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Maritime Security

Domain Awareness Defined

Safety Enhancements Passive, But Critical

THE MARITIME EXECUTIVE H A R RY VA F I A S | VA F I A S G R O U P

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timprotheroe timprotheroe coNteNtS

Volume 13, Edition 8, march/april 2009

22

26

case Study:

executive interview:

coNteNtS harry VaFiaS

VaFiaS groUp

the Vafias group: Brave, stealthy and smart, too harry Vafias Carefully navigates the world of shipping and a Perilous global Financial Climate

CEo of the Vafias group By JoSeph KeeFe

By JoSeph KeeFe

16 weathering the Storm

a step-by-step guide to riF management

By roBert c. leMert, coNStaNgy, BrooKS & SMith, llp

32 offshore lNg – italian Style By MareX StaFF

38 gummy Bears or cocaine? By Dr. JiM gierMaNSKi

44 Maritime Safety: “Mind the gap” Passive Fire-resistant, gas, smoke and water-tight sealing systems Provide Peace-of-mind to maritime operators Everywhere

48 Marine coatings: No room for error By patricia KeeFe

52 Solving piracy: Maritime early Detection May Be the Key

Marex Departments executive achievement

8

tim protheroe

lloyd’s register north america, inc. By MareX StaFF

washington insider

radio Zeeland Pushes the Envelope for robust, Commercially driven solutions to Combat the most significant threat to world Commerce in 60 Years

10 president obama’s energy agenda

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Upgrades & Downgrades

56 coatings Directory

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14 Moving in the right Direction By raDM JaMeS a. watSoN, UScg

20 is the Baltic Dry Flashing a Buy Signal? By JacK o’coNNell

By JoSeph KeeFe

March/april 2009 | 3

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pUBliSher tony munoz :: tonymunoz@maritime-executive.com eDitor iN chieF Joseph a. Keefe :: jkeefe@maritime-executive.com SeNior copy eDitor John J. o’Connell, Jr. :: harvardjo@maritime-executive.com art Director Evan naylor :: enaylor@maritime-executive.com aSSiStaNt art Director daniel Bastien :: dbastien@maritime-executive.com SeNior Vice preSiDeNt SaleS & MarKetiNg Brett Keil :: bkeil@maritime-executive.com aDVertiSiNg SaleS MaNager Elizabeth Johnson :: ejohnson@maritime-executive.com SaleS aSSociate irena ortlani :: irena@maritime-executive.com SaleS aSSociate tom darr :: tdarr@maritime-executive.com SaleS aSSociate - gerMaNic eUrope hansjorg Brans :: jbrans@maritime-executive.com Director oF SaleS - aSia Philipho Yuan :: fyuan@maritime-executive.com iNterNet SerViceS MaNager steven gonzalez :: sgonzalez@maritime-executive.com accoUNtiNg MaNager marci ryan :: mryan@maritime-executive.com circUlatioN MaNager danielle Phillips :: dphillips@maritime-executive.com 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 | March/april 2009

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Editorial

Bottom Line? Not Business as Usual

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.

Here at MarEx, our editorial calendar does not allow us to be a “just-in-time” source of news for our loyal readers. But as we go to press, there is much to talk about and plenty to ponder. Today’s focus for most shipping executives and maritime managers is the economy: How much money can we spend on capital expenses? What’s the travel and training budget? Can we squeeze another year out of that tired old hull? That’s understandable. On the other hand, those who focus only on the bottom line are likely to end up at the bottom of the barrel. The reasons why are self-evident. In the space of just one week in March, I watched as four major stories crossed my desk. Three of these items were related to regulatory issues, and the fourth? Finally a bit of good news for shipbuilders. In the bad news department, however, a Hawaii Supreme Court decision forced the Hawaii Superferry to suspend operations until an environmental review could be completed. The firm, which has arguably done more to protect the environment in its short lifespan than the EPA has ever even dreamed of attempting, suddenly was forced to begin releasing as many as 161 employees. The impact to the island in terms of the ripple effect on the economy is still being sorted out. As a result, the feel-good story of an Americanowned shipping line that hoped to bring prosperity to Hawaii using American employees, U.S.-built bottoms and a desire to help struggling local citizens might just be over. Bottom Line? Anyone who thinks it is going to get easier or more logical on the environmental front in the near term is sadly mistaken. Meanwhile, an effort by conservation groups in Minnesota and Wisconsin to force the federal government to regulate ships’ ballast water has been turned aside. A federal judge dismissed a case brought by the groups against the U.S. Department of Agriculture and the Coast Guard. In the meantime, Minnesota, Wisconsin and Michigan have enacted state regulations that will require saltwater ships to treat ballast water. You can’t blame the states for trying where the federal government has so far failed to act. And yet, at last month’s “State-of-the-Coast Guard” address, ADM Thad Allen disclosed that the Obama Administration needed more time to review a proposed ballast-water protocol that eventually would have paved the way for a definitive, nationwide standard. Bottom Line? Shipping executives are left scratching their heads over which $1 million system to install so that they can keep trading in a balkanized U.S. and Great Lakes region. There’s more: Sen. John Kerry (D-MA) and Rep. Doris Matsui (D-CA) have re-introduced legislation in the U.S. Congress that they say would improve cruise passengers’ safety. The Cruise Vessel Security and Safety Act of 2009 would require cruise lines to report allegations of crimes on ships to the U.S. Coast Guard and the FBI. It would also require the ships to carry equipment needed to perform a medical examination to determine if a passenger had been raped, and further mandates that a licensed medical practitioner be on every ship to perform the examinations. Also included are as many as six additional serious infrastructure requirements that promise to cost the operators plenty. In response, the Cruise Lines International Association (CLIA) said that the safety and security of cruise line passengers is the top priority of its membership. Bottom Line? Very soon, and in a challenging economy, it could get a lot more expensive to run a cruise vessel in U.S. waters. Finally (and this is the good news), domestic shipyard executives are sharpening their pencils and putting forth their proposals to MARAD in hopes of reaping some of that federal stimulus cash – $100 million, as it turns out – for their modernization plans. This in itself is a remarkable story. If there is a silver lining to this economic dark cloud, then perhaps this would be it. Bottom Line? Who in their right minds would have believed that Congress might have otherwise ponied up to help domestic shipbuilders to the tune that their foreign competitors typically enjoy as a regular staple? Looking at the bottom line is a good idea. Raising your head once in a while to anticipate what the regulatory and legislative climate will do to that bottom line might be even smarter. Bottom Line? There is plenty to think about beyond the economy. Mar Ex

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timprotheroe executive achievement:

timprotheroe, lloyd’s register North america, inc.

By marEx staff

lloyd’s register’s North american presence is Defined by protheroe’s ability to Navigate changes in technology, culture, and the climate for Business experience counts

It is not often that a business is blessed with leadership at the top that can call upon both executive business development skills and boots-on-the-ground experience. At Lloyd’s Register North America, however, they’ve hit the exacta. With (Captain) Tim Protheroe serving as Regional Marine

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Manager and President, seemingly all aspects of career experience are covered at the very top. Since 1997, Protheroe has quietly been positioning the Lloyd’s brand for success in the Americas. Originally from the UK, Tim spent 15 years at sea serving on a variety of platforms, eventually rising to Master. Starting with an apprenticeship with Shell Tankers, an exacting and demanding organization, he spent 10 years with Swires in Asia and earned his Master’s ticket at the tender age of 28. On the water, there is little that he hasn’t done, and his CV includes service on gas ships, product carriers, VLCCs, general cargo, containerships, dive support vessels and passenger vessels. He accomplished all of that before the age of 34 and joined Lloyd’s in 1992. His seagoing experience, therefore, provided a solid base from which Protheroe now presides over what he characterizes as a “very diverse, across-the-board portfolio.”

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When he came ashore in 1992, in part to get closer to his children, Protheroe didn’t necessarily want to become a surveyor. The lure of a position that allowed him to stay close to the ships he loved eventually landed him in Lloyd’s London shop, where he naturally concentrated on developing management systems, safety and

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timProtheroe environmental consulting and, eventually, travelling globally to implement, approve and audit various ISM systems. In the process, he began to view these protocols as something that should improve operations, not hinder them. “I hated to see people buried in a sea of bureaucracy and paperwork.” As such, he began a quest that continues to this very day: developing the ISM system for each class of vessel. Protheroe’s travels took him from London to Scandinavia – where he set up a regional center of ISM excellence – and then on to Miami where he developed another regional center, this time (to include ) internal and external training. Today, the Miami office boasts a regional center of excellence focusing on the cruise industry, in which Lloyd’s owns a formidable market share. After a stint in Seattle where he enjoyed some early success with business development on a local level, he moved to Houston in late 2003 to oversee all business development activity for the Americas. He was appointed to his current role in July 2007, directing all of Lloyd’s marine activities and global marine strategies in the Americas.

Big Changes: New Technology/New Cultures

If there is one thing that Tim Protheroe understands well, it is “culture change.” At sea, culture change defines his journey from tankers to gas carriers and then all the way to the highly technical world of offshore DSVs, complete with DP technology and powerful thrusters. Still, he looks back on those experiences with fundamental concern and says, “There is so much technology. Today, the basic principles of navigation and seamanship are in danger of being eclipsed.” Similarly, Protheroe has successfully navigated culture change in North America, both personally and for the organization. Classification societies in general tend to be full of and run by technocrats. And while Protheroe has held both technical and business management roles in various locations, his goal is anything but to be caught up in technical minutiae. He has addressed numerous audiences on marine industry topics as part of distinguished panels and conference programs over the years but freely admits, “I tend to manage in a style that is human-based.” His time spent as Master, leading teams of multinational seafarers, set the tone for what was to come later. Under Protheroe’s steady hand, Lloyd’s Americas workforce has come to better reflect the diverse nature of the marketplace it serves.

participation in the ACP program and other similar efforts. As Protheroe settled into his new role, he quickly understood that Lloyd’s, at least in this hemisphere, needed to better understand the industry sectors doing business in this region. Along with this came the realization that the strategic development of the organization would hinge on remaining tactically focused and planning better for what was to come. Protheroe adds, “This involved splitting up the technical and business development roles and dedicating people to one or the other.” The net result has been an organization that is more efficient and proactively plans for the future instead of simply reacting to market forces. A leader at every stage of his career, Tim Protheroe is now the face of Lloyd’s Register Marine in the Americas. He remains acutely aware of the stiff competition presented by its closest rivals. In an environment where “size” of portfolio does matter, he reminded MarEx of Lloyd’s rapidly developing relationships with quality operators like Teekay, Maersk (MSP reflaggings) and the principle Cruise Lines. He also resolutely stays focused on the real prize. “Our job is to enhance safety and the environment. There is more than enough work to go around for everyone.” And if that business philosophy seems a little too laid back for the head of a major classification society’s America’s operation, then it is helpful to stop and remember the source of that wisdom. Mar Ex

Benchmarking Success: Market Share and a Diverse Portfolio

Tim Protheroe would define success in terms of the changing – and growing – portfolio of Lloyd’s business in the Americas. This did not happen by accident. Hand-in-hand with establishing better ties to the U.S. maritime industry, today’s Lloyd’s operates with more local talent than ever before. And if this involved a change of culture, then the fruits of those labors have also produced a measurably higher yield for the parent company. Closer interaction with the Coast Guard’s senior command has allowed Lloyd’s to ramp up its March/april 2009 | 9

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washingtoninsider Written by Larry Kiern, Winston & Strawn LLP

WashingtonInsider President Obama’s Energy Agenda

Change comes to both washington and national energy policy A year ago, this column reported change in America’s national energy policy. By March 2008, Senator McCain was the Republican nominee. His maverick energy policy contrasted sharply with that of the former Texas oil men who oversaw energy policy for eight years. Along with the positions of the leading Democratic party candidates, Senators Obama and Clinton, the selection of Senator McCain signaled a likely change in energy policy by emphasizing the development of renewable and alternative energy sources. The inauguration of President Obama confirmed that change. From 2001–2008, the Bush Administration emphasized domestic fossil-fuel development as the primary path to energy independence. By contrast, the Obama Administration elevates renewable and alternative energy sources above fossil fuels. This shift has caused domestic fossil-fuel producers, including offshore oil and gas producers, to stress the compatibility of their output with the Administration’s energy, environmental, and economic goals. Today, a heightened sense of environmental concern arising from increased sensitivity to global warming influences the American electorate’s views on energy. Recognizing the changed political climate, the new Administration delayed the last-minute Bush Administration proposal to reopen offshore drilling. On February 10, 2009, Secretary of the Interior Ken Salazar announced a six-month extension of the March 2009 deadline for public comment provided by the Bush Administration. He explained that the offshore drilling plan deserved greater input from the public. Energy industry representatives swiftly criticized the decision and advocated expedited offshore drilling to spur job growth and energy independence. The next six months will likely witness diverse interests, including coastal states and environmental groups,

providing additional input to the process of deciding how offshore drilling will occur. Despite this delay, the Obama Administration will likely not ban offshore drilling. Presidential candidate Obama signaled that it makes no sense to lock up America’s vast fossil-fuel reserves. What the nation needs is a responsible program of development of the most productive fields that represent the least environmental risk to the nation. This will require careful planning, which Secretary Salazar’s decision seeks to produce. Additionally, Secretary Salazar announced that the Department of the Interior will issue an overdue final rule regulating the development of offshore renewable energy resources, i.e., wind, wave and tidal energy. Although Congress enacted legislation in 2005 mandating the department to issue the regulations within nine months, the Bush Administration failed to do so over the intervening three years. Thus, Secretary Salazar’s actions signal a new emphasis on the development of renewable energy sources while acknowledging the practical reality that existing fossil-fuel resources should not be sequestered. On March 3, 2009, President Obama issued a memorandum returning the federal government to the traditional vetting procedure under the Endangered Species Act, which the Bush Administration had halted on December 16, 2008. Once again, federal agencies must consult with the Fish and Wildlife Service or the National Oceanic and Atmospheric Administration about impacts on endangered species. The U.S. Chamber of Commerce decried the memorandum as frustrating job growth. The new Administration’s actions manifest a determination to more fully integrate environmental considerations in energy decisions despite the nation’s economic crisis.

Stimulus Sparks Investments in Renewables and Conservation President Obama and the Democratic Congress quickly used the national economic crisis to implement programs to promote new energy sources and spur investments in energy-saving measures. The recently enacted American Recovery and Reinvestment Act aims to reduce America’s dependence on foreign energy resources principally by promoting the development of domestic renewable and alternative sources – biofuels, solar, wind, wave and tidal energy – and encouraging energy conservation. Overall, the legislation provides approximately $80 billion in spending and tax cuts for renewable energy and thereby triples the amount of spending on clean-energy programs. It extends for three years the tax credit for wind energy and until 2013 the credit for geothermal and biomass energy projects. It appropriates $4.5 billion in direct spending to modernize America’s electricity grid; over $10 billion to improve energy efficiency for government facilities and operations; $6 billion in loan guarantees for renewable energy projects; $2 billion for advanced-technology batteries for automobiles; $5 billion to weatherize homes for low-income Americans, and $3.4 billion for clean-energy fossil fuel research. The legislation manifests the policy priorities of the new Democratic leadership, which is now responsible for implementing it. In the end, rhetoric only goes so far, and the real test of government is, “Does it work?” Americans will measure the success of the new leadership on the results. Will Americans take advantage of these programs to cut their energy consumption? Will renewable energy sources replace fossil fuels? And more immediately, will these programs improve America’s economy?

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washingtoninsider More Battles Ahead Over Energy Policy As a candidate, Senator Obama expressed strong support for a new international treaty to reduce global warming. He also supported a sharp cut in carbon dioxide emissions in the United States and adoption of a cap-and-trade system. With the publication of his first budget proposal, President Obama elevated these goals to the top of his domestic policy agenda. His budget proposes a cap-and-trade system modeled on the Clean Air Act of 1990, which adopted a similar system for sulfur emissions from power plants. The proposal aims to reduce carbon emissions while raising over $600 billion in revenues by auctioning emission permits over the next decade. It also proposes more than $30 billion over ten years in new excise taxes on the offshore oil and gas industry and increased fees for energy production from federal lands. Opponents of these measures quickly emphasized the additional burden on the American economy that such taxes impose. They also questioned the wisdom of increasing taxes on one of America’s most important domestic employment engines, fossil-fuel production. In response, the Administration pointed out that the tax increases

would not start until 2011, when the economy is expected to have recovered. In recent decades, carbon taxes of various forms have proven politically unpopular in the United States. President Clinton’s 1993 proposal of a modest increase in the gasoline tax to fuel infrastructure spending failed. Recently, the proposal by the Governor of Massachusetts, Deval Patrick, to increase that state’s gasoline tax by a mere 19 cents proved controversial even though its average weekly cost to taxpayers is the equivalent of a large cup of coffee. It remains to be seen if the fossil-fuel taxes proposed by the Obama Administration will be enacted into law and whether they will have their intended effect or produce unintended consequences by reducing domestic production, stalling employment growth, and leaving America more vulnerable. Despite these risks, the Obama Administration concluded that the most effective way to curb the nation’s appetite for fossil fuels is to increase their cost. European nations adopted this approach decades ago and increased the cost of fossil fuels to foster conservation and the development of alternative energy sources. They also embarked on more ambitious nuclear energy programs to cushion the volatility of the world oil market. By contrast, the

United States has found implementing carbon taxes and expanding nuclear power more difficult. The United States built its far-flung suburban communities and continental transportation systems on a foundation of cheap fossil fuels. The challenge for the United States remains whether it will learn the painful lessons of the Arab oil embargo of the 1970s and the $147-per-barrel-oil crisis of 2008 and be willing to incur the costs of an energy policy that lessens dependence on foreign fossil fuels.

Will the Obama Administration Support Domestic Fossil-Fuel Development? With the new Democratic leadership’s preference for renewable and alternative energy sources manifest, what remains unclear is precisely how energetically and effectively it will promote the major private initiatives already underway domestically to develop untapped fossil-fuel resources. During the presidential campaign, candidate Obama expressed support for development of America’s fossil-fuel reserves as part of a comprehensive energy strategy. He recognized that even with strong government incentives it will take many years for renewable energy to supply a substantial portion of America’s energy needs.

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washingtoninsider There appears to be little appetite among the Democratic leadership on Capitol Hill to challenge President Obama’s position. The recent introduction in the House of Representatives of the Omnibus Appropriations Act of 2009, which contained express legislative provisions designed to reverse certain Bush Administration environmental rules, notably lacked any proposal to reinstate the moratorium on offshore drilling that lapsed last fall. It appears the Administration will support environmentally responsible development. For example, Alaska’s proven natural gas reserves alone already are sufficient to supply Americans with over 4 billion cubic feet of gas per day for approximately 15 years. Moreover, the Minerals Management Service (MMS) has estimated that an additional 165 trillion cubic feet of natural gas reserves likely will be discovered in Alaska. The national interest demands that the Administration bridge the gap that has separated disparate interests for years and stalled the development of these enormously valuable national energy resources. Beyond natural gas in Alaska, the Democratic leadership should recognize, as did the Bush Administration, that environmentally responsible development of the nation’s offshore oil and gas re-

serves is warranted. Even with the new preference for renewable energy, fossil fuels will remain the principal source of energy in America for decades. The key is for the Administration to conduct thorough environmental impact analyses that satisfy the requirements of the National Environmental Policy Act. When proper analyses are conducted, courts permit development. The recent experience of MMS and Shell Oil Company in Alaska’s Beaufort Sea highlights the risks of less-than-thorough environmental vetting. Shell’s plan to start exploring in 2007 has effectively been stalled indefinitely by court challenges because of alleged shortcuts by MMS in the permitting process. The better approach is for the Administration to conduct full environmental analyses that will withstand the inevitable court challenges and move these important domestic energy development projects forward. Responsible environmental stewardship and fossil-fuel energy development are not incompatible. Moreover, in this time of national economic crisis, fossil-fuel development creates high-paying American jobs.

Outlook The political impetus for change has moved

decidedly toward protecting the environment by promoting renewable and alternative energy sources and requiring strong environmental protections for fossil-fuel development and consumption. America’s national energy policy is now first and foremost an environmental protection policy. Only by embracing the compatibility of these two goals will the American people achieve real progress in implementing a national energy policy that also strengthens the American economy. Mar Ex

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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GUAR ST

C OA S E T Marex: op-eD D STA E T I

oPEdwatSoN

Moving in the right Direction N

U

17 9 0

D

By radm James a. watson, UsCg – marine safety, security, stewardship

New Marine Safety initiatives are Showing results In 1790 Alexander Hamilton exhorted the newly commissioned revenue marine officers of the United States to never forget that their seafaring countrymen were free men— impatient of government officials with a “domineering spirit.” He charged them to enforce the law from armed patrol vessels but also to assist ships in distress. He emphasized that sloppy work would result in “clamor, disgust and alarm” among merchant mariners. Today, U.S. Coast Guard officers issue merchant mariner licenses and vessel certificates of inspection, ensure shipping channels are marked, broadcast marine warnings, direct rescues at sea and oversee salvage and oil spill response. Building on Hamilton’s vision of a federal seagoing service that balances lifesaving and enforcement, Coast Guard officers have broad authority to direct ship movements, investigate marine incidents, and regulate the nation’s waterways.

three Measures of Success

The Coast Guard is accountable for America’s maritime safety, security, and environmental stewardship. Our annual measures of effectiveness include (1) fatalities on commercial vessels and recreational boats, (2) foreign vessel safety detentions, and (3) total number of oil spills. During the course of my career, fatalities on commercial vessels have dropped from more than 500 to fewer than 100. Boating fatalities per 10,000 boats have decreased from 20 to 5.5 per year. Since 1996, foreign vessel detentions have decreased to 1.36 percent of 8,000 annual port calls. Similarly, significant (>100 gals.) oil spills have dropped from more than 300 to fewer than 150 per year. Since 2001, however, these positive downward trends are flattening and in some cases beginning to rise. For example, the five-year average for commercial passenger deaths and injuries is increasing, and annual recreational boating deaths and injuries are rising from all-time lows achieved earlier in

the decade. Some maritime segments have a disproportionate number of casualties. Uninspected towing and commercial fishing, for example, are the two largest contributors to commercial mariner deaths and injuries, and to vessel property losses. Last year the Coast Guard responded with a series of multiyear program enhancements to improve marine safety performance. Initiatives included increasing mariner credentialing capacity and the number of marine inspectors, investigators and engineers. The program also called for the establishment of “centers of expertise,” new technologies and a two-way dialog with the maritime community. Additionally, we published the Marine Safety Performance Plan to address recreational boating safety, towing vessel inspections, commercial fishing vessel risks and the maritime transportation risks evident in last year’s booming economy. Lastly, we instituted a Mission Management System based on ISO 9001:2008 guidelines to self-govern the entire effort.

how are we Doing?

Like any stimulus program, there’s a lag time before measures such as deaths, injuries and property loss show definite trend changes. It may also be difficult to distinguish real safety improvements from the short-term impact of the financial crisis. For most Americans, what counts is that nothing particularly bad happens—a really difficult metric. If an Exxon Valdez-size oil spill hasn’t occurred in 20 years, is the industry safe enough or not? We welcome public opinion to help us answer that question. In the meantime, there is some progress to report. International standards for training and watch-keeping, an automated identification system, and ship and port security are fully implemented. Progress is also evident in the recreational boating and commercial fishing communities where more than 400,000 people completed state-approved

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opedwatson boating safety courses and more than 7,000 fishing vessels had dockside exams. The Coast Guard also conducted a safety spot-check program called “Big Tow,” which showed more than 95 percent compliance with current manning standards. We are currently working on a “bridging strategy” to ultimately transition some 5,000 towing vessels to Coast Guard-inspected status. In addition, 33 marine inspector and investigator positions created in 2008 are now filled. More than 70,000 commercial vessel inspections were conducted. We commissioned two Centers of Expertise – the Cruise Ship Center in Miami and the Suspension and Revocation Center co-located with the new National Maritime Center (NMC) in West Virginia. Merchant mariner credential evaluations were centralized to the NMC between December 2007 and December 2008. NMC staff increases continued to reduce the credentialing cycle time, freeing up staff at 17 regional exam centers for local walk-in service. An average credential application now takes 20 percent less processing time than in 2007. Direct commissions from maritime academies into marine safety increased from seven in 2007 to 13 in 2008. Coast Guard Academy ensigns sailed on merchant ships for at least a month upon graduation before starting inspector training. And 22 mid-level marine safety officers were selected to attend post-graduate school or industry training in 2009.

2009 and Beyond

This year we will fill 310 additional marine safety positions appropriated by Congress. In addition, the 2009 Enhancement Plan calls for five more Centers of Expertise, a towing vessel inspection program, 18 “feeder ports” for qualifying new inspectors, and 19 new engineering specialists. It also allows us to continue filling the inspector and investigator capacity gap. This great congressional support validates the Coast Guard’s marine safety mission and will inevitably save lives and property, and help protect America’s invaluable waterways. Mar Ex Rear Admiral James Watson is currently Director of Prevention Policy for Marine Safety, Security and Stewardship, Coast Guard Headquarters, Washington DC. Previous to this assignment he served as Chief of Staff of the Seventh Coast Guard District in Miami FL and Chief, Office of Budget and Programs, Coast Guard Headquarters. He graduated from the Coast Guard Academy in 1978 with a bachelor’s of science degree in Marine Engineering. In 1985 he earned two master of science degrees in Mechanical Engineering and Naval Architecture from University of Michigan. He was recognized as the S.E. United States Propeller Club Person of the Year in 2004. His personal military awards include two Legion of Merit, two Meritorious Service, and six Coast Guard Commendation Medals.

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rIf

Weathering the Storm: whEn rEductions in ForcE BEcoME nEcEssary a step-by-step Guide to riF Management By robert c. Lemert, constangy, Brooks & Smith, LLp 2008 WAS THE WORST YEAR FOR LAYOFFS and job losses in the United States since World War II (2.6 million jobs were shed in the U.S. economy), and 2009 is shaping up to be even more devastating. In January and February alone, 1.3 million American workers were separated from employment, the highest number of layoffs in the Bureau of Labor Statistics’ thirteen-year history. Mass “reductions in force” (RIFs) have become commonplace as employers look for ways to maintain the strength of their businesses and meet budget constrictions. In this scenario and given the lack of viable alternatives, careful planning of a RIF is needed to prevent litigation or at least make the decisions made during the RIF more defendable. Here are some of the issues you need to consider.

create “the layoff plan”

There are two broad avenues of challenge to a RIF: (1) the employer discriminated against an employee in selecting that employee for layoff, and (2) there was in fact no need for downsizing, and the RIF was used to weed out employees in a protected classification. In order to deal effectively with both these challenges, an employer planning a RIF should articulate and document the business reasons leading to a decision to conduct a layoff. Generally, absent evidence that the employer’s actions are inconsistent with the stated reasons for the layoff, the employer’s rationale will be accepted. Courts are generally reluctant to second-guess an employer’s business judgment. Once the information documenting the necessity for the RIF has been compiled, the next step is to articulate and document the basis for determining the number of positions to be eliminated. This usually involves: (1) determining the positions and skills within each work unit which must be retained to achieve the business goals of the organization, and (2) establishing criteria for determining which positions an employer will eliminate within a work unit to achieve those goals.

selecting individuals for layoff

After the affected positions have been identified, an employer should establish and standardize the methodology and criteria to be used in selecting individual employees for layoff. To the extent possible, objective criteria should be used rather than subjective criteria. In general, the more subjective the decision-making process, the more vulnerable it is to attack in litigation. In determining who will be laid off, an important consideration is whether there is a collective bargaining agreement which permits more senior employees to bump less senior employees within the same classification. For employees not covered by a collective bargaining agreement, bumping is not required by federal law or state law. Employer policies, however, should be consulted to determine whether bumping rights exist.

Employee Evaluations and rankings

Typically, a layoff will require an employer to select among employees in the same job classification. There are numerous systems that can be used to rank employees. The safest is length of service, which is completely objective. Some employers, however, view a RIF as an opportunity to retain those employees who are most productive in order to accomplish the employer’s mission with the smallest number of employees possible. When an employer uses a system other than length of service, the criteria must be job-related and performance-based. In evaluating performance, one issue that frequently arises is the weight to be given to past performance evaluations. Some courts have found past performance evaluations to be legitimate selection criteria for a RIF. Typically, however, they are only one aspect. Other criteria may include previous disciplinary actions and objectively measureable productivity, such as sales performance. Since employees and jurors may consider any selection process which ignores good performance evaluations to be unfair, if an employer determines it does not want to rely on

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rIf past performance evaluations, the rationale for that decision should be explained in a document which will likely end up as a trial exhibit.

laws and confirms the employer’s commitment to comply with those laws.

selecting the riF decision-Makers

In defending the decisions made in a RIF, the employer will have to produce evidence that it used legitimate, nondiscriminatory reasons for selecting a particular employee for layoff. For that reason, the selection process should be documented, showing how the employer applied the selection criteria. Great care should be used in creating that written record. If an evaluation form is used as a tool to consider performance-based criteria and to exclude factors that are not job-related, the chances of successfully defending the layoff decisions will be improved. Because such a form may eventually be used as a trial exhibit, it should be designed to be easily comprehended by a judge and jury, as well as by the supervisors performing the evaluation. After the initial layoff decisions are made, they should be reviewed by a higher level of management or a review committee to insure that the selection criteria were followed. Where possible, the employer should make this committee as diverse as possible. The employer should then conduct an adverse impact analysis of the tentative layoff list in order to determine whether there are any patterns which would support a claim of discrimination. Such a review should be done under the

It is not uncommon for the persons involved in the selection process to have to defend that process in litigation. Therefore, the people who possess the greatest knowledge about the affected employees and their performance and qualifications should be included in that process. In addition, more than one supervisor or manager should participate in each decision. This not only reduces the risk of bias but also creates more potential witnesses, who are able to explain the decision should it be challenged. It is not unusual to form a committee or team to apply the selection criteria to the pool of RIF-eligible employees to reach a consensus on who should be laid off. Where possible, that team should reflect the diversity of the workforce being evaluated. Once the selection criteria are established and the decision-makers are chosen, the employer should conduct training of those decision-makers on the selection criteria and procedures to be used during the RIF. In addition, an employer should educate those involved in making RIF decisions about equal employment law. Part of the package provided to each of them should include a written set of selection criteria and a document that explains discrimination

creating a record of the selection decision

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rIf direction of counsel to protect the results under attorneyclient privilege. Where there is evidence that a layoff has a disproportionate impact on a protected group (e.g., female employees), the employer may want to make adjustments to eliminate or minimize such impact. In addition to being concerned about layoff decisions with a disproportionate impact upon protected groups based on race, gender or national origin, the employer should also consider whether the decisions affect whistleblowers; employees with prior discrimination or sexual harassment complaints; employees on pregnancy leave, family leave or other medical leave; or employees who are about to vest in a retirement plan.

completing the layoff process

The layoff plan should consider placing affected employees in available open positions for which they are qualified. If an employer makes an effort to place employees internally, it should create documentation to explain or verify that effort. If an employee could not be placed internally, documentation should be created to explain the reason. An employer contemplating a RIF should also develop a policy on rehiring laid-off employees and notify affected employees of the procedure to apply for future vacancies. Laid-off employees should be permitted to apply for future open positions for which they are qualified. An employer, however, may want to develop a policy requiring that an employee who accepts rehire within a certain period of time after a RIF must pay back any severance pay received as part of the RIF as a condition of rehire. The announcement of layoff decisions should be done carefully.* The emphasis should be on the business justification for the layoff, while providing employees with general information regarding their inclusion on the layoff list. There should always be a witness in such meetings

to prevent disputes about what was said. A hiring freeze should be instituted during a layoff and for some period of time thereafter. Evidence that an employer hired a new employee in a position the same as, or similar to, a terminated employee’s could be difficult to defend in a disparate treatment suit. For several reasons, not the least of which is that it will cause a jury to look more kindly on the employer, an employer executing a RIF may wish to take steps to assist laid-off employees with outplacement services. Mar Ex

» Prior to taking any action, employers must check for compliance with the federal Worker Adjustment and Retraining Notification Act (WARN) and state laws which require employers to provide advance notice of covered plant closings and mass layoffs.

robert c. lemert is a labor and employment attorney in the Atlanta office of Constangy, Brooks & Smith, LLP. He has over 35 years of experience in the labor and employment field, including matters relating to downsizing, the Worker Adjustment and Retraining Notification Act and state plant closing laws. His practice emphasis includes union avoidance consulting and campaigns and employee relations counseling. Over the past several years he has been involved with the successful closing of unionized facilities in Indiana, Mississippi, Pennsylvania and Tennessee, among others. Constangy, Brooks & Smith, LLP has counseled employers on labor and employment matters, exclusively, since 1946. The firm currently has over 100 attorneys practicing in 18 offices nationwide. For more information, visit www. constangy.com.

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JacKo’connEll

upgrades downgrades

is the Baltic dry Flashing a Buy signal? after touching Bottom in Early december, the index is up nearly Four-Fold. time to Buy, or False alarm? In my last column I noted that the Baltic Dry Index (BDI), a key barometer of drybulk freight rates on the 40 heaviest traveled shipping lanes in the world, fell 93 percent in 2008, a record. I also noted that, had it been a stock, the BDI would have topped the hit parade as the biggest decliner of the year among maritime equities – another dubious distinction. Yet the explanation is clear: Just as the dramatic rise in the index had been fueled largely by China’s seemingly insatiable appetite for everything from alumina to zinc, so its collapse can be attributed primarily to the precipitous decline in Chinese demand that began immediately after the conclusion of the Olympic Games in August and continued through year-end. To be sure, there were other factors as well – the credit crisis, to name one – which, as Harry Vafias points out elsewhere in these pages (“We can’t even breathe without the banks”), effectively shut down short-term lending, the lifeblood of world trade The housing collapse didn’t help either, stifling the demand for construction materials and home furnishings, among other items. But if you had to pick one culprit, it would be China.

dead-cat Bounce?

So what to make of the unexpected, albeit welcome, rise in the BDI that began in mid-December, accelerated in late January and February, and now seems stuck in a trading range between 2,000 and 2,500? Is this reason for hope, or simply a dead-cat bounce? Make no mistake, the index is still a long way from its all-time high of 11,793 reached just about a year ago, but it is also well above its December low of 650. Among the biggest reasons for hope is the recently announced $1.1 trillion Chinese Stimulus Plan which, like the one put forth by President Barack Obama, emphasizes infrastructure projects but – in the case of the Chinese – also focuses on manufacturing. The recent resumption of iron ore imports to China is another sign of progress, as is the increased availability of trade credits – though not yet at the pre-credit crisis level. But the biggest reason for optimism that rates have bottomed and world trade is on the upswing may well lie on the supply side of the equation, where a combination of the scrapping of older tonnage, the cancel-

lation of newbuilding orders, and vessel layups has reduced the number of vessels available for hire to a level more in line with existing demand. Year-end conference calls are also revealing. Most managements seem to believe that asset values have at last stabilized, thereby easing the pressure on balance sheets and bank covenants. This is no doubt due in large part to the increase in freight rates, but there are other factors at work chart 1: Baltic dry index (december 2008 – March 2009)

courtesy: capital link

as well. The general consensus is that “we turned the corner in December” and are on the way back up again. Those companies with the strongest balance sheets and adequate liquidity will make it through and prosper, at the expense of those which are cash-constricted and saddled with too much debt. There will be consolidations, and perhaps a bankruptcy or two, but at least the talk now is of going forward and fixing what went wrong.

the wet trades

While the drybulk sector seems to be moving in the right direction, the same cannot be said of the tanker market, at least as measured by the Baltic Dirty and Clean Tanker Indexes. Both of these measures fell off a cliff at year-end and have yet to recover. We will use the Baltic Dirty Tanker Index (BDTI), which measures rates for crude oil carriers, as our reference point since this more closely reflects the fluctuating price of crude oil. From a peak of over 2,300 in July 2008, the BDTI has fallen more than 70 percent to its present level below 700 (thereby mirroring almost exactly the decline in crude oil

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JacKo’connEll prices over the same period). While not as great a fall as the Baltic Dry – and in fact 2008 was the second most profitable year in history for most tanker companies – the BDTI shows no signs of imminent recovery. Indeed, listening to the fourth quarter conference calls of companies like Frontline makes you want to head for the exits. With OPEC cutting production in an effort to force up the price of crude, there are fewer liftings available for the VLCCs and Suezmaxes that generate the most revenue for these global carriers. And as long as oil remains in the $40-$50 range, there is little incentive to produce more. In an effort to make ends meet, Frontline and others are using their VLCCs as storage vessels for crude oil for future delivery. This is because the oil markets today are in a state of super contango, which means the near-month price is much lower than the anticipated future price (the opposite of contango is backwardation, where the forward price is lower than the near-month price). As long as the difference between the future price and the current price is enough to cover the cost of storage, it makes economic sense to stockpile oil inventories and wait for prices to recover. chart 2: Baltic dirty tanker index (december 2008 – March 2009)

courtesy: capital link

As for oil prices themselves, who can predict when they will recover? With world GDP forecast to grow by less than one percent in 2009, the outlook for higher prices is not

good. And, in fact, that may be a good thing. Nobody wants to pay more at the pump. But the reality is that markets tend to be self-correcting. Lower prices generally lead to increased demand, which in turn leads to eventual scarcity and higher prices. Production ramps up to meet the increased demand, and the cycle begins all over again. But not any time soon. For further confirmation of this fact we need look no further than the Philadelphia Oil Service Index, which measures the stock prices of 15 of the largest oilfield service firms, Tidewater among them. From a peak of 364 last July, the OSX currently stands at about 110 – another 70 percent decline. And in an amazing coincidence of fact, both the OSX and the Baltic Dry bottomed on the same day – December 4. Maybe the two markets are related after all.

a silver lining?

The new year started badly and has gotten progressively worse. Maritime equities, almost without exception, are tracking their 52-week lows or touching new lows, and many are cutting dividends and suspending stock buybacks to conserve cash. When a stock like General Electric, that bellwether of the American economy and arguably the best-managed company in the world, falls below the price of a movie ticket, you know times are bad. Warren Buffett, in his much-anticipated 2009 Letter to Shareholders, stated that, “We are certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.” Could Buffet and the Baltic Dry be right? Mar Ex Jack O’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.

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The Vafias Group: Brave, Stealthy, And Smart, Too Harry Vafias Carefully Navigates the World of Shipping and a Perilous Global Financial Climate By Joseph Keefe

For many of us, just remembering when we were 31 years old is a difficult task. On the other hand, it is also difficult to conceive just what Harry Vafias has accomplished in less than ten years in the shipping business. In North America, Vafias is perhaps best-known for his StealthGas shipping company and the 2005 IPO that rocketed the company to its current position as one of the

T HE MAR I T I ME E X EC U T I V E

world’s big players in the LPG sector of the international shipping industry. But the Vafias Group isn’t limited to StealthGas; it has two other shipping companies and a lot more going on than you might think.

A L L PHO T O S T H I S AR T I C L E CO U R T E S Y v a f i a s g r o u p it d e p t.

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Timing, Luck, or Determination? Harry Vafias will tell you that he is lucky that oil and gas tankers have not suffered the same fate as the dry bulk sector, where freight rate drops have devastated the business. He’d also have you believe that it is lucky that Brave Maritime happily has only one vessel on the water in the dry bulk markets at this time. Earlier, his decision to enter the tanker markets when he started Stealth Maritime in 1999 was viewed by some as foolish. Some ten years later and looking back on the success of that venture, this pattern of luck is beginning to be seen for what it really is: determination and business savvy. In the shipping industry, timing is everything. Harry Vafias started Stealth Maritime in 1999 based on his love for tankers, on the back of a $4 million loan from his father and the hunch that the low price of a secondhand singlehull tanker was his ticket to success. He managed to buy that vessel just two months before the Erika disaster and yet, within months of that historic event, rates for singlehull ships went up, mimicking the pressure on double-hull vessels. Suddenly earning $50,000 per day, Vafias repaid his debt much faster and also pocketed a lot more money to fuel further expansion. Today, the company controls a fleet of 19 tankers and provides commercial management for the 39-ship StealthGas LPG fleet. The rise of StealthGas is a high-profile saga, complete with its Nasdaq IPO in October of 2005. One of the longest IPO road shows in the United States for any shipping company, the offering eventually spanned 23 cities in 28 days and culminated in a very successful coming-out for the firm. Today, StealthGas remains profitable with net income in 2008 of $30 million, a rise of 33 percent over the prior year. Vafias’s decision to list on Nasdaq was a curious one, but in the end he felt that American investors were less interested in his relatively young age than they were in the potential for long-term profits. He was right.

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is close to $1 billion, and Vafias says that his is the only Hellenic shipping group currently building ships in China, Japan and Korea simultaneously. Beyond this, his cumulative shipping empire of 75 vessels ranks as the third largest fleet among more than 800 Greek shipping companies.

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The Vafias Group: StealthGas, Brave Maritime and Stealth Maritime The Vafias family’s ocean-shipping heritage is anchored in the 1973 inception of Brave Maritime. Founded by Harry’s father, Nicholas, Brave Maritime is a dry-bulk company which at one time had as many as 15 ships on the water. Today, there is just one, but with three more on the way in an active newbuilding program. The younger Vafias candidly admits that he is not the least bit sorry about being temporarily on the sidelines in this sector of the market during these particularly difficult times for the dry bulk markets. Stealth Maritime, founded by the younger Vafias himself in 1999, remains active in the tanker market. Established during a weak tanker freight market, the company has nevertheless grown quickly and established itself as a profitable and well-run outfit. Vafias calls the firm his proudest accomplishment and, in his own words, “the toughest to grow.” About one year ago, Vafias decided not to take the tanker group public because of what he characterized as “a very weird taxation scheme in the United States” related to the charter mix of his fleet. Easily the best known of the three companies, StealthGas is one outfit that isn’t trying to keep its business a secret. The Nasdaq-listed company (GASS) will tell anybody who will listen that it maintains a fleet of 39 vessels (excluding newbuildings and product tankers) that transport liquefied petroleum and petrochemical gas products, chiefly liquefied petroleum gas (LPG), with a total capacity of about 175,000 cubic meters. The vessels, managed by affiliate Stealth Maritime, are able to transport gas in a variety of liquefied forms, including propane, butane, butadiene, isopropane, propylene, and vinyl chloride monomer. Today, the Vafias Group as a whole still boasts an aggressive shipbuilding program with more deliveries expected than all but a handful of his Greek competitors. Albeit down from the heady days of a 27-ship order book, 15 ships still remain on tap, all of them due for delivery within the next two years. The new ships cut across all lines of the Vafias business groups, including three for the Brave Maritime bulk division. The cumulative total value of the ship orders

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Then there is Brave Maritime. The oldest of the three Vafias-controlled groups, this dry bulk operator finds itself with just one vessel to operate at just the right time. Brave had been busy shedding tonnage – arguably at just the right time once again – but is also poised to take delivery of three new vessels. Says Vafias, “Our Brave bulkers are due out in June of 2009, January of 2010, and the third in November of 2010. In these cases, we were fortunate enough and conservative enough to arrange the financing before the crisis.” Lucky, perhaps, but also possibly poised to be injecting desirable new tonnage into a sector that may have reached bottom by then and could be heading north again. There’s more: Banks are now actively searching for managers to take control of bulk-carriers which may be taken away from defaulting owners. At least two banks have already contacted Vafias and Brave Maritime to do just that. Although the deals are anything but final, Vafias told MarEx in February that “We are very close to our people. Some of the people here have been with us for 20 or 30 years, and we don’t want to let them go. So a good option is to manage ships for others, if they think we can run them more efficiently. We think we can.” startinG younG Harry N. Vafias is President, CEO and a member of the Board of Directors of StealthGas. But before becoming the leader of the Vafias Group, he came up in the usual way. Actively involved in the tanker and gas shipping industries since 1999, he graduated from City University Business School in the City of London in 1999 with a B.A. in Management Science and from Metropolitan University in 2000 with a Master’s Degree in Shipping, Trade and Transport. His experience also includes stints at Seascope and Braemar, where he learned the business of ship brokering and chartering of oil tankers and dry cargo ships. As a boy, he learned by watching and listening in his father’s shipping office in Athens. Although mindful and respectful of the Greek shipping tra-

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dition, Harry Vafias fairly bristles at any comparisons to more famous Greek owners. And although he concedes that he and Onassis share a similar determination to succeed, that’s as far as he’ll take the analogy. “Onassis operated in a much different environment and he was much luckier in that regard. There was no IMO, no vettings, few regulations on how to run shipping, and the oil majors didn’t get involved in your business.” In the end, Vafias exhibits none of the flamboyance of Onassis. Instead, it is clear that he enjoys his business, which he says is the main focus of his life. In the beginning, it is true, Vafias had some help getting started. The $4 million loan from his father underwrote that first vessel, but after that the deals and the risks emanating from those deals were all his. Vafias points to two decisions that propelled him to where he is today: “In 1999 I decided to go into tankers instead of following in my father’s business. This was a crucial decision, made at a very young age. I was 21. The second major decision was when I decided to list StealthGas on Nasdaq. This propelled us from nine ships to 50 in just three years, which by any benchmark is quite impressive.” Today, Vafias is only 31 years old, still young to be leading any company. But it was in 2005 when he took StealthGas public at the tender age of 28 that his lack of gray hair could have been more of a factor in his future than his proven track record of turning a profit. And that’s exactly why he chose to list StealthGas on Nasdaq instead of in Europe or somewhere else. He adds, “Quite simply, Americans are much more openminded than Europeans. When I did my road show, I can tell you that some investors saw how young I was and thought I was an assistant to the CEO and not the founder and CEO. But once they found out, they didn’t mind. They told me that they didn’t care if I was 10 years old or 70 years old. ‘If your story is good and your plan achievable, then we’ll back you up,’ they said.” So far, that trust has been well-placed. diFFErEnt challEnGEs – saME stratEGiEs March 2009 finds Harry Vafias and his group of companies

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in a curious place. Where others struggle to remain in business, his mix of vessels has him positioned to ride out the considerable financial storm in sectors of the market relatively unscathed by the downturn in rates. Today, Vafias has no container ships, only one bulker, and a healthy fleet of LPG and oil tankers, 75 percent of which are on long-term charters. Some might call that luck, but Vafias has already proven himself to be one the sharpest shipping analysts in a generation. Still, there are significant challenges to overcome. Although enormously profitable in most sectors, the Vafias Group faces some of the same challenges that bedevil his competitors. Nevertheless, for the Vafias family of businesses, it really doesn’t matter when rates will recover to better levels. Says Vafias, “We have a big order book. The majority of those are gas ships and tankers – expensive ships, close to $1 billion in value altogether. Obviously, we cannot pay $1 billion in cash.” Hence, the issue of liquidity when ships are delivered is as real for Brave Maritime, Stealth Maritime and StealthGas as for anyone else. What any shipping company can do in the absence of the banks is simple as far as Vafias is concerned. “What you can do as a businessman is protect yourself.” An aggressive expansion and acquisition plan that involved as many as 27 ships

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just one year ago has been slashed almost in half. The real question for the Vafias Group, then, is when will the banks come back into business? So far, and in terms of StealthGas only, there has been no reduction in the dividend. In the meantime, however, the three entities work hard to lock down long-term, favorable charters with reliable partners, renegotiating contracts where possible and trying to secure credit, even in this environment. Already, the Vafias Group has been able to cancel 12 ships without paying any penalty. The other 15 ships, however, are right on time and there is no legal way of canceling the orders. And while they work to adjust delivery dates on a friendly basis with their shipyard partners, three Brave bulkers are due out in the next 21 months. Naturally, though, Vafias was able to arrange the financing before the crisis. CMY

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Forward-Looking Statements Harry Vafias is bullish on the future but also cautious about predicting what will happen next. After listing both Shell and BP as two of his major charterers – ample evidence of the quality of his fleet – he tempers that good news by saying, “We definitely think the gas will do better than the other segments, but I don’t want to predict and give misleading information to investors.” Pushing forward, he’ll need to find employment for a loyal staff at Brave Maritime, cover his bets when the ships are delivered and continue to make all the right moves in the charter market. It’s a tall order, and no doubt there are older, more experienced, and grayer shipping executives who are by now weary of the game. That’s not a problem for Harry Vafias, though. The youngest shipping CEO in Greece – and probably the world, for that matter – has plenty of spring left in his step. And that’s decidedly bad news for everyone else. Mar Ex

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What can Crowley’s Technical Services group design for you? With over 40 new builds in 15 different classes since 1996, Crowley’s exceptional team of naval architects, marine engineers and maritime professionals has the capability to find economical and technical solutions for our clients’ vessel design, conversion and retrofit requirements.

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Contact Crowley today to find out how we can help with your technical design needs.

(904) 727-2159 www.crowley.com

3/25/09 11:44:28 AM


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harry Vafias Executive interview

ceo of the

VaFias Group

T IS NO SECRET THAT HARRY VAFIAS is the youngest CEO of any shipping company in Greece and, for that matter, probably the world. His successes are well-known, and the cumulative position of his three companies as the third largest ocean shipping entity in Greece is nothing short of remarkable. But how he got there, why, and more importantly, what he intends to do next – especially given the current financial climate – is likely to be of more interest to MarEx readers than what he has already achieved. Follow along as we get to the heart of the matter with Harry Vafias. MarEx: as one of the youngest, if not the youngest, cEo in the maritime business, why don’t you bring us up-to-speed on how you got here – and so fast? VaFias: It’s a matter of determination, luck, and starting early. I think I can say that I have all three of these characteristics. I have been learning the business, going to my father’s offices since I was 14. Every summer I would be in the office, learning and listening. So I learned the basics early. MarEx:you are well-known on the world maritime stage, but perhaps not so well-known here in north america. talk a little bit about your ties here – financially and where your business

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p h o T o c o U r T e S Y V a f I a S G r o U p I T d e p T.

BY JoSeph Keefe

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EXEc INTerVIeW EXEcINTerVIeW harryVafIaS harryVafIaS

overlaps in these markets. VaFias: It is important to remember that in Greece there are

almost 800 shipping companies, involving all kinds of ships. Our group, the three different shipping companies, has a total of 75 owned vessels, making us the third largest company in Greece by number of ships. That’s a pretty good ranking. Secondly, I am not so high-profile in the states. But this is what we want. We want to be well-known to our shareholders and customers. We don’t really care if the guy on the street knows us. When we did our IPO road show in the United States for StealthGas in October of 2005, we had one of the longest road shows of any shipping company: 23 cities in 28 days. It was a great experience. And the majority of our funds and investors are all in New York and Boston. So today the biggest investors in the company, aside from myself, are based in those two cities. MarEx: talk about the Vafias family shipping heritage. VaFias: My grandfather was a meat trader, importing meat from Argentina to Europe. My father was in university with some kids of well-known shipping families, and that’s where he was influenced and decided that he did not want to follow in his father’s footsteps but instead do his own thing in dry bulk shipping. In the

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EXEcINTerVIeW harryVafIaS Build_MaritimeExec.ai

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of companies: stealth, stealthGas and Brave. Each is part of your group, but different. VaFias: Brave Maritime was founded in 1973 by my father. It was always a dry bulk player and, until two years ago, had 15 bulk carriers. We are glad to say that, in today’s challenged dry bulk environment, we are down to four vessels, one (a Panamax) in the water and another three Capesize vessels on order. Stealth Maritime, on the other hand, I founded in 1999. After finishing my degree, I told my father that I wanted to do my own thing, just as he had. I then told him I wanted to buy an old singlehull, Aframax tanker, and he said to me, “That’s very dangerous because if you have an accident or pollution you’ll be finished.” I knew this as well, of course, but prices were very cheap so I thought it was a great time to enter the Aframax and crude oil business. After a great deal of persuasion, he gave me four million dollars as start-up capital and that was how I got started. Then two months later the Erika accident happened, and my first thought was, “I’m finished.” The Erika was a single-hull tanker, and I feared that oil companies and traders would not again charter a single-hull ship. I was actually wrong. Rates for double-hull ships went up, but this also pushed up the rates for single-hull ships. Suddenly we went from earning $10,000 per day to $50,000 per day. We then repaid our debt much faster, and there was a lot more money for further expansion. StealthGas, in my mind, is a derivative of Stealth Maritime. We got bigger in Stealth Maritime in 2004 by adding more Aframax vessels and more VLCCs, 14 in all. In Greek maritime circles, this is considered a very big jump. The rates back then were very firm, but I did not think that would last forever. It was a good time to sell and then invest the money in double-hull vessels, which would have a much longer trading life. So we sold

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What can Crowley’s Technical Services group build for you? When it comes to building vessels, there are no substitutes for experience and capability. Since 1996 Crowley has overseen the building of 40 vessels throughout the Western Hemisphere providing contract administration, construction oversight and delivery management.

The marITIme eXecUTIVe

beginning he did not have a lot of money, so he had to find partners in order to buy a very old ship just to get started. This was in 1973. I myself did my Bachelor’s Degree in London at City University and my Master’s Degree at the Metropolitan University, again in London, for Shipping, Trade and Transport. I joined the business in 1999 and immediately created Stealth Maritime, which has since been the tanker company of the group. MarEx: was there a critical moment in your young career when a decision vaulted you to the next level? VaFias: I can tell you that there were two decisions that propelled me to where I am today. In 1999 I decided to go into tankers instead of following in my father’s business. This was a crucial decision, made at a very young age. I was 21. The second major decision was when I decided to list StealthGas on Nasdaq. This propelled us from nine ships to 50 in just three years, which by any benchmark is quite impressive. MarEx: the american sense of a Greek shipowner evokes images of aristotle onassis.you are from another generation, but what similarities might you think you have with this famous shipowner and where are you different? VaFias: Onassis operated in a much different environment and he was much luckier in that regard. There was no IMO, no vettings, few regulations on how to run shipping, and the oil majors didn’t get involved in your business. Onassis took great advantage of these factors and that’s how he became who he was. On your side of the world, he isn’t so much known for his business achievements as for his personal life. He married the wife of a U.S. president and bought yachts to entertain famous people. For me, my business is my energy. Our similarities? He was very determined and, whenever he set a goal, he did everything he could to achieve that goal. MarEx: tell us about the Vafias Group

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…there were two decisions that propelled me to where i am today. in 1999 i decided to go into tankers instead of following in my father’s business. …the second major decision was when i decided to list stealthGas on nasdaq.

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Contact Crowley today and let us know what we can build for you.

(904) 727-2159 www.crowley.com

3/25/09 11:44:36 AM


EXECINTERVIEW HARRYVafias

m a r c h / APR I L 2 0 0 9

…As for our companies, we have been conservative, never having too many vessels in the spot market, and we never wanted to do business with unknown charterers. Today, 75 percent of our fleet is either on time or bareboat charter and this is a good position to be in, especially as rates are going down very fast.

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all our single-hull Aframax tankers and VLCCs, about 11 ships in all. We made a fantastic return on equity because the vessels were debt-free by that time and trading at very good rates. I repaid my father immediately. At that point, I didn’t want to invest all of it back into tankers. So, in the summer of 2004, I studied all the different shipping segments – dry bulk, containers, tankers and gas. And in the handy-sized gas segment, there was great opportunity to invest – for three reasons. Number one, the order book for these vessels was much smaller than the order book for other types of vessels. Number two, there was room for consolidation in that sector because there weren’t many big players but, instead, a lot of smaller companies. And number three, there was great stability in the rates for those ships. You weren’t going to become a millionaire overnight, but you weren’t likely to lose a fortune either. We eventually invested some of the money in the gas market and were able to buy nine vessels. MarEx: Talk about the separation between the entities and the connections – management, funding, customers, everything. Vafias: Brave and Stealth are private companies while StealthGas is public. All three companies are legally, and financially, completely independent of one another. Now we do try to create synergies and economies of scale and so on. I thought about taking Stealth public about a year ago, but in the U.S. they have a very weird rule that if more than 50 percent of your fleet is on bareboat charter, then you are considered a “PFIC” (Passive Foreign Investment Company), which means that, when I give a dividend, that dividend is taxed at a much higher rate than dividends at other shipping companies. And that is why we did not proceed with an IPO for the tanker company. MarEx: Why did you initially choose the tanker market instead of the bulk trades?

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Vafias: At the time, the prices for tankers had dropped more than dry bulk; and secondly, for a long time and since I was a boy I have been fascinated by the tanker business. The third reason was that there were fewer tanker companies in Greece at that time than the other types, so I thought there would be less competition. Of course I was wrong about that. MarEx: In an earlier conversation before this interview, you were quick to set me straight on the fact that the Vafias Group was a lot more than “just StealthGas.” Tell us why. Vafias: Well, that’s true. First, I think that the Stealth Maritime story is a more impressive success story. I am more proud of what I have done with Stealth Maritime than what I did with StealthGas. You know, of course, that Stealth Maritime is a private company, so whatever we did with Stealth Maritime we did primarily with our own money. So if you ask me which company was the toughest to grow, I would definitely say Stealth Maritime. MarEx: Let’s get right to the heart of your business plans for StealthGas, Stealth and Brave Maritime. What has changed for any of them in the face of current conditions and what remains the same since – say – January 2008? Vafias: For us, the market was fantastic until September of 2008. So let’s talk about after September. As you know, the banks have gone away, and they created this mess. Ships are very expensive, and we can’t even breathe without the banks. Suddenly then, things changed. One day they were literally begging us to take loans and accepting very low margins, and one week later shipowners were begging them for loans. As you know, there are many container and dry bulk companies and charterers and operators that just don’t have the liquidity to survive this unexpected collapse. As for our companies, we have been conservative, never having too many vessels in the spot market, and we never wanted

to do business with unknown charterers. Today, 75 percent of our fleet is either on time or bareboat charter and this is a good position to be in, especially as rates are going down very fast. So that’s number one – the banks. Number two is we have always been clever enough to repay our debts very quickly. Our debt ratio, based on fleet value, stands at 55 percent, which by shipping standards is very low. In contrast, the debt level in some dry bulk companies is 120 percent, which means the debt is more than the cumulative value of the ships. Going back to your question about strategy or business plans, I don’t think anyone can make strategy in these very challenging times. So our expansion plans have been put on ice and, whenever we can reduce our exposure, we do it. And as you may have read in November, we have cancelled 12 of our newbuildings, with another 15 scheduled for delivery in the next two years. MarEx: Is it true that Brave Maritime has been approached by bankers to manage ships that have either been taken over by banks or that the banks believe can be managed better by Brave than by their existing managers? Vafias: Well, it is true. We, as a family, are very close to our people, both on shore and at sea. But as we reduced our fleet, our people didn’t have a lot of work. So a good option is to manage ships for others if they think we can run them more efficiently. We think we can. Recently, one local and one foreign bank have approached us. We are ready to take in up to fifteen vessels. But we have no such agreement yet. The ball, therefore, is in the bank’s court. Time will tell. MarEx: StealthGas has witnessed remarkable growth in the short time since it went public, growing its fleet from nine to today’s 46 vessels. What is next? Vafias: It was our intention to build four vessels for each of the companies, including four Suezmax vessels for

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EXECINTERVIEW HARRYVafias Operate_MaritimeExec.ai

environment. We definitely think gas will do better than the other segments, but I don’t want to predict and give misleading information to investors. MarEx: Shipyards are now being much tougher about cancellations – especially in South Korea. Is any of that affecting your positions at this point? Vafias: First of all, I want to remind you that the toughest yards to negotiate with are the Japanese – by far. Secondly, we have a very split order book, which means that we have ships on order in Japan, Korea and China. We were lucky enough to find clauses in our contracts to cancel those 12 ships we already mentioned without paying any penalty. Our other ships, however, are right on time and there is no legal way of canceling the orders. Thus, we have to negotiate on a friendly basis with the yards on delaying delivery. Our Brave bulkers are due out in June 2009, January 2010, and the third in November 2010. In these cases, we were fortunate enough and conservative enough to arrange financing before the crisis. MarEx: The rates for dry vessels are way below breakeven. What’s your take on what will happen next – especially if rates don’t come back, and fast? Vafias: Well, thank God we don’t have any container ships and only one dry bulk ship. So I guess you could say we are lucky, or perhaps just smart. For our tankers, we don’t have any such problems related to freight rates, and the gas ships – well, these rates are very stable. MarEx: Up until just recently, it was difficult to find adequate and competent seamen to go to sea. Now that ships are being laid up and the economy has slowed shipping precipitously, are you seeing an easing of crewing rates and is it finally easier to get crews? Vafias: Manning was a very big issue for us one year ago, no question. Don’t forget that gas carriers need very specialized personnel. These people are very

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How can Crowley’s Technical Services group help you operate your vessels? Combining the technical and professional capabilities of our managed fleets, Crowley offers best in class operations, engineering and contracting personnel. Each segment of our ship management business is directed by professionals who have more than 20 years of operational experience.

THE MARITIME EXECUTIVE

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What you can do as a businessman is protect yourself.You do this by locking your ships on favorable long-term charters with reliable partners, renegotiating contracts if you can, and trying to secure credit – even in this environment. StealthGas. It would have been the first entry of StealthGas into the crude tanker market. But that didn’t happen. MarEx: Give us your slant on today’s credit problems and financial crisis. Talk globally in terms of when you see a recovery and also in terms of your business. Where has it impacted you the most? Vafias: For me, for my family of businesses, it really doesn’t matter when rates recover. The real question is: When will the banks come back into business? That is the burning question and, unfortunately, I don’t think that will happen this year. We have a big order book. The majority of those are gas ships and tankers – expensive ships, close to $1 billion in value altogether. Obviously, we cannot pay $1 billion in cash. MarEx: Okay, so what if these vessels get delivered and the credit is not there. What position will you be in to weather the next two or three years? Vafias: Good question. But you have to be prudent enough and conservative enough to take care of the problem before it happens. You have to have the money available to pay for the ships if the banks are not there, or you negotiate with the yards to delay the delivery of the ships. MarEx: StealthGas’s fourth quarter and 2008 results are in.You are still making money ($7.7 million in the fourth quarter) and net income for the year of $30 million.You declared a quarterly cash dividend of $0.1875 per common share for the fourth quarter. Not bad, given this climate. Can this continue? Vafias: We have neither reduced nor eliminated the dividend. Investing in our shares still provides an excellent rate of return. The problem is that nobody can forecast the future. If we could, we’d all be like Mr. Gates. What you can do as a businessman is protect yourself. You do this by locking your ships on favorable long-term charters with reliable partners, renegotiating contracts if you can, and trying to secure credit – even in this

3/17/09

Contact Crowley today for your technical ship management needs.

(904) 727-2159 www.crowley.com

3/23/09 12:06:14 PM


EXECINTERVIEW HARRYVafias

march / A P R I L 2 0 0 9

When I did my road show in those 23 cities, I can tell you that some investors saw how young I was and thought I was an assistant to the CEO and not the founder and CEO. But once they found out, they didn’t mind. They told me they didn’t care if I was 10 years old or 70 years old.“If your story is good and your plan achievable, then we’ll back you up…”

THE MARITIME EXECUTIVE

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hard to find. We have to keep increasing wages every six months. The rise in wages was definitely impacting our bottom line. So the current financial crisis does give shipowners some advantages. The decline in ships at sea, the scrapping of ships in all segments, and the cancellation of shipyard orders have lessened the problem of crew availability. This has been mostly in the bulk and container sectors, not so much for tankers and gas ships – especially in terms of wages. If the crisis continues for another year, we might see an improvement for specialized ships. MarEx: Ship quality has become paramount and not even the downturn will change that metric, especially for tanker and LPG operators. Do all your vessels currently have oil major approvals? Who HPH ad ME:Layout isInmexIndia your biggestexprom customer?

Vafias: Since day one, we never compromised on quality because we believe that this is your passport to profitability. Secondly, I could easily have older vessels and have double the fleet that we have now, but I never wanted to do that. You end up with maintenance problems, port state control issues, and the like. We’ve never had a serious accident with loss of life or pollution. As for oil major approvals, I’m happy to say that the majority of them have come and vetted the management of the whole business, and we invite the oil majors down to the ships every six months. This increases the cost of running the business because the inspections cost a lot of money as does the employment of people who understand quality and vetting. Our biggest charterer is Shell. 1MarEx: 13/3/09 17:50 Page 1 today? What did we miss here

What question have I not asked that you’d like to answer? Vafias: Only one. And that is the question of why I decided to list StealthGas on Nasdaq instead of in Europe or somewhere else. Quite simply, Americans are much more open-minded than Europeans. When I did my road show in those 23 cities, I can tell you that some investors saw how young I was and thought I was an assistant to the CEO and not the founder and CEO. But once they found out, they didn’t mind. They told me they didn’t care if I was 10 years old or 70 years old. “If your story is good and your plan achievable, then we’ll back you up,” they said. If I had done this in Europe, it would probably have failed because there they tend to judge a book by its cover and not by its content. Mar Ex

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offsHoRELNG Copyright Adriatic LNG

Adriatic LNG terminal under tow prior to installation.

OffsHORE LNG –

By MarEx staff

iTALiAN sTYLE ASK ANY U.S. CONSUMER IF HE WANTS CLEAN and cheap energy and he’ll almost certainly say yes. Ask the same person if he wants an LNG terminal built just up the road and you get a different answer. No one wants an LNG terminal nearby. So build them offshore, floating out of sight, right? Wrong. Recent proposals for offshore LNG terminals in the U.S. have gotten the thumbs down from local interests on both coasts. But realists know that, sooner or later, there will have to be more LNG reception and regasification terminals in the U.S. How exactly do these terminals work, and where are they being successfully installed? For the answer to these questions and others, MarEx turned to the example of Europe and, specifically, Italy, where two major offshore LNG projects are well underway and a third – an onshore facility – has been approved but is stalled. Four other projects, two with an offshore component, are in the study phase. The three authorized LNG import terminals are the stalled BG onshore project at Brindisi; the Adriatic LNG, a joint venture among ExxonMobil, Qatar Petroleum and

Edison to build a gravity-based offshore regasification terminal; and the Offshore Livorno Terminal, a joint venture among E.ON Ruhrgas, Iride S.p.A., Golar LNG and the Belleli family for an offshore floating storage and regasification terminal. The two projects that are going forward – the Adriatic LNG and the Offshore Livorno Terminal – share a common theme: They both needed groundbreaking assistance with complex legal and engineering issues, and they both turned to Genoa-based classification society RINA for a wide range of assistance, crossing legal and technical boundaries for both the fixed installations and the floating components. MarEx asked Fabio Ziliotto, managing director of RINA’s Industry Division, to outline the main challenges. “Both these projects are bringing together some proven technologies in new ways, and also breaking new ground,” he explained. “But the technology is only part of it. Where these projects stand or fall is their ability to prove they are safe and legal. RINA has grown from a ship-classification society into a major certification and validation company, with a consulting engineering arm.

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offsHoRELNG

We have an intimate knowledge of Italian legal requirements. We have the maritime expertise and also the structural expertise, and we have the capability to conduct advanced studies. So it is good to be able to bring all aspects to bear on these complex projects and help them to be world leaders in getting LNG to consumers.” The Adriatic LNG terminal consists of three gravity-based structures. The main one is the storage and regasification unit, while the other two are the mooring dolphins. The terminal is of concrete construction, 188 meters long, 88 meters wide and 47 meters deep, constructed in Algeciras, Spain. Two 125,000 cubic meter containment tanks, built in Korea, have been installed within the structure. On top are the process modules. The terminal was towed from Algeciras to the Adriatic Sea and installed in September 2008. Start-up, hook-up and commissioning are near completion, and the terminal should enter service before summer. It will handle 8 billion cubic meters per year of gas, which corresponds to almost 10 percent of Italian demand.

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“RINA was involved in the project from the very beginning,” explains Ziliotto. “In 1998 it supported Edison in the authorization process, providing precertification of the project design. Then a multidisciplinary team of experts provided authority engineering, certification of the structure design, systems’ certification, development of strategies for programmed maintenance, definition and design of security systems, preparation of the Port Facility Security Plan, and personnel training and flag-statutory certification for towing.” The Offshore Livorno Terminal (OLT) project is based on the conversion of the Golar Frost Moss-type LNG carrier into an FSRU (“Floating Storage and Regasification Unit”). The terminal will have a storage capacity of 137,500 cm. of LNG and a regas production of 3.75 billion cubic meters per year. The EPCI (“Engineering, Procurement, Construction and Installation”) contract was awarded to Italian energy company Saipem in March 2008. The conversion phase should start this summer in Dubai, and the unit will be installed offshore Livorno in 2010 to enter operation in 2011. The 300 m. long FSRU will be permanently moored onsite through a bow turret and connected through a swivel, two flexible risers and a sealine to the national grid. “From the regulatory point of view the two projects, even if they are both offshore, are significantly different,” explains Andy Alderson, head of LNG for RINA’s Marine Division. “Legally, the Adriatic terminal is a fixed installation, like an artificial island. But in practice the project was a typical offshore one with limited room and everything happening at sea. In several cases the onshore rules needed to be interpreted or marine rules integrated to get the job done. The OLT project is mainly subject to marine rules, but some onshore laws and authorization processes have been applied, including environmental impact assessment. RINA’s Marine Division is classifying the converted unit, while our Industry Division is helping define the technical part of the EPCI contract, selecting the best technical solutions and solving the critical issues. One of the most critical is the side-by-side mooring of an LNG carrier to the FSRU for transferring the LNG. In this case we provided maneuvering simulation, seakeeping and motion analysis, model tests and mooring verification.” The FSRU will operate in a world between marine and

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offshore. While complying with the relevant IMO conventions, the vessel will also have to comply with national regulations that were not originally written to cover the new concepts of offshore structures. The transfer and storage of LNG are typical marine operations and are governed by IMO conventions and other international regulations. For other processes, where local regulations do not cover the appropriate area, RINA has developed and issued class rules which enable the operator to choose the safest technical solution. The main challenge in converting the vessel was the fitting of the vaporizer unit in order to send out high-pressure gas to the distribution network. This involves not only vaporizing the cryogenic liquid and increasing its pressure but also modifying its quality by the use of nitrogen injection. Unlike a membrane LNG vessel, the Moss design does not provide much open deck space. To offset the lack of space, the conversion involved the fitting of a turretmooring system around which the engineers will fit the regasification plant by removing the original bow and fitting a new modified structure. The shaft will be removed and sealed up, and the existing boilers will be used for power generation and heating. The unit retains some maneuverability due to the installation of a stern thruster. In order to transfer LNG from a shuttle tanker, marine loading arms are to be permanently installed on the FSRU unit, and additional mooring equipment will be fitted. A flare stack will be fitted and the vessel’s control systems upgraded. “Space is the big issue, installing in a small area equipment that would normally be fitted in a shore installation over a number of square kilometers,” says Alderson. Looking forward, there are projects for a gravity-based terminal at Monflacone; a regas ship to operate at the existing Falconara SBM; and an Italian LNGRV, which could serve as both carrier and local regas terminal. They’ll test the ingenuity of the Italians, but their consumers will be getting their gas Mar Ex

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CsiWoRks? CsiWoRks? By Dr. Jim Giermanski, Chairman, Powers Global Holdings

sOYOU THiNK Csi WORKs:

Gummy Bears or Cocaine? IN-BOUND CONTAINERS DESTINED for the United States are recognized as a vulnerability to our seaports. Yet, in reality, and contrary to popular perceptions, little is being done to diminish that vulnerability. There are three problems in dealing with this vulnerability: the accuracy of the Container Security Initiative (CSI) 24-hour manifest information filed with Customs and Border Protection (CBP); the accuracy and extent of use of scanning technology at CSI operational ports, and the transshipment gap.

THE 24-HOUR MANifEsT

The first security weakness is the core component of CSI, the 24-hour manifest. A manifest is like a tally sheet of what the vessel is carrying. Except for visible cargo, the carrier has never known for sure what is in a locked and sealed container.

The vessel carrier was forced to use honest terms like FAK (“Freight of All Kinds”) or STC (“Said to Contain”), which accurately explained that this or that was supposed to be in the container. The reality is no different today under CSI, except that the carrier cannot use those phrases. The carrier must put on the manifest what the shipper or his agent says the contents are. In essence, nothing has really changed. The purpose of the Container Security Initiative was to develop partnerships with foreign authorities to identify high-risk cargo containers originating at ports throughout the world before they are loaded on vessels destined for the United States. The CBP mandate is clear: “Carriers and/or automated NVOCCs (Non-Vessel Operating Common Carriers) will be required to submit a cargo declaration 24 hours before cargo is laden aboard the vessel at a foreign port for any vessel

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CSIWorks? beginning the voyage on or after Dec. 2, 2002.” Unfortunately, the carrier makes and files the manifest and, as usual, is 100 percent dependent on the shipper (consignor) or the shipper’s freight forwarder for the information about contents. As such, the vessel carrier serves as a third party in verifying the contents of the container, the equivalent of hearsay.

Scanning Effectiveness and Accuracy

The second security weakness is the scanning itself. In referencing the requirement to scan at foreign ports, the 9/11 Commission Act of 2007 says that scanning “...shall apply with respect to containers loaded on a vessel in a foreign country on or after the earlier of--(A) July 1, 2012; or (B) such other date as may be established by the Secretary under paragraph (3).” (Section 1701) Congress is expecting that new portal machines, or cranemounted machines, will be developed and commercialized to detect dangerous radiation. The GAO -- in April of 2007 (GAO-07-347R, Combat Nuclear Smuggling) -- stated very clearly that the Domestic Nuclear Detection Office (DNDO), established and responsible for ASP (Advanced Spectroscopic Portals) development, has not even collected all the testing data on its basic PVT (polyvinyltoluene) portal detectors and is not close to any developed ASP portal detector. Experts do not expect a commercial version of the ASP anytime soon, if ever. There are no machines now, nor is it likely that there will

be any in 2012 as required by Congress. Therefore, Congress allowed for an extension until such time as these radiation portal detection machines become available. In any event, to focus on the discovery of a nuclear or dirty bomb arriving at our seaports is fundamentally flawed. It’s too late if they are found at our ports. In fact, a detonation at our ports is likely to have a more deleterious impact nationally than a detonation within the interior of the United States. Additionally, there are few foreign scanning programs. One is the Secure Freight Initiative (SFI), a scanning project composed of radiation portal monitors to detect radiation through NII (“Non-Intrusive Inspection”) imaging systems. The Secure Freight Initiative is active at only three ports at full capacity: Puerto Cortes, Honduras; Port Qasim, Pakistan; and Southampton, United Kingdom, as opposed to the 58 foreign ports participating in CSI. At one time, it was active in a limited capacity at Pusan, Korea; Singapore; Port of Salalah, Oman; and Hong Kong. However, because there are significant problems with the SFI project, further deployment of machines is being reviewed. NII imaging is really intended for small package discovery and border-crossing functions. NII is mobile gammaray imaging technology, which permits officers to quickly “see” inside tankers, commercial trucks, cargo containers and other conveyances without having to physically open Project1 12/11/04 11:59 am NII Page 1 the conveyance and/or container. machines can scan

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CSIWorks? vehicles up to 125 feet in length in one pass. One version of the system is mounted on a truck chassis and is operated by a three-man crew. The NII operates by slowly driving past a parked vehicle with a boom extended over the target vehicle. CBP knows that scanning is a problem. It doesn’t work well, and the CBP statistics on scanning are often flawed. It is common knowledge that hits by drug dogs that actually find the drugs cause the container to be consequently scanned. The scanner, then, gets the credit for the discovery, not the dog. CBP insiders have admitted that there are U.S. ports where there has never been a discovery by scanning. Instead, random inspections, informant information, and the dogs have actually been the source of discovery. Speed of movement through the portal machines, the distance of the radiation sensor from a source of radiation, and the capacity to shield radiation and hide drugs and human cargo hidden within and among other cargo simply make scanning a very poor, if not useless, process of law enforcement.

The Transshipment Gap

The third security vulnerability involves transshipment. Historically, transshipment meant to transfer cargo for further transportation from one ship or conveyance to another. However, CBP considers transshipment as sending an exported product through an intermediate country before routing it to the country intended as its final destina-

tion. Specifically, transshipment means that the cargo does not arrive on the vessel it was laden into. So how does this arrival and discharging of cargo in the United States from a vessel different than the one that debarked from a foreign port impact U.S. security? Under CSI, high-risk containers receive security inspections, including X-ray scan and radiation scan before being loaded onboard vessels destined for the U.S. Once high-risk containers are scanned at CSI ports, they are not scanned again until arrival at the U.S. seaport. Worldwide, there are 16 major transshipment ports: Singapore, Hong Kong, Shanghai, Kaohsiung (Taiwan), Pusan (Korea), Tanjung Pelepas and Klang (Malaysia), Rotterdam, Dubai, Gioia Tauro (Italy), Algeciras (Spain), Hamburg, Salalah (Oman), Colombo (Sri Lanka), Port Authority of Jamaica and Antwerp. While not classified as major, there are many more in the Caribbean and South Atlantic, which are of special interest to the United States: Colon and Manzanillo (Panama), Cartagena and Barranquilla (Colombia), Pt. Cabello (Venezuela), Kingston (Jamaica), Havana, Cristobal and Balboa (PanamaPac), Rio Haina (Dominican Republic), Bridgetown (Barbados), Pointe-a-Pietre (Guadeloupe), Vieux Fort (St. Lucia), and Point Lisas (Trinidad). So what happens when a container is scanned in Japan but goes to Panama where it is discharged and placed in the port until it can be once again laden onto another smaller

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CSIWorks? container vessel for entry into the United States? It is not rescanned since many of these smaller transshipment ports do not have scanning equipment. Additionally, while there are CBP authorities at CSI-operational ports that are also transshipment ports, they are subject to the law of the country in which they were placed and may not personally check or inspect these containers even with intelligence that they contained drugs, counterfeit materials or explosives.

THE OBVIOUS CONSEQUENCES

1 The CSI 24-hour Manifest – On December 29, 2008 CBP Field Operations officers in Port Newark discovered over 525 pounds of cocaine bundled inside duffel bags in the back of a container that originated in China and transited through Panama. Earlier in October, 330 pounds were also found in Port Newark. The combined estimated value was $42 million. How did this happen? In the December shipment, the CSI 24-hour manifest listed silicone solar cables and other equipment destined for California. In the October shipment, the manifest said the container carried gummy candy. It is quite clear from this that relying on a third party’s knowledge of contents is utter foolishness. Hopefully, the 10 + 2 Rule that went into effect on January 25, 2009 will fix the obvious weakness in the 24-hour rule, since the 10 + 2 Rule places the onus for content identification

rightfully on the U.S. importer and his agents and/or business partners. Yet the same weakness is still present at the border crossings into the United States where there is no 10 + 2 Rule, and a third party enters contents about which he knows nothing into the Automated Commercial Environment (ACE) System. The manifest has historically been and should remain a carriage document, not a security document. 2 Scanning – Presumably, these shipments were scanned in China. If they were, only one conclusion can be made. The scanning didn’t work. If the scanning worked, then there were no drugs in the container at the time of scanning. Inside CBP personnel confirm that even if the drugs were in the container, the scanning would likely not discover them. Additionally, CBP has confirmed in the case of Port Newark that information they were given triggered the inspection, not a scan. So if the drugs were not in the container in China, when did they enter the container? Again, options are quite limited but obvious. In all probability, the drugs were put into the container in the transshipment port in Panama from which the transshipped container came. 3 Transshipping – So what would you do as a terrorist? Ship directly, or ship through a small recognized transshipment port? Transshipping is the greatest threat to the port security programs of the United States.

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CsiWoRks? Transshipping is not only a means of entering smuggled and counterfeit products but also weapons of mass destruction (WMD). No manifest or worldwide scanning can fix it. Just like the drop lots along the Mexican border, terrorists and smugglers have almost unfettered access to containers and trailers waiting for pick-up and movement into the United States. Imagine what could happen if the 855 pounds of cocaine were 855 pounds of high-grade explosives. Now pretend that these explosives were in a container with an RFID (Radio Frequency Identification) tag. Knowing that an RFID tag can serve as an improvised explosive device (IED), it doesn’t take much further pretending to visualize the result, a real shut-down of all our seaports and land ports with disastrous economic consequences.

CONCLUsiON

There is only one fix. The largest global port terminal operators know what it is. China knows. The EU knows. And now even Mexico knows. The only answer to this vulnerability is the use of container security devices (CSDs) that in real time trace and track containers from stuffing to unloading. Smart containers can provide an electronic chain of custody that does the following: 1 Employs a system approach to coordinate all facets of the supply chain process, beginning at origin, by identifying and recording the person responsible for supervising and verifying contents at “stuffing” and securing of the container at the foreign point of origin; 2 Links electronic trade data to other documentation, like container number or booking number, trucking bill of lading information and even portions of the Inward Cargo Declaration, Customs Form 1302; 3 Detects and reports in real time with date, time and geographic location of the breach anywhere into its body, not just through the doors; 4 Gives its geographic position throughout the supply chain when queried, or automatically give its position if it is off its designated course of travel; 5 Recognizes and records the identity of the authorized person opening the container at destination; and 6 Uses different sensors and communicates with or adapts to divergent logistic software packages used by shippers and carriers within the supply chain.1 All this is known except in the United States where we still rely on CSI. So why is it that the U.S. doesn’t know? CSI is not the solution. It might even be the problem, especially in light of the transshipment vulnerability, which allows gummy candy to be something else. The only thing worse than the transshipment vulnerability is not knowing how to fix it. Mar Ex 1 James Giermanski, “Boxing Clever,” Cargo Security International, Vol. 4, No. 1, February/March, 2006, p. 44.

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Dr. Jim Giermanski is Chairman, Powers Global Holdings, Inc., an international transportation security company. A reviewer for the Transportation Research Board, U.S. National Research Council, and past Director of Transportation and Logistics Studies, Center for the Study of Western Hemispheric Trade at Texas A&M International University, he is frequently invited to testify before the U.S. Senate and House, EPA, and U.S. International Trade Commission. He sat for 5 years on the Texas Office of the Attorney General’s Trans-border Trucking International Working Group, as well as being a member of the Research Advisory Committee on Management and Policy, Technical Advisory Panel, Texas Department of Transportation. He has been published extensively on transportation and trade issues. His background includes service as an FBI special agent, Colonel, and Special Agent in the Air Force Office of Special Investigations.

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MaritiMe saFetY:

“Mind the gap” passive Fire-resistant, gas, smoke and Water-tight sealing systems provide peace-of-Mind to Maritime operators everywhere Within the scope of everyday life, probably one of the least gratifying big-ticket expenses that anyone will incur is putting a fresh set of tires on the car. once in place, tires are rarely given a second thought. That metric extends all the way to the industrial workplace, where passive safety devices and engineering are critical to operational safety. nowhere is this more important than in ensuring that marine bulkheads remain fire-resistant, gas and water-tight.

shoreside roots: Maritime necessities

in the mid-1970s, a curious but deadly phenomenon dogged residential life in Holland. With many houses situated below sea level and on less-than-stable soil, natural gas pipe leaks occurred on a frequent basis. Soil vibration caused by trucks backing down over a soft soil area created leaks in underground gas lines. When leaks occurred, gas penetrated under the houses and resulted in many explosions. it became clear that proper sealing in the foundation of the houses became a must to stop this danger. Founded in 1973, Beele Engineering began supplying safety equipment to the domestic housing market in Holland. at that time, the requirement was not necessarily for a fire-prevention tool but rather for a “gastight” solution for the underground entries of cables and pipes into the houses. Today in Holland, fifty percent of Beele’s business is still rooted in this market. globally, its business mix takes on a decidedly marine focus and is 80 percent shipbuilding. Beele still sells thousands of plugs and other devices in Holland to seal not only residential but also industrial cable/pipe

By Joseph Keefe

penetrations. and although water tightness might be less of a problem, it also caused enormous corrosion damage. For 30 years, this has been a proven solution ashore. in 1984, Hans Beele introduced his products to a marine industry thirsting for answers to the problem of sealing Class “a” bulkhead penetrations from the dangers of the spread of fire and smoke and for water- and/or gas-tight partitions. Twenty-five years later, his products are arguably the benchmark for quality in his chosen market sector.

Benchmarking the problem: Developing a solution

it quickly became obvious that requiring a “flexible” seal was not confined to shoreside applications. in the early 1980s, Beele decided to produce the plugs in his own facility. “We had tried with third parties, of course, but always we had quality and delivery problems.” He started with a small rubber factory, developed fire-resistant rubber grades, and quickly performed his first official testing at accredited institutions to obtain the necessary certificates. at sea, SolaS requires typical bulkhead and deck prototypes to be tested in accordance with the FTP Code to ensure that they meet the requirements for “a” Class divisions, all of which must conform to the a-60 test standard of iMo resolution a.745(18). This includes a full description of testing procedures for cable and pipe interfaces. Testing protocols require full-scale testing of bulkheads and decks. Today, Beele’s riSE® Sealing Systems and Sealing Plugs are certified by the major classification societies, the U.S. Coast guard and Transport Canada.

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MariTiMesaFetY Beele stresses that fire protection should not – and does not – rely on fire safety just for today. The fire integrity and tightness of bulkheads and decks must withstand the rigors of 20 years or more of at-sea industrial vibrations, bending moments and all the rest. it makes sense to use the best material possible from the outset. Fire protection in this way is a “passive” or silent benefit. He adds, “although welding the pipe directly to the bulkhead is still done today, shipbuilders are rapidly coming to the conclusion that a flexible rubber seal is better with regard to fatigue and stresses on the hull.” Structural fire protection is still a growing market. The five-year cycle of drydockings sometimes involves new cabling, which needs to be “pulled,” and sometimes bulkheads are penetrated. Those bulkheads must then be properly sealed. Beyond commercial markets, the U.S. navy requires fittings to be shockproof and able to withstand biological attacks. Here, UV-resistance and lifecycle-related testing are also important. While the commercial markets generally require only the fire test, Beele tests for all conditions on all products.

the Beele line-Up

Beele Engineering manufactures, tests and markets a wide range of sealing products for marine applications. These include riSE, noFirno and DYnaTiTE. Each has its own unique utility; all have significant utility in terms of shipboard safety and achieving the required bulkhead tightness.

selling safety: not sexy but still attractive

Selling safety – an intangible commodity – is a difficult hill to climb. This can be especially true when it comes to talking about cable and pipe penetrations. although it is written in the iMo resolution that these devices are “a local weakness,” they are not regarded as devices to rely on when a disaster occurs. Typically, the last time any of these fixtures is inspected is the day they are installed. in the end, proper seals for bulkhead penetrations are safety devices, ensuring gas-tight, water-tight and fireproof conditions. in the end, the only time their real value can be quantified is in the event of a serious fire or casualty. Sometimes it is easier to appeal to the bottom line. These compact systems are not only space-saving (using smaller transits) but also weight-saving in the case of VlCC-size tonnage because in the case of multiple bulkhead penetrations, the Beele systems use only rubber, not steel. For this reason alone, they are also in use on UK submarines. Beyond this, the flexible Beele sealing systems for multi-cable and pipe penetrations can be installed in hours instead of days and, in this financial environment, time does equal money. We asked Hans Beele if the use of his innovative, patented products might produce an insurance break for his shipowner clients, but he replied, “not yet, but they should. it’s just not ‘sexy’ enough yet.” He may get there yet. The marine application that emanated from the solution to shore-

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MariTiMesaFetY side residential gas explosions has already shown its value on the water. although most of Beele’s products are under patent, he is beginning to see a plethora of copycat products on the market, especially in the asian newbuild markets. owners, unfortunately, cannot tell the copy from the real thing. To this end, Beele says, “We have our patent attorneys working today on a very high level with the EU to solve the problem.” The illusion of safety, says Beele, is created by using a knockoff; but the goal, in fact, is not achieved.

RISE:

RISE (“Rubber – Insert – Sleeves – Expanding”) is a self-correcting product that swells to fill the hole with a solid rubber mass in the event of fire. Maintenance, says Beele, is easy, and this particular product has been on the market for almost 20 years.

NOFIRNO:

The use of ACTIFOAM as filler material reduces the use of sealant and minimizes heat transfer through the penetration. Because NOFIRNO sealant is non-reactive, it will remain stable at high thermal loads. What’s more, the NOFIRNO sealant will not be consumed by fire due to the protective layer and “char” formed. This means the sealant stays in place. Able to withstand temperatures of 1600˚-1700˚F and appropriate for A0 bulkheads and penetrations, it is offered at equal pricing to RISE. NOFIRNO is now approved for cable, metallic and plastic pipe through a single penetration. No other product has this approval.

DYNATITE:

not Just sales: support, too…

DYNATITE means dynamic tightness. Especially valuable in spaces prone to flooding, this product is today in use in a tunnel leading from a South Korean shipyard to Busan. Able to withstand – and stay flexible – in -40˚C Arctic environments, the product may yet have particular utility for seagoing vessels, especially as more polar passages are contemplated as the ice cap melts.

Hans Beele and his north american distributor, CSD Sealing Systems’ rick Casale, are anything but just manufacturers or distributors. With every sale goes unlimited back-end service, including extensive catalogues and guidelines as well as a sophisticated software package. When effecting a proper seal, the software weighs multiple variables in determining the optimum, safe solution. on every assignment, the following items are taken into consideration: 1 Proper diameters (transits can be overfilled); 2 Transit purpose: cable or pipe?

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Type of bulkhead penetrated; number of cables; Future needs: leaving space for refit; on-site training.

Beele in action

in 2008, the USS george Washington experienced a catastrophic fire which occurred in an unmanned auxiliary boiler exhaust and supply space. The fire took 12 hours to extinguish due to its location and the geometry of adjacent spaces. Thirty-seven sailors were treated for injuries, and approximately 80 total spaces aboard the vessel were damaged by fire. Estimated cost of repairs was said to be $70 million. after the fire, the navy had to replace a myriad of cable transits that had failed and burned through. The majority of these transits were replaced with riSE. How much of the damage – if any – could be attributed to inadequately sealed cable transits will never be known. Today, however, it is a safe bet that an 80-compartment fire aboard this vessel would be unlikely. Fire protection engineers and consultants can and do specify certain products on the job. one such consultant is Charlie gerschefski, Principal Consultant at aMg Engineering, inc. gerschefski, degreed in fire-protection engineering, provides consulting and engineering services related to Fire Protection, Process Safety, and risk analysis to clients in the petrochemical and industrial sectors. He says, “it’s important that the penetration match the design rating of the bulkhead.” He adds, “The CSD/Beele systems are particularly valuable with floating offshore structures.” gerschefski notes, “it’s about credibility, really. When you find something that works, you stay with it. it’s just one less thing to worry about on a big job. When issues arise related to piping and cabling penetrations in a rated barrier, i typically show the client the riSE system. Most if not all of them still continue to specify the product today.” Mar Ex

Beele Engineering on the WEB: http://www.beele.com CSD Sealing Systems, north american distributor for Beele, on the WEB: www.csd.us.com

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: s g n i t a o C e Marin or s g n i t a o c e n i Mar

r r E r o f m o o R o N So long, sailor! The economy has packed its bags, sailed south, and left no forwarding address. As the Dow spirals ever downward, consumption drops and fuel costs fluctuate, nervous companies are slashing payrolls and budgets alike. In the ensuing wake, one thing is certain: Hard times call for paying closer attention to protecting what you’ve got in order to get more bang for the buck. Take marine coatings, for example. On the face of it, the topic is hardly exciting. But scratch the surface and you’ll find a myriad of issues and solutions bubbling up from below that can literally add years to the lifespan of your biggest investment with significant residual ROI. That’s because the right coating is much more than a barrier – it can also be a cost-cutting, time-saving, crew-pleasing, environmentally correct way to help ensure the long-term life, safety and profitability of any vessel.

“Pay Me Now, Or Pay Me Later”

When selecting a coating, it helps to keep in mind the old adage, “Pay me now, or pay me later.” This is particularly true when it comes to mixing steel and water. Case in point: In the 1990s and early 2000s, there were a “slew of ships that broke up at sea,” according to Rick McRae, Global Director of Sales, Marine & Offshore, for Sherwin Williams’ Protective & Marine Coatings Division. “The amount of corrosion that was allowed to occur in these cases was

substantial, and the ships lost integrity. So it’s not just a question of aesthetics or surface protection; it’s a matter of putting people in peril at sea,” he adds. It’s not for nothing that the U.S. Navy spends $9 million annually on corrosion R&D, or that it is spending $5 million annually on four multiyear corrosion-related projects, or that it sponsors an annual conference, “Mega-Rust,” devoted to these issues. “[Coating] failure is not an option,” says Mark Schultz, Business Development Manager - Marine for Sherwin Williams. “To take a ship and put it in drydock for repairs can cost hundreds of thousands of dollars – even millions – in costs and lost revenues while the vessel is out of commission.” Corrosive failures are often more of an issue with application than materials. Getting it right the first time is paramount. But painting the insides of a ship is akin to painting in a closet in the dark, says Sherwin William’s McRae, particularly in the case of tanks, which are rife with nooks and crannies that are hard to see. Additives in Sherwin Williams’ Optically Active Pigments (OAP) coating make it easier to see holidays and pinholes to better aid quality control and cut down on the need for second coats, which in turn saves time and labor costs. A companion product, Fast Clad ER (“Edge -Retentive”) includes OAP but is formulated with almost 100 percent solids to stick to edges and dry quickly to combat physics. “When you look at old ships, the premature cause of

More to Coatings Than Meets the Eye Today’s marine coatings can contribute so much more to the bottom line than just a barrier between a hulking steel vessel and the elements. To make that happen, however, you are going to have to put more thought into choosing the right product. So before committing your assets long-term to just any type of coating, consider the cost/savings repercussions in the following areas: »» Speed – How quickly and accurately can the coating be applied? How fast will it cure? »» Labor – How many workmen working how many man hours will it take to prep the surface and apply the product? »» Cleanup – How much debris will prep work and application produce, both in the air and

By Patricia Keefe

in the area? How long will it take to clean the area and dispose of the debris? Does cleanup require more chemicals or soap and water? »» QC – How easy is it to check for “holidays” (missed spots) and to otherwise ensure complete coverage? »» Time – How much time do the above steps require? How long will your vessel and crew be laid up in drydock? How long can you expect the coating to last? »» Green – What’s the chemical makeup of the product? What’s going to leach into the water, and how much? What environmental regulations are in play in your shipping lanes and ports? Are there non-chemical anti-fouling options?

»» Crew – What are the temperature- and soundinsulating properties? What impact will they have on energy consumption and crew comfort and safety? »» Weight – How many coats, or other materials, at what thickness, are required? How will this affect vessel speed and fuel consumption? »» Flammability – Can the products be used where you need the barrier applied? The answers to any one, or combination, of the factors above can not only significantly raise or lower the cost of constructing, maintaining and operating a vessel, but they can also greatly influence crew comfort, environmental impact and long-term profitability. Clearly, there is much more to marine coatings than meets the eye.

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failures is almost always on the edges,” observes Mcrae. Corrosion is also an exterior issue, but this is where biological contaminants collide with environmental concerns. With copper-based anti-fouling coatings increasingly under fire, Sherwin Williams developed Seaguard Heavy Metal Free (HMF) foul-release coating, which it says is the only Mil Spec-approved marine MF technology. The combination of HMF anti-fouling in a lighter weight (by as much as 40 percent) formulation also adds to the fuel efficiency of the vessel. otherwise, estimates Schultz, a vessel could be looking at a 30 percent fuel penalty for driving a living reef in the water. The right coating can also cut application costs in a number of ways, such as by enabling shorter cure times and smaller work crews, and by leaving less of a mess to clean up.

it’s all in the preparation

“truckloads” of other media. “if you sand blast, you have to wait for the dust to fall and then wipe it off. if you water blast, it can promote flash rusting, and you have to wait for it to dry. You can paint right behind our crews; there is no wait time at all,” says Boye. His company prepped Keith Boye, Vice president of sales three Staten island ferries for and Marketing, precision iceBlast Marinette Marine - work that normally would have required six to eight weeks to hand-tool everything, says Boye. “We got that done in seven or eight 12-hour shifts running four guns, and they painted right behind them.” The sponge-blasting product is comprised of an aluminum oxide abrasive mixed in with tiny polyurethane sponges that suck up the debris, a process that generates virtually no cleanup and related costs, unlike traditional sandblasting, such as Black Beauty. Sponge blasting by comparison is 98 percent less dusty and produces one-tenth or less, the amount of waste, claims Boye. “That’s huge.” it does this in part by being recyclable as many as 10 to 15 times.

temperature control, noise abatement and Weight loss

Surface preparation and corrosion prevention aren’t the only areas where marine coatings can cut costs and add value. Houston-based Mascoat Products provides, among other offerings, spray-on thermal insulating and sounddampening coatings. its Delta T Marine insulation Coating is used to either replace or enhance conventional blanket insulation, which involves shooting a

photo credit: Mascoat products

if a quality coating job is 90 percent prep work, then the place to start looking for savings and added value is at the beginning of the process. Precision iceBlast Corp. of Wallace, Michigan offers two surface preparation products – ice blasting and “sponge” blasting. These sanding processes are environmentally and equipment friendly, nonabrasive, and are said to provide precision control. That accuracy enables users to blast weld seams without incurring collateral damage on the surrounding paint. iceBlast utilizes a high velocity stream of dry ice up to 300 PSi. The process is much quicker than hand tooling and can be used in places where sand or stripping media can not – such as engine rooms, around electrical components, or any area that can not get wet or have grit flying around. “our media vaporizes, leaving no mess and minus whatever was removed,” says Keith Boye, Precision iceBlast’s Vice President of Sales and Marketing. He described the difference in waste in terms of a 55-gallon drum versus

Marinecoati ngs

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s g n i t a o c e n i Mar

pin and pushing mineral wool or fiberglass squares on top of it. The latter work is dusty and requires personnel protection. Delta T Marine, by comparison, is environmentally safe, has a low VoC rating and is water-based. Since it is spray applied (with a less than five-foot dry fall), workmen can cover a wider area much faster. according to company President and CEo george Moore, steel is the perfect translator of heat applied, “once a piece of steel reaches saturation temperatures of say 140 degrees Fahrenheit – 140 degrees can be reached internally in a matter of hours depending on the hull color.” By applying Mascoat’s coating inside, even though the metal will still get to 140 degrees technically, the insulating barrier is able to become an absorber of heat, retarding its entry into the vessel. in addition, a reflective and refractive index is built into the coatings to reflect heat off the outer hull so that the hull is not absorbing 140 degrees anymore – but more like 120/125 degrees. as a result, Moore says, “We are not solving a symptom of heat; we are actually solving the problem of heat.” an unexpected benefit of Mascoat’s spray-on coating is weight loss. Moore says his coatings are typically a tenth of the weight of conventional insulations. “We’re talking about saving thousands and thousands of pounds per unit. Do your own math – it’s dramatic.” one such example involves

The Penetration Experts

Mascoat’s Delta dB helps to reduce internal and external sound, enabling vessel owners to better protect their crew and meet environmental regulations.

an offshore oil platform that sought to stop condensation effects to the interior environment by applying Mascoat’s coating to the outside underneath structure. But the biggest problem was that the vessel was overweight. according to Moore, Mascoat’s thin coating ended up saving over five tons of weight, creating an unexpected issue: “We saved them so much weight that they had to recalculate their center of gravity.” another Mascoat product line, Delta dB, targets sound

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photo credit: precision iceBlast

Marinecoati ngs

provides as much as 12 to 15dB(a) decibels’ reduction in a lightweight coating format by reducing the translation of vibration of movement in steel. “if retarded on the inside, it’s retarded on the outside.” Clearly, all of these and other coating products today do more than just cover the substrate. Speed of application, cleanup and curing, as well the photos above show the “before” and “after” of a motor cleaned via precision iceBlast’s iceBlast, a high as better performance, lighter weight velocity spray of dry ice. and more environmentally friendly formulations, not only protect the transfer. Moore cites both naval studies done on World War vessel but help owners spend as little time in drydock as ii veterans suffering hearing loss and pressure from oSHa possible. and as that can only lead to greater profitability in the long run, more and more ship owners are choosing their as reasons why ship owners such as the navy are going on the offensive to design ships with less vibration and sound marine coatings as if their bottom line depended on it. attenuation. Ship owners are also trying to make ships quiMar Ex eter in order to attract better crews and protect their health. patricia Keefe is a freelance writer, editor and blogger, “Hearing loss is really becoming one of the top occupational specializing in all aspects of the high technology industry, expenses,” he adds. including the business of IT and the application of technolMascoat also addresses biological noise abatement, which ogy for strategic advantage. Formerly Editorial Director for Moore says is expected to be a priority for the new adminComputerworld newspaper, she has written for a number of istration in regards to the green movement and a desire to publications, including Computerworld, InformationWeek. retard noise signatures into the water column. Delta dB V2 com, Optimizemag.com and Teradata Magazine.

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SOLVinGpiracY

solving piracy:

Maritime early Detection May Be the Key By Marex Staff

radio Zeeland pushes the envelope for robust, commercially Driven solutions to combat the Most significant threat to World commerce in 60 Years MarEx readers may or may not know that radio Zeeland DMP offers opportunities for small and medium-sized companies to market tailor-made electronic products without the expense of in-house manufacturing. Founded in 1970, this European-based, iSo 9001:2000 certified company has locations in Terneuzen, netherlands and Fort lauderdale, Florida. as a developer of navigation, automation, monitoring and integrated maritime control systems, the firm’s primary focus and expertise today is in inland Shipping and Short-Sea Shipping Systems and installation, oEM, and Mega-Yachts custom design and installation. CEo and founder David leone has also added to that array of products and services a full line of maritime security products. But leone is hardly a “newby” in the field and, at a time when the so-called “maritime security experts” are literally coming out of the teak woodwork, he has been developing cutting-edge, at-sea security systems since 1999. His early systems, designed for the mega-yacht markets, resulted in some sales, but with piracy much less of a factor then his efforts got only limited attention. That was then; this is now.

adjacent to the lawless country of Somalia, where desperate – and sometimes well-armed – thugs chase and board the soft targets of merchant vessels. The process usually follows a familiar pattern: a 45-to-60 day hostage situation, a sevenfigure ransom demand, a sloppy negotiation period, and the eventual release of the captured vessel and cargo. The loss of the vessel’s operating revenue during that period, subsequent inflation of insurance premiums for the operator, and expensive legal costs can and do dwarf the multimillion dollar ransoms that operators seem only too willing to pay. Despite an increasingly firm injection of international assets and strategies into the mix, the problem of piracy off the coast of Somalia is no closer to being solved today than it was six months ago. There may be no more troubling issue, aside from perhaps the gloomy global economy, on the plates of the affected operators, cargo shippers and merchant seamen. absent any sort of shore-based effort to prop up a legitimate government in Somalia, the expensive and hit-or-miss solution of sea-based naval assets is today the only viable defense against piracy. That could change and here’s why.

amortizing the cost of Modern piracy

solving the problem: Mitigate the threat

The headlines involving maritime piracy are almost old hat by now. an event occurs at least weekly, usually in the gulf of aden

There are plenty of options on the table. Shipowners first have to be prepared to pay the price for proven solutions, however, and then amortize that cost against the hefty price of future pirate attacks. The number and scope of proposed solutions from a myriad of “maritime security” outfits are staggering. Many involve arming the crews; most involve some sort of training (not a bad idea), and then there are groups that tout an onboard “sea marshal” presence during a particularly dangerous routing of the vessel. Each proposal has its advantages and drawbacks. The overt effort to provide offensive weapons to crews and/or employ hired guns invites the escalation of what has been – with notable exceptions – a largely nonviolent event into something which could (a) result in significant loss of life and (b) involve the disabling or sinking of a vessel carrying large volumes of hazardous cargoes. The environmental threat posed by the puncture of a tanker with an easily obtained rPg rocket launcher has been enough to give some

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SOLVinGpiracY owners pause before deciding to arm their crews. Beyond this, the rotation of crewmembers is rarely a linear or predictable event. Predicting who is going to be onboard when and ensuring that every crew member is properly trained to handle weapons is likely an impossible task. in stark contrast to other proposals, David leone has chosen to revive his self-described “commerce-type scenario” solution. as the real threat of piracy began to heat up in 2008, radio Zeeland proposed to help combat it with its MEDS™ (Maritime Early Detection System). This state-ofthe-art solution integrates a perimeter-sensor network and sophisticated infrared-tracking, day/night vision cameras with the onboard radar equipment. The key to success is the customized monitoring installed throughout the ship. optional remote monitoring at a central location or company headquarters is also available. additional options offer countermeasures that, when utilized, can effectively arm a ship with the necessary technology-based tools to help avoid a takeover by hostile forces. MEDS™ provides fulltime security and detection of a threat of any nature while alongside a pier, at anchor or far out to sea. Dave leone adds, “More importantly, the crew is kept from harm’s way.”

how it Works – and Why it Does

The multitier approach with cameras and radar work in tandem to identify a threat as it approaches. However, should the approaching craft be hidden in the seas and able to get alongside, the perimeter-sensor network will then give advance warning of a boarding attempt. at this stage, countermeasures such as lraD (long range audio Device) offer a strong deterrent with extremely high-intensity sound and voice warnings. leone explains further, “it is hard to climb a rope with your fingers in your ears. These solutions, coupled with radical course changes, can work to avoid a hostile takeover.” The Swimmer Detection option will likely have particular utility for military and naval units, especially in areas where the prevention of a “Cole-style” attack is especially critical. Using and incorporating the Sonardyne Swim-Detect System, the software is designed to distinguish among different

objects using inputs of speed, size and other factors. in this way, the user can differentiate between a log, a swimmer and a manatee. With an effective range of 800 yards, the advance warning provided by this system just might be the difference between life and death aboard a particular platform.

Menu-Driven: pick and choose Your one-stop solution

according to David leone, the least-expensive solution is advance Detection. and while shipowners may have a hard time getting their arms around paying for a system that may eventually cost them as much as $1.2 million to install, that sum may end up being a fraction of the actual cost of a piracy event. if leone has his way, a shipowner choosing his suite of system(s) may actually benefit from lower P&i costs. This might involve one, two or even three options. The MEDS™ package involves integrated systems designed to specific threat levels: pier side, at anchor and underway. any ship can be easily refitted to any level of ability, and the system(s) can be installed while the vessel is in service. For the cost-conscious operator (and who isn’t, in this day and age?) crew assistance with installations – performed while the ship remains in service in order to eliminate costly downtime – can also cut costs. leone’s unique concept also allows the system to operate with no user interface and can be fitted with “off vessel” reporting and monitoring. in short, radio Zeeland’s entry into the maritime security arena is based upon the simple premise of giving advance warning prior to boarding – thereby giving the crew time to take evasive action. For those shipowners who desire a particular function, without the others, radio Zeeland offers a menu of choices and price ranges. assuming the platform involves a large, deep-draft merchant vessel, the pricing of combination options is as follows: Solution Option A Option B Option C

Description Sensors Only/No Cameras LRAD/Sensors & Cameras Add-on Swimmer Detection

Likely Pricing $600,000 to $800,000 $1.2 million $500,000

M a r c h / a p r i l 2 0 0 9 | 53

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SOLVinGpiracY getting specific: robust equipment With a proven track record

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leone’s security equipment has already been proven in demanding conditions aboard smaller mega-yachts. although he cannot claim any sales to commercial operators today, he is actively talking to several about his products. Beyond this, he reports the Coast guard has shown interest in beta testing, especially with regard to port operations and what he describes as “pier-critical areas and contacts.” in answer to our pointed question about the reliability of high-tech equipment mounted in awkward places about the vessel and subject to the beatings that only an industrial, seagoing environment can mete out, leone replied, “our casings are all composed of carbon fiber and the sensors are sealed and submersible. Each contains a non-serviceable battery supply with dual communications capability – both Bluetooth and hardwired. a built-in heater keeps moisture out.”

Domain awareness – important then, important now

if former Coast guard Commandant Jim loy didn’t coin the phrase “domain awareness,” then it was probably he who made it part of the maritime security lexicon everywhere, especially in the wake of the events of 9/11. Similarly, radio Zeeland’s MEDS™ system aims to ramp up the domain awareness of ship and shore-based personnel using robust and readily available technology. For his part, David leone boasts more than 20 years’ experience in the U.S. Coast guard plus over 20 years’ experience with electronic systems integration in both private and commercial maritime applications. With a track record that includes the design and installation of onboard security systems for large ships and private yachts, he brings credibility to the equation. While the MEDS™ system may well have particular utility for the military, flag state coast guards, the Military Sealift Command and other government functions, shipowners, offshore oil platform operators and port authorities alike also have reasons to sit down and make the hard choices. a seemingly high front-end price may actually be the most cost-effective solution. Down the road, the prevention of just one piracy attack before it happens may eclipse the cost of an effective monitoring system many times over. and that’s something to think about. Mar Ex

Additional details about MEDS™ can be found at www.rzdmpa.com.

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Mascoat products Mascoat Products manufactures Delta T Marine Thermal insulating Coating and Delta~dB Sound Damping Coating. Both coatings are spray-applied, allowing for easy application to complicated geometrical surfaces. Both coatings can be used stand-alone or in conjunction with conventional insulation. They are the only insulating/damping coatings to have all major marine approvals.

precision iceblast corporation Precision iceblast Corporation offers a nationwide contracting service that specializes in Sponge Blasting and High Pressure CO2 Blasting. These technologies provide the latest, proven technology of cleaning and surface preparation that is the cleanest, safest, and most environmentally friendly methods available today. Our experience and capabilities save shipyards time and money. For more information check out our website at www.precision-iceblast.com.

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Seabulk Towing: Providing Service Excellence Through Safety

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Maritime Security

Domain Awareness Defined

Safety Enhancements Passive, But Critical

THE MARITIME EXECUTIVE H A R RY VA F I A S | VA F I A S G R O U P

Standard of excellence

Marine Coatings Spray on the ROI

March/April 2009

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Group Also in This Issue:

Offshore LNG - Italian Style Washington: New Energy Policy?

the Netherlands

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The Maritime Executive Magazine - March/April 2009  

The Maritime Executive Magazine, Articles, News and Pressreleases relating to the Maritime Industry

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