork of disparate rules. several states conditioned their certifications on additional graywater discharge restrictions. Georgia mandated use of marine sanitation devices. maine restricted discharges of graywater and blackwater in its coastal waters and in “No discharge Areas.” other states, such as connecticut, illinois, michigan, Nebraska, New hampshire, New Jersey, and New York, prohibited graywater and blackwater discharges. New York and massachusetts imposed nearshore ballast water exchange requirements, even though the ePA decided the exchanges were not justified on the Atlantic and Gulf coasts. ballast water standards approved by the international maritime organization (imo) will become effective in 2016 and most Great lakes states, including ohio, indiana, illinois, minnesota, michigan and Pennsylvania, basically adopted the imo ballast water standards and timetable. by contrast, New York required vessels that will enter New York waters to have stringent ballast water treatment systems by 2012. california mandated new conditions requiring vessels to comply with the state’s numeric effluent limits. consequently, as of February 6, 2009, vessels calling in california must monitor waste streams and not exceed those limits. in the face of public comments regarding the jurisdictional reach of the new vGP requirements, the agency conceded that its rules only apply in the territorial waters of the united states and that the periodic inspection and reporting requirements should be “read in light of what they are – conditions prerequisite to discharge into waters of the u.s.” this means that vessels entering u.s. waters must only conduct a weekly inspection during the week before coming into u.s. waters and will not be required to conduct weekly inspections at other times when the vessel is outside the united states. similarly, quarterly sampling would be required only during the quarter prior to entry,
and an annual inspection would be required during the year prior to entry. likewise, corrective actions must be taken by the later of the specified deadline or the vessel’s return to the united states. vessel operators should complete comprehensive vessel discharge reviews incorporating the provisions of the vGP as soon as possible so that issues can be resolved and personnel trained prior to arrival in u.s. waters. And vessel operators must take into account the specific requirements of the states and other jurisdictions a vessel may visit. sadly, what has been missing from this strictly regulatory approach to reducing pollution from vessel discharges is a significant investment of public resources to help vessel operators minimize pollution and develop cost-effective ballast water treatment systems. the creative resources available in our nation’s maritime academies have gone largely untapped in addressing these goals. Additionally, vessel operators should be given incentives to spur investment in improved systems to reduce pollution. And the new Administration and congress should invest in research and development to produce and certify effective ballast water management systems and encourage vessel owners to install them swiftly.
the New Year presents the maritime industry with both opportunities and challenges. the political imperative for economic stimulus provides remarkable opportunities for funding badly needed and long-overdue maritime projects. the political imperative for more demanding environmental regulation presents vessel operators and ports with unprecedented compliance challenges. Wise public policy should recognize the merits of harnessing these developments by providing funds Mar Ex that accomplish both.
larry Kiern is a partner at Winston & Strawn LLP, an international law firm of 900 lawyers. His practice concentrates on maritime issues, including legislative, regulatory, and litigation matters. Before joining Winston & Strawn, he was a Captain and law specialist in the U.S. Coast Guard who served as the Legislative Counsel and Deputy Chief of the Coast Guard’s Congressional Affairs Office.
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1/27/09 9:56:38 AM
Inland Waterways Investment Is critical to economic recovery and Future Growth By cornel Martin, President and cEO, Waterways council, Inc.
The new year brings much uncertainty about the economy, the future of certain industries and businesses, the housing market, and a new administration’s plans. but one thing that is certain is the value of our inland waterways transportation system for providing a less costly, fuel-efﬁcient and environmentally friendly way to move our nation’s “building block” commodities, both domestically and for export. Our inland waterways system transports about 20 percent of our nation’s coal to generate electricity in utility plants and around 22 percent of our domestic petroleum products. This system is the primary artery for more than half our grain and oilseed exports. All told, more than 625 million tons of freight commodities valued at more than $70 billion move on America’s inland navigation system annually. And with worldwide trade expected to double over the next decade and with our highways and railways facing serious capacity issues, our inland rivers may be even more critical tomorrow than they are today for transporting products efficiently. There are other considerations as well. A new study by the National Waterways Foundation underscores the “green” value of this transport mode. Inland waterways relieve congestion on our already over-crowded highways and railways. One jumbo barge has the same capacity as 70 trucks or 16 rail cars. A typical 15-barge tow on our nation’s rivers is equal to 1,050 trucks – in other words, just one barge movement equals 1,050 truck movements! To sustain these many benefits and stimulate economic recovery for our nation, investment in our inland navigation system of locks and dams is critical. Many of our locks and dams are more than 50 years beyond their economic design
life and are deteriorating rapidly, impacting efficiency, safety, and our world competitiveness. We must modernize our lock-and-dam system so that our farmers, coal miners, oil producers and stone/aggregate suppliers can transport their products cost-effectively and efficiently, allowing them to remain competitive in world markets. It took only two to three years to build some of the first modern locks and dams on our nation’s rivers in the 1920s and 1930s, but today it takes increasingly longer periods of time to bring new locks online. We must find ways to improve the current waterways project delivery system and ensure that navigation projects supported by expenditures in the Inland Waterway Trust Fund are built in a timely and cost-effective manner. The need for improvement in the process is evident when comparing current projects with lock-and-dam modernization projects authorized a little more than 20 years ago under the Water Resources Development Act (WRDA) of 1986. Construction for all seven of the WRDA ’86 lock-and-dam modernization projects proceeded at a pace that saw the new or modernized locks become operational fairly quickly, anywhere from four to eight years, with the average for all seven projects equaling 6.3 years. Since then, the estimated time to complete lock-and-dam modernization projects has ballooned well beyond reasonable time and costs; only one post-WRDA ’86 project thus far has seen its modernized lock become operational (Marmet, near Charleston, West Virginia). An example of this disappointing project delivery system is the Lower Mon project on the Monongahela River near Pittsburgh, under construction for 13 years with the Corps of Engineers’ current estimates for completion being another 13 years at best – around 2022 – with cost overruns pushing original estimated costs from $550 million to new estimates exceeding $1.3 billion. This is a problem not only for commercial users of the system, who need efficient and reliable ways to move the nation’s commodities, but also for every taxpaying citizen who cares about how government should perform on its behalf. Our nation must fix this problem and work harder to modernize our lock-and-dam system if we want to remain
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OPEDc.MarTIn world leaders. For example, China has announced plans to spend a half-trillion dollars over the next three years to stimulate its economy. Last November Waterways Council, Inc. (WCI) submitted testimony to Congress urging the inclusion of $1.5-$2.0 billion for the nation’s critical lock-and-dam infrastructure system under the second economic stimulus package focused on infrastructure investment, job creation, and economic recovery. WCI specifically urged Congress to fund a total of 16 congressionally-supported, lock-and-dam modernization projects with approximately $1-$1.5 billion that could productively and quickly (perhaps within 90 days of enactment) expedite job-creating construction work associated with the projects. It also requested an additional $500 million to be appropriated in the stimulus bill for productive, high-priority, employment-enhancing operation and maintenance (O&M) work on the inland waterway system. At press time it was unclear when the full economic stimulus package would be presented or what priority would be given to our nation’s inland waterways infrastructure, but we will continue to urge our leaders in Congress and the new Administration to recognize the importance of our nation’s inland navigation system and address its critical needs. America’s inland navigation system offers our country an opportunity to compete in the world market, but if we
don’t make necessary investments now, our future as a world leader is in jeopardy. Mar Ex
cornel Martin is Waterways Council’s new President and CEO. Prior to being named to this position he was Chairman and CEO of Direct Workforce, Inc., a contract labor company serving the shipbuilding, ship repair, and oil and gas industries based in Houma, Louisiana. Previously, Martin served as President and CEO of the Canadian American Transportation System. He also served as Vice President - Corporate Affairs of American Classic Voyages Company, parent of the Delta Queen Steamboat Company (and other cruise line subsidiaries). In the early 1990s, Mr. Martin worked as Vice President – Southern Region, for the American Waterways Operators. During the 1980s he was a member of the senior professional staff of the House of Representatives’ Coast Guard and Navigation Subcommittee and Legislative Assistant for Maritime Affairs for Congressman W.J. “Billy” Tauzin of Louisiana. He can be reached at email@example.com.
J a n u a r y / F e b r u a r y 2 0 0 9 | 17
1/27/09 9:56:42 AM
Shipping Stocks, along With the Markets, Got clobbered in 2008. Is There More to come? IT WAS THE THIRD WORST YEAR EVER for stocks. Only the Panic of 1907 and the Depression year of 1931 were worse, and not many of us were around back then (thankfully). For the record, and in case you’ve already forgotten, the Dow Jones Industrial Average fell 34 percent last year (compared with 53 percent in 1931 and 38 percent in 1907). The more broadly based S&P 500 and Nasdaq indices fell 39 and 41 percent, respectively. Most of the damage occurred in the September-November timeframe, with the market reaching a low for the year on November 20. If you had been smart enough to follow the old Wall Street adage of “Sell in May and go away” (the markets actually peaked in May), you would be sitting pretty right now, having avoided losing about half your portfolio. But most of us weren’t that smart and now find ourselves faced with the stark realization that (1) the gains of the last five years have all been wiped out, and (2) stocks are now trading below where they were 10 years ago. Huh? Whatever happened to the time-tested strategy of “buy and hold”?
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Aren’t stocks supposed to go up (not down) over time and even outperform all other asset classes over the long term? Oh well, we’ll just have to chalk it up to (what?) and content ourselves with the prospect of capital loss carryforwards for many years to come. The good news, if you can call it that, is that the U.S. actually fared better than the rest of the world. That 34 percent decline in the Dow looks downright measly when compared to the 46 percent decline for the rest of the world, ex the U.S. No region was spared. Europe, as measured by the Dow Jones Stoxx Index, fell 46 percent, a record. Latin America and Asia-Pacific, along with other emerging markets, were among the hardest hit, each declining 53 percent. Individual countries fared even worse, with two of the erstwhile favorites (remember BRIC?) – Russia and China – down a whopping 72 and 65 percent, respectively, inspiring protests in both countries. Brazil, another member of BRIC and Latin America’s largest economy and stock market, was not far behind with a 57 percent decline, while India – another erstwhile darling and charter BRIC member – fell 52 percent. But the blue ribbon went to lowly Iceland, where a banking crisis of historic proportions rendered the local currency worthless and reduced equity values by a staggering 96 percent. Even Ireland, the former Celtic Tiger and pride of the Eurozone, was not immune, falling 69 percent, behind only Iceland and Russia. The lone safe haven was Treasurys, where interest rates began the year at attractive levels and stayed that way until the final few months. As the Fed began to lower rates, the price of these higher-yielding bonds soared. The 30-year bond fared best, up more than 40 percent in 2008, followed by the 10-year at 23 percent and the two-year at eight percent. But this window has already closed as panicked
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jackO’connell investors, seeking the safety of Uncle Sam, have flocked to Treasurys and driven rates to record lows.
What Goes Up… Must Come Down
Now for the really bad news (as if you didn’t already know): Shipping stocks were among the market’s worst performers. Nevermind declines of 40 or 50 percent. We’re talking 70 and 80 percent. Why? Because the bubble in commodity prices finally burst, and the value of everything these vessels carry – from coal to grains to oil – plummeted. Couple that with a worldwide recession, falling consumer demand, declining trade, and frozen credit markets, and – well – you get the picture. In the face of all this, if your shipping portfolio lost less than half its value in 2008, you
See the Possibilities
should be writing this column. Let’s start with 2007’s #1 performer and everyone’s favorite trading stock, DryShips (DRYS). This is the largest publicly traded drybulk company with a fleet of 40 vessels, and it also owns Ocean Rig, an ultra-deepwater drilling company, which it plans to spin off to investors during the first quarter of 2009. DRYS is a day trader’s (if there are any left) delight. After peaking at 130 in mid-2007, it traded as low as 3 in late 2008. Plenty of room for arbitrage there! On an average trading day, nearly half of DryShip’s shares change hands. You can literally double your money, or lose half of it, in a week in this stock. Unfortunately, after a 330 percent rise in 2007, DRYS came crashing back down to earth in 2008, falling 86 percent and finishing #1 on our Bottom 5 list of worst performers. But DryShips was not alone (see Chart 1). Based on a selective yet comprehensive survey of maritime equities in 2008 with a market capitalization of at least $100 million, plenty of them had declines in the 70 to 80 percent range. As you would expect, the Bottom 5 is not a pretty sight. And as you would also expect, the list is composed entirely of drybulk carriers. Bulkers suffered the most due to the previously mentioned Great Commodity Bust of 2008 and the consequent epic collapse in shipping rates. The Baltic Dry Index, which tracks rates on the 40 most heavily traveled
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1/27/09 9:57:14 AM
jackOâ€™cOnnell cHarT 1: bOTTOM cOMPany (Symbol)
5 12/31/08 Price
1. DryShips (DryS) 2. excel Maritime (eXM) 3. eagle bulk (eGle) 4. navios Maritime (nM) 5. Genco Shipping (GnK)
$10.66 7.04 6.82 3.16 14.80
change in â€˜08
-86% -82 -74 -74 -73
shipping lanes, peaked in May at 11,793 and ended the year at 774. Thatâ€™s a decline of 93 percent, which would make the Index â€“ if it were a stock â€“ the winner in our unofficial poll. Nothing like that had ever happened before. No wonder these stocks did so badly. Did someone say shipping was a cyclical business? Now for the Top 5 (see Chart 2). In any other year, they would be the Bottom 5. cHarT 2: TOP
1. nordic american (naT) 2. Tidewater (TDW) 3. Seacor Holdings (cKH) 4. Frontline (FrO) 5. Knightsbridge (VlccF)
t t t t t t t t t t t t t
$33.75 40.27 66.65 29.61 14.65
change in â€˜08
+3% -27 -28 -38 -39
4UBCJMJ[FEWJEFPXJUIUBSHFUUSBDLJOH %BZMJHIUoVQUPYDPMPS[PPN /JHIUY'1"*OGSB3FEOJHIUWJTJPO 4JNQMFWJEFPHBNFMJLFDPOUSPMT "VUPMBVODI nZBOEMBOETIJQCPBSE 'SPNMJOFPGTJHIUUP4"5$0.SBOHFT &OUJSFTZTUFNTTUPXDPNQBDUMZ 'BTUUPTFUVQ MBVODI SFDPWFSTUPXBXBZ "GGPSEBCMF4ZTUFNT 3FBM5JNF $MPTFVQ7JEFP 3PCVTU1SPWFO -PDBUFBOE7FSJGZ1PTTJCMF5ISFBUT&BSMZ 4NBMMUPNFEJVNTZTUFNToGSPNISUPPWFS ISnJHIUUJNFT
Amazingly, there actually was one company whose stock was up in 2008. (Trivia question: Can you name the only two Dow stocks that were up in 2008?) That company was Nordic American Tankers (NAT), a name not previously mentioned in this space but one clearly worth watching. NAT operates a relatively small fleet of 13 Suezmax tankers and is committed to paying out most of its free cash flow in dividends, resulting in an attractive double-digit yield for investors (last year its yield was close to 20 percent). The rest of the Top 5 is split evenly between oil service companies (Tidewater and Seacor) and tanker companies (Frontline and Knightsbridge). As a group, tankers did best, in part because of their attractive dividends and in part because the demand for oil, despite falling somewhat, didnâ€™t fall as far or as fast as other commodities.
The road ahead
Is there more to come in 2009? Hard to say. If history is any guide (and it sometimes is), the answer is a qualified no. Following the Panic of 2007, when stocks fell 38 percent, they rose 46 percent in 1908. In 1931, when the Dow had its worst year, falling 53 percent, it declined another 23 percent in 1932 before rising 67 percent in 1933. The market crash of October 1987, when stocks fell 32 percent, was followed by a 28 percent gain in the next 12 months. More often than not, stocks tend to rise in the year following a sharp decline. Whatâ€™s different this time around â€“ and further encouraging â€“ is the determination of governments around the world to work together to restore confidence and inject liquidity into a system that has ground to a halt. On the one hand, itâ€™s hard to see how stocks could fall much farther, or commodity prices and shipping rates, for that matter, given the carnage of the last 12 months. On the other hand, is there any real reason to buy stocks right now, given the current economic outlook and the absence of available credit? According to most pundits, the true sign of a market bottom is not when people stop buying stocks or stop withdrawing their money from stock mutual funds. Itâ€™s when they lose interest. Itâ€™s when they no longer care. Ask yourself: Do you still care what happens in the market each day? Do you still watch the talking heads on CNBC? Do you still look at your monthly 401(k) or brokerage account statements? If the answer is no, then perhaps there is hope after all, and we have indeed touched bottom. Oh. Those two Dow stocks that actually rose in 2008? Walmart (up 18 percent) and McDonaldâ€™s (up six percent). Happy investing! Mar Ex
Jack Oâ€™Connell, the senior copy editor of this magazine and a former maritime executive, is a private investor who may own shares in some of the companies mentioned in his columns. The views expressed in this column are his and his alone and are not in any way to be construed as investment advice. 20 | J a n u a r y / F e b r u a r y 2 0 0 9
1/27/09 9:57:17 AM
1/27/09 9:57:20 AM
crOWleyMaRITIME caSeSTUDY caSe STUDY
THE MaRITIME EXEcUTIVE
In a world characterized by rapid change and the disappearance of one old-line company after another, crowley Maritime stands unique – not only among maritime companies, but among all companies. This 117-year-old ﬁrm has survived wars, the Great Depression, booms and busts, and the ups and downs of a cyclical industry and emerged stronger than ever. Now under the third generation of family leadership, the ﬁrm has steadfastly refused to go public and is the largest privately held maritime company in america, with interests ranging from tugboats and aTBs to logistics and salvage. How did it survive so long and so well, and what does the future hold? B Y T O N Y M UN O Z
a century of Progress
For more than 100 years Crowley Maritime has been recognized as a leader in marine and liner services. Now the third generation of leadership has made its indelible mark on the organization as it enters a new century of operations. Eight years ago, when MarEx first sat down with Thomas B. Crowley, Jr., he was in the process of redefining the company; and yet he was acutely aware of the company’s traditions and gritty infrastructure built over the previous 100 years. Steeped in an overshadowing history, which stood towering behind him, the young Crowley embarked on flattening the organization to be more reactive and responsive in the new Millennium. In the early part of the decade, as China and India drove the global economy to soaring heights, the maritime industry reaped the rewards of full employment, the best rates in 30 years, and shipyards teeming with modern equipment under construction. Tom Crowley, Jr., who was raised by a father who preached that “You can only eat one steak a day,” acknowledges both his grandfather and father were frugal men who continually reinvested in the most modern technology of their day.
1/27/09 9:57:23 AM
crOWleyMaRITIME caSeSTUDY caSe STUDY
THE MaRITIME EXEcUTIVE
When Crowley became CEO in 1994, almost 80 percent of the company’s revenues came from the capital-intensive Liner Services Division, which serviced South America, Central America, Puerto Rico and the Caribbean Islands. When the South American economies softened, the entire company felt the strain of the economic downturn. The South America operation was eventually sold to Hamburg Sud. Crowley understood that in the lightening-fast speed of the information age, a more diversified and flatter company would be better equipped to make critical decisions, mobilize fleets and people, and survive the competitive battles for market share and profits. Crowley set about establishing an egalitarian organization free from the constraints of the traditional empirical, analysisparalysis corporation. First, he broke down the silos of the
The Dawn of a new era
business units by creating the company motto of “One Crowley.” Then he began shifting managers among the various operating units. For instance, the Marine contract services manager in Seattle was moved to the Liner Services Division in Jacksonville. The new philosophy of a flat, democratic organization said the overall company was what mattered and the business units all shared the same bottom line. Individualism was set aside, and Crowley focused on leaders who knew the culture and had the capacity to plan strategically. Being a privately held company and not beholden to shareholders made it easier to rotate the senior management team from one unit to another and gave the organization a fresh look, which ultimately invigorated the rank and file. Assisting the managers were cross-functional teams made up of people from the various business units, who were brought together to solve problems within the company.
1/27/09 9:57:26 AM
crOWleyMaRITIME caSeSTUDY caSe STUDY
THE MaRITIME EXEcUTIVE
Democracy in the Workplace
Today, Crowley Maritime Corporation is managed by the leadership team, which consists of twelve senior managers. The group is made up of the six business unit managers and the heads of each of the support departments, including IT, Legal, the Controllerâ€™s office, Treasury, Insurance, and Senior Administration, and of course Tom Crowley and Bill Pennella, who is the Vice Chairman. With the exceptions of Crowley in Oakland; Rocky Smith, Vice President and General Manager, Pacific/Alaska, in Seattle, and the bicoastal Pennella, the leadership team is domiciled in the companyâ€™s Jacksonville, Florida headquarters. Symbolically, the Jacksonville headquarters are currently
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being renovated and there will no longer be individual offices. Crowley believes a company without walls fosters teamwork and collaboration. The days of coming to work, closing the door to work on the computer and being isolated inside the four walls of an office are things of the past. Crowley himself doesnâ€™t have an office. When we arrived at the Oakland offices for the â€œexecutive interview,â€? we were greeted by a receptionist, and sitting next to her was Tom Crowley at an open work station. The Jacksonville and Seattle facilities will now have â€œbreak-out roomsâ€? for meetings. Most company meetings are comprised of small groups of three or four people, and rarely large groups, says Crowley. Being a member of the Young Presidents Organization and having lots of friends managing high-tech companies in Silicon Valley, Crowley has witnessed the virtues of an open work environment. He has seen the benefits of an egalitarian organization without territorial-
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